#23 | Leaving an Inheritance to Your Kids

Deciding what to leave to your children – and how to do it – is a challenging topic to bring up. But it’s crucially important to take care of this now while you are still able.

Some parents want to spend down their life savings and enjoy their retirement. Others pinch every penny so they can leave a larger inheritance behind. And for those leaving an inheritance, some choose to leave it in the form of a lump sum. Others prefer to leave an income stream that can’t be easily spent.

However, one thing that’s easy to agree on is wanting to leave as little a tax burden on your heirs as possible. Today, I will talk about how to pay a little more now in order to cut your kids’ tax burden when you’re gone.

Also, I will walk you through the non-trust estate planning documents that must be kept current.

  1. Retirement account (IRA, 401K, etc. . .) beneficiary designations.
  2. TOD, and POD designations on bank and brokerage accounts where appropriate.
  3. Titling of assets correctly. (Real estate, cars, collections)
  4. Lists of personal belongings with assignments of your wishes (guns, gold, silver, jewelry, collections, and artwork)
  5. Life insurance beneficiary designations.
  6. A current-net worth statement

One of the most important things to do is clearly communicate your wishes with your family. This communication should be in writing and could also be shared during a family reunion or even on a Zoom call!

We also cover some tricky topics – what if you have children or grandchildren you’re estranged from? Or what if you have a child that may need more of a financial “hand” than a sibling? Equal is not always fair, and vice versa!

Also, consider who has the right mindset and acumen to execute your estate. Successor trustees and beneficiaries are two very different things!

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management.

Call the Prescott office at (928) 778-7666 or our Scottsdale office at (480) 994-7342.

To listen to more Protecting & Preserving Wealth podcast episodes, click here.

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Podcast Host

Bruce Hosler Image

Bruce Hosler is the founder and principal of Hosler Wealth Management, LLC., which has offices in Prescott and Scottsdale, Arizona. As an Enrolled Agent, CERTIFIED FINANCIAL PLANNER™ professional, and Certified Private Wealth Advisor (CPWA®), Bruce brings a multifaceted approach to advanced financial and tax planning. He is recognized as a prominent financial professional with over 27 years of experience and a seven-time consecutive *Forbes Best-In-State Wealth Advisor in Arizona. Bruce recently authored the book MOVING TO TAX-FREE™ Strategies For Creating Tax-Free Retirement Income And Tax-Free Lifetime Legacy Income For Your Children. www.movingtotaxfree.com.

In the Protecting & Preserving Wealth podcast, Bruce and his guests discuss current financial topics and provide timely answers for our listeners.
If you have a topic of interest, please let us know by emailing info@hoslerwm.com. We welcome your suggestions.

*2018-2024 Forbes Best In State Wealth Advisors, created by SHOOK Research. Presented in April 2024 based on data gathered from June 2022 to June 2023. 23,876 were considered, 8,507 advisors were recognized. Not indicative of advisor’s future performance. Your experience may vary. For more information, please visit.

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Jon “Jag” Gay:  Welcome to episode number 23 of Protecting and Preserving Wealth. I’m Jon Jag Gay. Today I’m joined by Bruce Hosler of Hosler Wealth Management. Bruce, it’s always good to sit down with you.

Bruce Hosler: Great to see you and be with you today, Jon.

Jon: Today we’re talking about leaving an inheritance to your kids, and I know this is a touchy subject for a lot of people, but it is so important.

Bruce: Very important. I like talking to clients about their goals, about leaving or not leaving an inheritance to your children. It’s a great and very rich topic.

Jon: Right. It does sound interesting. You did say leaving or not leaving, which I thought is interesting. We’ll get into that a little bit later, but how do you even bring this topic up? It’s gotta be difficult.

Bruce: It’s a great metaphor that I like to use on this topic. So, I tell people that most of them will rank themselves somewhere on a spectrum. And the spectrum on one end that I use is an older lady wearing a shawl. She’s owned it for 40 years. She’s eating beans and rice because she is so determined that she wants to leave a large inheritance to her children and her grandchildren. And then on the other end of the spectrum is the couple that feels like they paid to send their kids to college. They’re now empty nesters and they want to enjoy their retirement while their health is good. And while it allows them and permits them to do everything they want to do.

