Ensuring Your Legacy: Comprehensive Estate Planning and Tax-Efficient Strategies

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Do you know the true importance of a comprehensive estate plan beyond just writing a will? Rob Wolf guides you through the essential elements of legacy planning. In this episode, we explore why it’s critical to have a durable financial power of attorney and medical directives in place to manage your affairs if you become incapacitated. We'll discuss the necessity of keeping your beneficiary designations up to date to avoid unintended consequences and dive into the complexities of designating beneficiaries, especially when minors are involved. This episode is a must-listen for anyone who wants to ensure their legacy is well-protected and their loved ones are cared for.

Get ready to learn about tax-efficient strategies that can make a significant difference in your estate planning. We'll explore how proper beneficiary designations on pre-tax retirement accounts like IRAs, 401(k)s, and 403(b)s can maximize benefits for your heirs and charitable organizations. We also unpack the implications of the Secure Act 2.0 on inherited IRAs and the potential tax burdens it poses on your children. Balancing lifetime tax efficiency with minimizing the tax impact on your heirs is vital, and we’ll show you how to do it. Plus, we emphasize the value of creating lasting family memories as an irreplaceable part of your legacy. Don't miss this insightful discussion that combines financial wisdom with heartfelt advice on safeguarding your future and your family's well-being.

Learn more about Wolf Financial Advisory:
https://www.wolfadvisoryservices.com/

Disclosure: Robert Wolf, James Koenig, Sara Wolf, and Michael Rock are investment advisor representatives of, and securities and advisory services are offered through, USA Financial Securities. Member FINRA/SIPC. Additionally, Amanda Opulskas and Adam Wallace are registered non-solicitors of USA Financial Securities, A registered investment advisor. 6020 E. Fulton St., Ada, MI 49301. Wolf Advisory Services and Wolf Financial Advisory are not affiliated with USA Financial Securities.

The strategies and concepts discussed are for educational purposes only and do not represent specific investment, tax, or estate planning advice. Investing carries an inherent element of risk and it is in everyone’s best interests to consult a tax, legal, or investment professional. The opinions expressed herein are not meant to provide specific investment advice or serve as a prediction for future stock market performance. Past performance does not guarantee future results. Securities and advisory services are offered through USA Financial Securities, member FINRA/SIPC. A registered investment adviser. Wolf Financial Advisory and USA Financial Securities are not affiliated entities.

Episode Transcript

Voiceover (00:00):
The strategies and concepts discussed are for
educational purposes only and donot represent specific
investment, tax or estateplanning advice.
Investing carries an inherentelement of risk and it is in
everyone's best interests toconsult a tax, legal or
investment professional.
Past performance does notguarantee future results.
Securities and advisoryservices are offered through USA

(00:22):
Financial Securities memberFINRA/ SIPC, a registered
investment advisor.
Wolf Financial Advisory are notaffiliated with USA Financial
Securities.
Wolf Financial Advisory.
When it's important to you,it's important to us.
This is the Wolf FinancialPodcast.

(00:42):
Here's your host, Rob Wolf.

Rob Wolf (00:51):
Good day everyone.
Rob Wolf here with the WolfFinancial Podcast.
Today we're going to be talkingabout legacy planning.
A lot of people think, oh,legacy planning is going to talk
about when I die and all thatstuff.
Well, there is that and thatisn't really the most pleasant
things to be talking about, butbecause we're all adults, we

(01:12):
need to have that conversation.
But you know a lot of peopleand it really is surprising to
me sometimes it doesn't matterthe financial status that
someone is in.
The vast majority of peopledon't have a properly planned

(01:33):
estate plan.
I am shocked when I seemillionaires have nothing.
They say well, you know, I wentto Costa Rica and I decided to
write out a will on this brownpaper bag here because I needed
to have something in place.
Well, we don't want a beconsidering, when building an

(02:16):
estate plan for yourself andyour family, where we talked to
our clients about what does theprocess look like, what are some
of the things they need to bethinking about, and then get
them in front of a qualifiedprofessional to actually take
care of the nuts and bolts ofthe planning process, such as
drawing up the documents.

