Ep 5 - Maximizing Your Wealth: What to Do When You Inherit Money

hosted by Jeb Graham, Ethan [: 00:00:15

Now your hosts.[00:00:30]

ks for coming guys. And, uh, [: 00:00:45

So my office is a little hot. So if my face looks flush, that's what's going on here. But Hey, it's, uh, it's great. To be here today. And I think, so today what we want to talk about is, is inheriting money. We actually [00:01:00] had Eric Rome on here recently and he was talking about just estate planning. So that would be for an individual that wants to put together an estate plan.

, we're getting ready to get [: 00:01:15

Okay. And what that is, is if you think about it, we've got the baby boomer generation and more money is going to change [00:01:30] hands than ever before over the next 20 and 30 years, uh, actually have some statistics on that. And, uh, this is all according to chat GPT. I was doing a little bit of, um, you know, just research yesterday and they're saying that, and by the way, this is a huge range, but they're saying that between.[00:01:45]

trillion, approximately [: 00:02:00

Per those 45 million households is 177, 000. [00:02:15] So, and we all know this, that it doesn't matter if you inherit 5, 000 or 5 million. There's still a process that you go through and it can still be a tedious process, uh, regardless of how much money it is that you're [00:02:30] inheriting. And I think there's a few things that we want to talk about today.

eday from about during their [: 00:02:45

And I think what we talked about and Eric and Ethan, we talked a little bit about this is just, we were going through earlier, just some case studies of our clients that we've been through that have inherited money. And I want to go through. One of them that was very, very recent. And I think this is a [00:03:15] really good lead in to this preventative care.

caretaker for an individual. [: 00:03:30

And after he passed away, she learned that she had inherited about a million and a half dollars from him. Um, along with, with it. With her caretaker's kids. So [00:03:45] she was basically the third kid in the, in the transaction, if that makes sense. And basically she came in, she needed help, right? She needed help kind of finding all these dollars.

ounts she was inheriting and [: 00:04:00

And in a lot of these, uh, like four or five of them were inherited. I were. IRAs that she was inheriting, meaning she had to do [00:04:30] one inherited IRA, but she had to go to five different institutions to kind of get these things together and really made me kind of step back and say, there were some things that she, that, that, that, that, you know, that the individual that she was inheriting money from [00:04:45] really could have done to streamline that process and, and make, make it a smoother transition.

So, and those are things we're talking about this Eric, that we would. Consider preventative care issues, right? Absolutely.

back to that initial number [: 00:05:00

And, uh, better be, people better be prepared. And you mentioned preventative care, [00:05:15] like, and I thought about that term, like, that's a really good term. You should trademark that part. When you, when you talk about it and you're trying, you know, when you talk about healthcare, you're trying to do some preventative care to make sure that.

u know, you're eating right. [: 00:05:30

Um, one of those things. You know, you got to plan ahead. You got to do this with a sound mind and you got to have some open [00:06:00] communication with your loved ones. Uh, whether that be, you're in a situation where you're going to need to take your parents to this, uh, to maybe the estate planning attorney, or you're going to be taking your kids to the estate planning attorney or financial advisor, but you definitely have to be [00:06:15] willing to plan ahead and have some kind of sound mind and some open communication.

with the distribution of the [: 00:06:30

Got to look where they're at all, all of your, your other investment accounts, where are they at or who are they with who's the financial advisor, uh, that you're [00:07:00] working with, um, You know, you mentioned a couple of the online stuff you don't even think about anymore. Yeah. The digital footprint nowadays that, I mean, my grandpa's 98 and he's got Facebook.

username and password is, he [: 00:07:15

And it's a big proponent in everybody's life. So keeping passwords in a centralized [00:07:30] location is. Is definitely something we would recommend. Yeah, that Netflix, uh, you know, subscription is still going to come. Still going to come along and going to get dinged every, every month. And, you know, there's some other things, you know, proof of ownership, vehicles.

d of cemetery, plasper, real [: 00:07:45

Um, you know, another thing you want to make sure that you do is you, you title things correctly, um, a good way to pass along, and this would have been beneficial. You know, [00:08:15] certainly with your case that you went through, Jeb is some of these. You know, beneficiaries, and there's a couple of ways to do it.

There's the, the retirement type of accounts, and then there's the non retirement accounts.

think there's a lot of, um, [: 00:08:30

And the reality is, is if you, there's certain accounts that that is true for, you know, when you're, when you're talking about an [00:08:45] IRA, a Roth IRA, an annuity. A life insurance policy. When you open those up, you're required to name a beneficiary. You just go into a bank and you open up an account. Or if you even, even with us, you know, we obviously it would never happen to one of our clients because we [00:09:00] tell them to put a transfer on death.

But if you go into XYZ custodian and open up an investment account, if it's not an IRA, that's something that you physically have to make sure that they put a transfer on death on there. And it's not necessarily automatic.