Knees work, hips work, everything like that. And they feel like they’ve already done enough for their children. And if something’s left over when they die, that’s okay. And if there’s nothing left over, they’re okay with that too.

Jon: Well, there you have it, people on both ends of the spectrum. Where do most people come down on this entire spectrum, Bruce?

Bruce: It’s kind of interesting. They come in the middle. Clients feel comfortable financially when they’re able to afford to leave something to the kids, but they’re not really concerned about leaving a big amount. So, they’re more concerned about having a comfortable retirement. And then on the other hand, they might feel if they’re gonna be a little tight in retirement, many of ’em hope they’ll leave something, but they are more concerned about their quality of retirement.

So, most people try and control the inheritance that they leave to the children and whether they want to control it from the grave or not. That’s another question.

Jon: Okay. Do people usually try and control the inheritance from the grave?

Bruce: You know, I ask clients how they’d like to leave their money to their heirs, and if you’d like to leave it to your kids in one big lump sum so the kids can spend it in any way they want.

Like if they wanna blow it or not. Or would you rather have them leave it in some sort of a income stream that you can potentially provide your children and possibly your grandchildren. And even, would you like to leave it tax free for the rest of their lives?

Jon: Yeah, the income stream sounds pretty good. Do people actually choose to leave it as a lump sum and let the kids deal with it?

Bruce: Absolutely. Some of them do. Some of them tell me, I’m dead, I’m gone. I don’t want to try and control the money once I’m gone. Just let the kids have it and let them manage it. They have to grow up and be responsible at some point. And it’s funny, some clients feel real strongly that way.

Jon: How about everyone else? What do they say?

Bruce: Many are worried that somehow their children may lose the money or be swindled out of their inheritance. And they love the idea of leaving an income stream. Some clients feel like they don’t want to control it at all, and they just wanna leave it to kids without any restrictions.

So, the clients that would want to create a legacy, they love the idea that they can potentially provide a tax-free income stream to their children over many years, and this is very attractive. In fact, I would say, it is attractive to the vast majority of our clients.

Jon: Now, we’ve talked about tax free in a number of episodes of the podcast. Bruce, it seems to me that almost every parent would want to leave the inheritance tax-free if they could.

Bruce: You’re right, Jon. The vast majority of people I speak with would like to leave some sort of a legacy and when they hear it can be tax-free, they jump all over it. But here’s the question that surprisingly causes many clients to want this outcome.

If you had the choice between leaving the legacy of being tax-free to your children versus leaving one that would be all taxable. Think of an IRA, which one would you choose?

Jon: Yeah, I mean, that’s a lot easier decision, as opposed to lump sum or income stream tax or no tax. I’m sure most of ’em would like to leave a tax-free if they could.

Bruce: A hundred percent of them choose to leave the tax-free if they can.

Jon: So, I’d imagine that most people don’t think about leaving a big tax obligation when they leave money to children upon their passing. But when you leave a traditional IRA or a traditional 401k, as you just mentioned, Bruce, that’s really what you’re doing, isn’t it? It’s leaving the money with a big tax obligation attached to it.

Bruce: Unfortunately. You’re exactly right. Jon, this is the whole conversation. I like to discuss the obvious question that we should be discussing with people. If the cost of leaving a tax-free inheritance was that you would elect to pay A little bit more taxes right now, while the tax rates are historically low, so you could leave a tax-free inheritance, would you do that? Such a decision would mean that you might be leaving a little bit less of an inheritance, but you could leave it all tax-free. Would you choose to leave it tax-free or would you let the children pay more taxes?

Jon: Unless you really don’t like your kids, but we won’t go there. What do people say when you ask ’em this question, Bruce?

Bruce: As we’ve been meeting with clients over the last year, many of them are worried about, the fiscal condition of our country right now, and they fear that we’re going to likely have higher tax rates in the future. So, I would say most of them are interested in finding ways to leave tax-free money to their children if they can.

Jon: All right. What other things are people concerned about when it comes to leaving the legacy behind Bruce?

Bruce: One of the worries that clients have is that they don’t want their children fighting over the money after they die.

Jon: Oh, that’s huge. You see that on tv, movies, and real life. What are some of the best ways to keep families from fighting over money?

Bruce: Make sure that you put your wishes in writing. That means a revocable living trust, a Will. And additionally, you can put a letter to your family explaining what you’re trying to accomplish in your own words. What your wishes are, share your love for them, your hopes, your dreams, and your desires. But that letter can be very important.