(02:38):
Okay.
So, first of all, estateplanning isn't just about when I
die, because some people say,well, when I die I don't care.
But you know, when I do care iswhen I'm alive.
And when I'm alive, I want tomake sure that there are people

(03:00):
that are in place that will beable to handle my financial
affairs if I'm unable to, forwhatever reason, or there are
people in place that will beable to make medical decisions
for me if I am unable to at thattime.

(03:22):
That's when I really care.
In fact, I would argue that itis better to die without a will
or trust than it is to livewithout a power of attorney
document.
For that exact same reason, ifI'm going to California on

(03:48):
vacation and I have somefinancial business that has to
be done in person that came upunexpectedly here in Michigan,
wouldn't it be nice to have atrusted person to be my advocate
, to take care of that businessfor me?

(04:09):
That's what a durable financialpower of attorney is all about
Having somebody to act in yourplace when you can't do so
yourself.
How about the medical directive?
How about the medical directive?
Making sure that somebody isgoing to act in your best

(04:38):
interest, based on what you'veexpressly shared, that it is
your wishes, should somethinghappen to you medically.
That's part of the estateplanning, folks, to make those
living documents so that otherscan take actions on your behalf
if you can't.
Power of attorney documents verysimple.
What's not so simple is who doI choose to be my advocate, to

(05:02):
be my fiduciary, to take onthose roles?
Is it a trusted family member?
Is it a trusted friend?
That's the hard part whenthinking about estate planning.
Who's going to be in control?
If I can't, maybe it's myspouse, maybe it's one of my

(05:24):
kids?
I can't, maybe it's my spouse,maybe it's one of my kids, but
who's going to be in control?
Then, of course, we have thewhat we call the death documents
.
Right, the will, the trust.
This is who I leave everythingto.
Here's the problem, folks, thata lot of people don't understand
, especially when it comes tofinancial planning.

(05:44):
Did you know that a beneficiarydesignation on one of your
accounts trumps your estate plan?
So, in other words, if I leaveeverything to my wife and

(06:05):
perhaps this is my secondmarriage, let's say I leave
everything to her in my will andtrust, but I forget to update
the beneficiary designation onmy 401k says the primary

(06:26):
beneficiary is my former spousethe ex.
Guess what happens?
The former spouse gets themoney.
It's contractual, it can't becontested, because my will says
everything goes to my new spouse.

(06:47):
So proper estate planning alsoinvolves making sure that
youiary designations are donecorrectly, the way you want them

(07:10):
to.
Probably a lot of people outthere are probably thinking oh
my gosh, I don't even know who Ilisted as my beneficiary.
Well, for most people, ifyou're married, it's going to be
your spouse, right?
That's pretty simple.

(07:30):
And then I'll see a lot oftimes people go ahead and they
add what's called a contingentbeneficiary on their accounts
and they list out their childrenbecause they're the ultimate
ones that are going to receivethe legacy when mom and dad are
gone.
Well, that makes all the sensein the world.
But what if my kids are minors?

(07:51):
They can't inherit any moneyuntil they turn of legal age.
Some states that's 18.
Some states that's 21.
So what if me and my wife aretraveling, we're going on date
night, we got a 16-year-old anda 17-year-old and a 13-year-old.

(08:13):
We've listed our three kids asthe contingent beneficiaries and
were killed in a car accidentthat night.
Well, first of all, none of thekids can inherit the money.
They have to wait till theyturn of legal age.
The second issue is when theydo turn of legal age, they get

(08:36):
all the money at one time fromthat account.
Now let's say legal age is 18.
How many kids, no matter howresponsible and how good they
may be, can handle a significantwindfall at 18 and do the right

(08:58):
thing with it?
Significant windfall at 18 anddo the right thing with it, I
would argue.
If you've never had moneybefore, how can I expect you to
be able to handle it well,especially with big lump sums?
Where could those lump sumscome from?
401ks, iras, roth IRAs,annuities?