Eric Wymore: Absolutely. [: 00:09:15

And we talk a lot about this with clients and that's financial planning. There's always the kind of that extra beneficiary for, um, that you [00:09:30] might not even know about. That's the tax guy. There's always going to be some, you know, some particular accounts. We're going to get into that a little bit more, but there's definitely things that you want to do now.

able to do so and not at the [: 00:09:45

Jeb Graham: Yeah. Oh yeah, for sure. So that, yeah, that particular one. And that's a good, I actually hadn't thought about that, but it was, it was, she was the beneficiary of a beneficiary, if that makes sense. [00:10:15] So, so in essence, the original account was owned by one person and then the person she inherited it from inherited it from that person.

account that [: 00:10:30

So not to get into the weeds, but the [00:10:45] point is, is for sure, uh, I think one of the themes and one of the keys is, is consulting professionals, right? Whether that's a state planning attorney and especially a financial advisor as well. Absolutely.

d, you know, looking forward [: 00:11:00

Um, you know, that's a blanket statement, but when, when we look at all the accounts that you possibly could inherit from a traditional IRA or traditional 401k, Roth IRA, Roth [00:11:15] 401k, just a joint account. A TOD account, trust account, um, you look at vehicles, tangible property, any valuables such as jewelry or gold bars, even that some people might keep in the safe, all those at some point in someone's life will pass [00:11:30] down to somebody and how those are taxed.

hey get to step up in basis. [: 00:11:45

So I kind of got to step on my own toes there, but you got to gain [00:12:00] there. Okay. So at the end of the day, you sell that house. You're, you're looking at capital gains tax. Well, if you're your son or your daughter, someone inherits that they get to step up in basis. And they, they now have a 600, 000 house.

back and worry about capital [: 00:12:15

Come along with it as a really attractive method.

omes up in the rewriting tax [: 00:12:45

And, uh, I mean, it's, it can be such a big deal for certain people when they're inheriting money. And like, if in the example you gave and like, say, even a more extreme example of [00:13:00] somebody that paid a hundred thousand dollars for a stock. And now that stock's worth 2 million, because they've held it for.

thousand dollars, right? And [: 00:13:15

And it's a big, it can be a really big planning tool for people.

le Sam usually wins in those [: 00:13:30

Jeb Graham: Yeah.

ve years is, you know, before: 2020

Uh, those distributions of that inherited IRA based upon, you know, your life cycle or your, your lifespan. Now, the IRS has implemented the 10 year rule. So, when you [00:14:00] inherit an IRA from, let's say, your, your family, so your, your parents, that comes to you as a non spousal. Um, non spousal IRA. So that would be a beneficiary, right?

and passes away, you kind of [: 00:14:15

If you had a good example [00:14:30] earlier, or when we were talking earlier today, it's a 1 million IRA. You need to take out about a hundred to 150, 000 of that a year. And that gets added on to your tax bracket. And typically when you inherit [00:14:45] money, on average, you're in your forties, fifties, or sixties, and you're later on in your career, you're making more money than you've ever made, so your taxes are going to be high.

t of strategies around that. [: 00:15:00

Eric Wymore: Absolutely. That, that, [00:15:15] that's again, kind of goes back to that preventative care. And if you're able to, you know, at age 73, and you're having this required minimum distribution that you're required to take money out of your IRA. Or your 401k every year, [00:15:30] but yet you don't really need it necessarily. You might be one of, you know, you, you saved money elsewhere.

n. You can take a little bit [: 00:15:45

You can put that into a rock [00:16:00] conversion. You can invest it in a non retirement. Now, all of a sudden that growth can stay in there, continue to grow, and we'll get a bump up in basis when that time comes. So those are all strategies [00:16:15] rather than just, you know, waiting to the last moment or so to speak. But if you can do some preventative care on the front end, it could save you thousands and thousands of dollars and could potentially save you thousands and thousands of dollars in taxes in the future.

Absolutely.

Jeb Graham: And back [: 00:16:30

So, and we've done this actually, we've gone through a planning software to figure out how much, given a, say a 7 percent rate of return, how much do we need to take out of that thing every year in order to have it drained after 10 years? Because what you want to avoid [00:17:00] is that one big year, like say in year number 10, you get a million dollar IRA, but you have 500, 000 left.

um, it was really saying you [: 00:17:15

Eric Wymore: So think about that. You're 55 to 65 years old. That's when you [00:17:30] inherit your, your, your, your dad's IRA. All of a sudden you have to drop a hundred thousand bucks into your tax bracket when, you know, his tax bracket's at 22 percent and 28 percent or so on. I mean, that's That's significant [00:17:45] dollars.

Ethan Hutcheson: Yeah, and there's, I mean, we could go, we could spend another two hours on this podcast talking about strategies or case examples and, you know, things that we'd seen or things that we wish our clients would have done different or filled us in on earlier.