Jon: That’s the kind of letter we’ve seen in TV and movies where they’re all gathering around, for, you know, the estate planning attorney of the person who passed and says, all right, here’s who’s getting what and why.

Bruce: Right. So, you wanna make sure you put your wishes in this letter. That means: Also documenting a revocable living trust, a Will, and this letter explaining what you’re trying to accomplish and what your wishes are, and you can use the letter to share your love for them and everything else. So, it’s a fantastic tool.

Jon: Yeah, it really does sound powerful, that letter.

Bruce: Think about it, many of us are grown up in families that may not really share their financial situation with the kids. I find that common with clients. We’re fearful of how they may act if they knew how much money we have and we might be leaving to them or how much money we have, but are not really planning on leaving to them.

Cause parents do both things. Many parents do not want to create trust fund brats that are spoiled and lazy. At the very same time, every parent loves their children and has hopes and dreams of how their lives may be able to be better than their own.

Jon: All my friends that have kids, you know, they all have big dreams for their kids, and those kids are still pretty young, of course.

Bruce: But think about it, when do parents really sit down and share how much they love their children and lay out all the hopes and dreams they have for them?

Jon: Yeah, that’s true. Bruce, this is really an interesting topic, legacy planning. Let’s lay out for our listeners what should be included in the legacy planning.

Bruce: Sure. Jon. Here’s the list folks of what you should be making sure is included in this planning. Make sure you have non-trust estate planning documents completed and current. So, these include, number one, your retirement account beneficiary designations. This is for your IRAs, your 401ks. Number two, a TOD and POD designations on bank accounts and brokerage accounts where appropriate. So, these are transfer on death and pay on death on your bank accounts.

Number three, you want to title all of your assets correctly. This includes your real estate, your cars, your collections. Number four, you want to make sure you have a list of belongings with the assignments of your wishes. Who gets your guns? Who gets the gold and the silver, and the mom’s jewelry, the wedding ring collections and artwork. You wanna put all of that in writing. And when I say in writing, that means on a list that’s available to the trustee, that one kid can’t come in and just take it all out of the house after you die. And then it’s like missing and there’s no list of it. You wanna make sure there’s a list.

Number five, you want to have your IRA beneficiary designations. And finally, number six, you want to keep a current net worth statement. We do this for a lot of our clients and when someone passes away, that is really helpful.

Jon: Yeah, that does make a lot of sense. Otherwise, you end up in a situation like the HBO show Succession when they’re all fighting over everything. I dunno if you’ve seen that show, but it gets ugly.

Bruce: Ooh. Yes. So, they need to prepare their letter that they want to share with the family, and then they need to hold a family meeting to discuss your wishes with everyone, both the spouses and all the children and their spouses. You can do this on a Zoom meeting or at a family reunion, will allow you to get everyone together.

Jon: Yeah, we’ve seen folks get very comfortable over Zoom of all ages throughout the pandemic, but the topic might not be as comfortable. How can our listeners get comfortable enough to hold one of these meetings, Bruce?

Bruce: When we work with clients, we create a retirement income plan for each family. We don’t want everyone or anyone running out of money unexpectedly. So, by preparing a retirement income plan, we help clients avoid overspending and putting their retirement years in jeopardy by running outta money. That means that almost all of our clients know that they will have enough money to last their entire lives and that they’re likely leaving a legacy to their heirs.

Jon: Yeah, but back to my earlier point, I’d imagine these discussions can be very emotional and think about it, we’re talking about your entire life savings.

Bruce: Oh, yes. We are talking about our mortality with our children, and many of us wanna leave a legacy of our values and our beliefs as well as our money.

Jon: All right. I have to ask this question, Bruce. What happens if we have children or grandchildren that no longer share our values? What do you do if you have a child that’s cut you outta their life, canceled you, or vice versa?

Bruce: Oh, Jon. These are such tough conversations and very difficult decisions no matter how a client feels in the circumstances.

We are there to be a sounding board and discuss the alternatives with them and the implications of their choices. Sometimes we’re able to help clients find insights that they never would’ve considered if they were left to their own to wrestle with these difficult decisions.

Jon: All right. We talked about avoiding taxes earlier. What about people that might have to pay estate taxes? How do you help them?