(09:19):
But the big one, life insurance.
How many people out there havewhopper of life insurance
policies, especially whenthey're young?
Millions and millions ofdollars a term life insurance.
Your estate doesn't have to bethat big during your life for

(09:40):
you to leave a massive estateupon your death.
That's actually one of themiracles of life insurance.
It creates an immediate estatewhen there was no estate to
begin with.
But again, when it comes tothose beneficiary designations,
we got to make sure that ifthere is going to be a huge

(10:02):
immediate estate, if somethinghappens, then we have to think
through what's the best way toleave these dollars to.
My ultimate beneficiary is myspouse.
If my ultimate beneficiary is mychildren, if I have minor

(10:28):
children, should I be leavingthis money in trust for them so
they don't inherit it all at 18,but that they get it over a
period of years so that it cantake care of their support and
maintenance as they're growingup.
And then they get little chunksat a time.
Perhaps they get that firstchunk maybe a third of their
principal at age 23, right aftergraduating from college.

(10:51):
Well, maybe that third thatthey get.
Maybe they don't handle thattoo well, but it will be a
learning experience one way oranother, so that hopefully, if
they didn't handle it well thefirst time of distribution,
perhaps five years later, whenthey're 25, they get 50% of the

(11:14):
remaining balance.
At that time they have morelife experience.
Maybe they have kids, maybetheir perspective on life has
changed a little bit, they'remore mature, and then ultimately
, sometime in their 30s, maybethey get the last chunk of the
money at that time.
I'm a very big proponent,especially with people that have

(11:38):
children, minors, in thehousehold, regardless of how
well and well-behaved these kidsare and how well-adjusted they
are.
You cannot expect your kids tounderstand how to handle money
if they've never handled itbefore.

(12:00):
You should never put yourchildren in a position where
they will most likely fail.
Proper estate planning isthinking through your family
dynamics.
Okay, also, how do I want toleave my money?

(12:21):
I got all sorts of differenttypes of money that I want to
leave.
Maybe I have IRAs, maybe I havelife insurance, maybe I have
Roth IRAs.
Well, what if I have somebeneficiaries that aren't people
?
What if I have some charitableintent with some of my estate?

(12:42):
Maybe I want to give a chunkupon my death to my church or
some sort of charitableorganization that has meant a
lot to me during my lifetime?
What's the best money to leaveto a charity at death?

(13:04):
Have you ever thought aboutthat?
Would I want to leave thecharity money that my living
beneficiaries would otherwisereceive income tax-free, or
would I want to leave money tothat charity that otherwise
would be taxable to my livingbeneficiaries at my death?
If you have charitable interestduring your lifetime to leave

(13:28):
some nonprofit, some money atyour death, you may want to
consider manipulation of yourbeneficiary designations,
especially on your taxable IRAs,401ks, 403bs, where a portion
of those distributions would godirectly to the charity Because

(13:50):
when they're a nonprofit,they'll inherit those dollars
that would normally be taxableto living people.
They'll inherit those dollarswithout any tax.
All we're doing is cutting outUncle Sam out of the equation.
All the after-tax money, allthe Roth money, all the life

(14:11):
insurance proceeds a lot of thatshould go to living people, or
should be at least considered togo living people.
Why?
Roth IRA received incometax-free After-tax money or
after-tax assets, house anythingthat's appreciated over the
years, step up in cost basis atdeath.

(14:34):
No tax, life insurance One ofthe biggest underused financial
assets out there.
All income tax free upon death.
Those are the types of assetsthat we should consider leaving
to people.

(14:55):
Okay, if you want charity inyour estate plan, consider
incorporating that viabeneficiary designation on your
traditional IRA 401k, 403b, soforth, okay, forth, okay.

(15:18):
All we want to do is give moreto the people that we care for
tax-free and to our charities,tax-free.
There's nothing wrong withcutting the government out
because they allow this.
We're not.
We're not skirting any taxissues here.
This is perfectly legal and itshould be something that you
should be considered whenbuilding out your estate plan.