Um, one that, that strikes [: 00:18:00

And we kind of uncovered it and we found out that she inherited about a 70 to 80, 000 IRA and just cashed it out. [00:18:30] And she just didn't know about the rules or how she could have stretched that maybe spaced out over two years or three years or five years even. And she just. Cashed it out all in year one.

you work with in the loop on [: 00:18:45

Jeb Graham: So to, to move through. So, so I guess, uh, we talked about inheriting IRAs. I guess one other thing is annuities and life insurance, right?

Um, annuities, and [: 00:19:00

Inheriting money, all these problems are good problems to have, right? They're, they're blessings, but at the same time, sometimes people do it inefficiently. And, uh, annuities in general, when people buy non retirement or non qualified [00:19:30] annuities, those suckers can be, um, you know, harder to inherit just because of the tax, tax, taxability of them.

So,

ome of them are stretchable. [: 00:19:45

And that is, correct me if I'm wrong, ordinary income? It's

, and it's taxed at ordinary [: 00:20:15

That you can't stretch it over multiple generations, right? So somebody's agreeing that, um, and then again, back to the preventative care, not pooh poohing annuities. We, I [00:20:30] think they have their place. We do them at certain times, but when it comes to estate planning, uh, they're not one of the more efficient vehicles for sure.

So,

ce. I don't know if you guys [: 00:20:45

Um, you're the beneficiary, you receive the million dollars, it's your million dollars, you can put it in the bank, you could put it in a [00:21:00] taxable account, fund, what, you can do whatever you want with it. Um, there's no taxability, uh, along those lines when, when you inherit or, or sorry, when you are the beneficiary of a life insurance policy.

d of leads us actually into, [: 00:21:15

And I'll give you some, uh, stats on that is that, uh, there, there's an exemption. Okay. So you don't pay a state taxes unless you inherit more money than what the exemption is [00:22:00] right now for an individual. The exemption is 3. 99 million, basically 14 million. And for a married couple, it's 27. 98 million. So basically 28 million.

estates for, if say both of [: 00:22:15

Well, $32 million of that is gonna be subject to estate taxes, which is gonna equate to somewhere in that 15 to $16 million of estate tax. [00:22:45] So bottom line is if you're, if you're in middle America and you're inheriting money, the chances are. You're not paying estate taxes. However, that year that you inherit money, there are taxes that have to be paid in the form of an [00:23:00] income tax for whoever passed away for your loved one.

you're going to have to file [: 00:23:15

And you're also going to have to file one on the estate for what happens between when they pass away and the estate is settled. So there are some of that, but I think there is a preconceived notion that when you inherit money, a big portion of that [00:23:30] goes to taxes and kind of to what you were talking about earlier, Ethan, is that.

ody that's advising you all, [: 00:23:45

So. Um, but anyway, I mean, I mean, I feel like this has been a super productive day and, and podcasts. And I know there's just so many people that this is relevant for, [00:24:00] and it's becoming more and more people that it's relevant for. And it's, it's, uh, you know, it's a generation of people that are going to be inheriting money as well as a generation of people that are trying to get their estate plans together, uh, for their heirs to be able to inherit money.

I think. The more [: 00:24:15

And

Eric Wymore: so, um, you can save thousands of dollars and thousands of dollars in taxes and hours and hours of time.

and hours of time are more, [: 00:24:45

And then it's just like trying to put a puzzle together on the other side of that, which when you're already going through an emotionally [00:25:00] challenging time. And so, uh, so I think just as prepared as most adults can be.

hought out, uh, estate plan, [: 00:25:15

It still takes some time and it's not a situation where this thing gets wrapped up in the matter of two or three [00:25:30] weeks. Um, it does take some time to. You know, to, to order that certificate and I think we've talked about this before order a half a dozen or a dozen, you know, depending on how many you think you need, order a couple more.

[: 00:25:45

And that goes back to what you originally said. It doesn't matter if it's a 5, 000 or 5 million, there's still a number of steps that have to be taken.

Jeb Graham: I think that's a [: 00:26:15

It still doesn't mean that it's going to be a perfect or an easy process. We're just trying to make it [00:26:30] easier. Right. And that's kind of the goal. Um, anyway, so this has been a great day and, uh, Eric, Ethan, thanks for jumping on and it's been a great, uh, or thanks for co hosting. It's been a great day. And this is the Metcalf Money Moment, [00:26:45] the podcast.

Thank you for joining and we will be seeing you soon. See you guys next month. Bye now.

the podcast. We hope today's [: 00:27:00

Disclaimer: Jim Graham, Ethan Hutchison, and Eric Wymore are registered representatives with and securities offered through LPL Financial member FINRA SIPC. Investment advice offered through WCG Wealth Advisors, a registered investment advisor. WCG Wealth Advisors [00:27:30] and Metcalfe Partners Wealth Management is a are separate entity entities from LPL Financial.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

ll performance referenced is [: 00:27:45