Bruce: Some clients have estates that are large enough that their estate’s gonna be subject to estate taxes. You know, death taxes. That means that every dollar of the estate over the exemption amount, will be taxed at 40%.

Clients in these circumstances are usually advised to use permanent cash value life insurance to provide funds to pay the estate tax for pennies on the dollar, and that can save the family a lot of money. That makes sense.

Jon: There are a lot of potential taxes with estate taxes. Any other tips you can provide our listeners about things they should be doing now?

Bruce: Well, the naming of a successor trustee is where a lot of people make mistakes. We run into clients, some of them are thinking they don’t want some of their children to think they don’t love them. Nothing could be further from the truth. If you love them, what you need to do is name them as a beneficiary of your trust.

That’s what every child will want, but being the successor trustee of your trust is not a privilege. If anything, it’s a hassle. It’s a burden, and not everyone has the skillset or ability, or personality or the competence to serve as a good successor trustee. And I want to address the difference between treating your children equally. And treating them fairly.

Jon: Mm-hmm.

Bruce: In my family, my oldest son has worked with me in the firm for 12 years. In that time he has invested his time and his energy and his education. He’s earned credentials and designations to be able to run the family business in the future. My other children have not. My other children have the opportunity to work in the business if they would’ve wanted to, but they chose not to.

So, when it comes to who will have the chance to buy and own the business, if I’ve not already sold it to him already, by the time I die, my oldest son will be qualified to continue the firm and be an owner and run the business. And I’ve planned to provide the value of my assets, including the value of the business, to be split among all of my children fairly.

So, for you, maybe fair isn’t equal portions. Maybe equal portions is not fair. It depends on your mindset and wishes.

Jon: You talked about what’s going on in your family. Bruce, I can talk about what’s going on in my family. I have one brother, and it’s not a matter of who gets more, but my parents have designated my brother as the executor when the time comes because he’s got a better head for money than me. I’m the emotional one. He’s the logical one.

Bruce: All right.

Jon: They said, okay, Scott’s in charge. You know we’re not gonna give one more or the other, but. Scott’s gonna run this stuff because Jon’s gonna be a mess. Okay. Well that makes sense.

Bruce: Yes, that makes a lot of sense. And that’s wise.

Jon: And I said that’s fine. He’s got the better head about these things. No problem,

Bruce, that makes me wonder about families that have some children that might need a little more help financially to get on their feet than others. What do people do in those circumstances?

Bruce: Some clients have children that have married into money, and that child will likely never be wanting. Remember, it’s your choice. It’s your money, and you can leave it any way you choose. The hope is that you do it in such a way that will not cause your children to fight over your wealth or destroy their relationships with each other. Other clients feel like one of their children has been more successful in their career.

Say a surgeon. And maybe they feel like one of their other children could really use a helping hand more than their child that is the successful surgeon. Some clients rightfully want to leave the same amount or portion of each child and let them know they love them and care for them equally. Whatever you decide, make sure you’ve shared your thoughts and wishes in writing for all of them to see and know.

You want them to avoid family fights over the money. When you’re clearly communicating your wishes to your children in writing, it’s really hard for them to argue that you’ve promised them something different.

Jon: Bruce, this is such a crucially important topic. I know it’s great information for our listeners today.

As always, if they have questions about some of these topics we talked about today, how do they find you and your team at Hosler Wealth Management?

Bruce: So, the best way is always on the website, https://hoslerwm.com, or if you wanna reach out to one of our offices in Scottsdale, (480) 994-7342, or in our offices in Prescott, (928) 778- 7666.

Jon: Great stuff as always today, Bruce, talk again in a couple weeks.

Bruce: Thanks, Jon.

Jon: Securities and advisory services offered through Commonwealth Financial Network® member FINRA/SIPC, a registered investment advisor. Forward looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

Any tax advice contained in this communication, including any attachments, is not intended or written to be used and cannot be used for the purpose of 1) avoiding federal or state tax penalties, or 2) promoting marketing or recommended to another party, any transaction or matter addressed herein. The accuracy, completeness, and timeliness of the information contained in this podcast cannot be guaranteed.

Accordingly, Hosler Wealth Management LLC does not warranty, guarantee or make any representations or assume any liability with regard to financial results based on the use of the information in this podcast.

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