(15:41):
The other thing to be thinkingabout when you're thinking about
the overall construction ofyour portfolio and your legacy.
Well, maybe I don't have anycharitable interest I'm going to
leave it all to the kids butthe vast majority of my wealth
is in pre-tax dollars IRAs,401ks, 403b, so forth and I'm

(16:06):
just taking out my requiredminimum distribution, and maybe
it's a lot.
Maybe it's 30, 40, 50.
Some people have requiredminimum distributions well in
excess of a hundred thousanddollars per year.
Okay, if you have that much inpre-tax assets and and you

(16:27):
already got an idea of how muchtax you're paying on that
imagine what's going to happenwhen that money passes down to
the next generation, most likelyyour children, if you have
children Based on the Secure Act2.0, your children, if they are
your ultimate beneficiaries,will only be able to stretch

(16:51):
those taxable dollars up to 10years.
So if I leave a million dollarsof IRA money to my two children
and they do the right thing,they roll it into an inherited
IRA, which reduces the taxliability up front, but then

(17:12):
they got to distribute it allover 10 years.
Okay, we got to think about notonly taxes on our side of the
ledger, but taxes on their sideof the ledger too.
Do you want to be more taxefficient while you're alive, or
would you rather be a littleless tax efficient while you're

(17:36):
alive, building more tax-freedollars?
So ultimately, when thosedollars transfer to your
ultimate beneficiaries, they'llreceive them on a tax-favored
basis.
That is a strategic decisionthat every client needs to make.
Do I be tax efficient now andlet the kids pay more, or do I

(18:00):
take a little bit more of a taxhit now, especially while the
tax code's good, and try toleave them some more money now?
There's no right or wronganswer, but what I would say is
this and this is sort of mythought process when thinking
through this you may have beenone of the fortunate people to

(18:25):
have worked for a company wherea pension was provided for you.
You you certainly are one of thefortunate people if you're in
your mid-60s, on where you'regetting social security now.
You had guaranteed safety netsbuilt in for you during your

(18:48):
work career.
What kind of guaranteed safetynets do you think your kids have
moving forward?
Are they going to have pensionslike you did?
Are they even going to havesocial security in the same
format that you're receiving now?

(19:09):
Now, I think most people wouldagree that our children's
generation is actually in aworse position than the parents'
generation because of a lot ofuncertainty, a lot of

(19:31):
mismanagement and just the factthat many companies are choosing
not to go with the pensionroute like they used to.
If you're going to be leavingmoney to your kids, you need to
ask the question do I want toleave the vast majority of this

(19:51):
money where they're going tohave to pay taxes on it in a
very uncertain future taxenvironment, or would I rather
leave them more money on a taxfavored or perhaps tax free
situation, situation where atleast, if they don't have the

(20:18):
social security, if they don'thave the pensions, at least
they're not going to lose athird or more of their legacy to
income taxes?
That's part of the legacyplanning too.
It's not just about thedocuments, but what your
philosophy is as far as how youleave your assets.

(20:39):
The other thing that I like tostress is your legacy isn't just
the money that you leave.
It's the memories that youcreate along the way, and I many

(21:01):
times am encouraging my clientsthat family is a big part of
who they are.
To be doing those family trips,creating those family memories,
because, when everything's saidand done.
Money's great, but it's thememories that you created along
the way that is going to be thethings that are going to stay

(21:24):
with them for the rest of thelife of their life and also
create the people that you hopeto model after.
This is Rob Wolf with the WolfFinancial Podcast.

Voiceover (21:42):
Thank you for listening to the Wolf Financial
Podcast.
For additional informationabout our firm, please visit our
website wolfadvisoryservices.
com.
Wolf Financial Advisory.
The strategies and conceptsdiscussed are for educational
purposes only and do notrepresent specific investment,

(22:03):
tax or estate planning advice.
Investing carries an inherentelement of risk and it is in
everyone's best interests toconsult a tax, legal or
investment professional.
Past performance does notguarantee future results.
Securities and advisoryservices are offered through USA
Financial Securities Member,FINRA/ SIPC, a registered
investment advisor.

(22:24):
Wolf Financial Advisory are notaffiliated with USA Financial
Securities.