Techniques Affluent Families Use to Help Grow and Maintain Their Wealth | On Demand Webinar

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Hello everyone. For those of you whose first Savant webinar this is, welcome and thanks for being here. And for those of you who have joined us before, welcome back. We’ve got a great presentation for you guys today as we’re diving into the techniques that affluent families use to grow and maintain their wealth. I’m Evan Goldfuss and I’m out of our Atlanta office and I’m here today with Jonathan Milikin out of our Birmingham office. Jonathan, I’m excited to dive into this one today. Where are we going to start? Thanks Evan. I’m excited as well. So, let’s walk through the agenda. We’ve got several topics. Some say a bit more tactical, some a bit more philosophical. So, we’ll start with keeping more of what you earn, then staying out of your own way, passing it on, giving with intention, and then everything was right once. And so, as we go through these different areas, we’re going to follow a hypothetical family through each one of them. And nothing is as certain as the fact that our compliance team here at Savant wants me to stress to you this is a hypothetical family. Although I think that you will see some common characteristics in their situation compared to yours most likely. I know some of the things we’ll see are issues that Evan and I have seen numerous times throughout our career and talking with individuals in families, but it is hypothetical. And so with that, let’s go to the next slide and let me introduce you to the Andersons. So, Tom is 71, Sarah is 68 and together they have about three million3.1 million dollars. Tom spent his career in manufacturing at a few different companies. He retired a little over a decade ago. Sarah taught school for several actually many years. And then they have two adult children. Katie, their daughter, she’s in her early 40s. She’s a school teacher just like her mom. And then Mark, who’s in his late 30s, he does contract work, kind of has unstable income as of today. So, let’s set the scene here. So, what we have, it’s a Saturday morning. Tom is in the kitchen. He’s enjoying a cup of coffee and he’s finally getting around to tackling some paperwork. How many of us have been in a similar situation? So, he’s looking at these forms to roll over an old 401k. Not an enormous amount of money, about $95,000. But as he’s looking through the paperwork, he finds this form. And that form shows him something and it says that the beneficiary of that old 401k was his mother and his mom passed away in 2016. And so when Tom sees this few things first of all he thought well that this isn’t catastrophic obviously in fact he’s in the process of making a change so this can be changed but it did raise a question or does raise a question in Tom’s mind which is what else could it be that we have not set up correctly or maybe a decision that was right when we made it but it no longer is. And so really that’s kind of the thesis of a lot of what we’ll talk about today. Which is something I know again Evan and I have seen many times with families which is the problem is usually not a bad decision. It’s a good decision that was never revisited. It was a plan that was built for a family that you were and nothing really tells you when that stops being true. So, with that, let’s jump into our first topic. Evan, I’ll hand it back to you.

Yeah. So, I want to start, you know, really this first section with where the money is really easiest to find, which is frankly going to be on the tax side. And I want to say something upfront. Nothing in this next stretch is going to require the Andersons to earn a dollar more, save a dollar more, or even take on a dollar more of risk. Every bit about this is about keeping more of what they already have. So, before we get anywhere near documents or beneficiaries like we’re talking about, I want to start with something a little bit simpler. The Andersons have three different kinds of accounts, right? We’ve got a 1.15 million dollar IRA, got a $210,000 Roth, and we’ve got $560,000 in a taxable brokerage account. Three different buckets and the IRS treats every single one of them differently. Here’s what most people do and honestly it feels like the responsible thing. They make each account look the same. Each one diversified, each one balanced, three statements, three tidy allocations. The instinct here is exactly right about risk, but it’s expensive about taxes. Every one of us has been told to diversify. Almost nobody has ever been told that diversifying inside every account is the costly way to do it. Think about your kitchen for a second. Okay? You’ve got a pantry, you’ve got a refrigerator, you’ve got a freezer, same groceries either way, but where you put each item decides whether it’s still good in a month. Nobody splits the milk evenly across all three just to keep things balanced. That’s not diversification. That’s one carton you can drink out of and two you definitely cannot. That’s asset location. Okay, key distinction. And here’s the part I love about it. The Anderson’s overall allocation doesn’t have to change by a single percentage point. Same stocks, same bonds, same risk, same plan. The only thing that changes is which account each holding lives in. The things that throw off ordinary income like bonds and REITs, those want to be inside of a tax deferred IRA where that income isn’t taxed along the way. Long-term growth wants to be inside the Roth which never really gets taxed again and in the taxable account where it’s taxed at capital gains rates instead of ordinary income which is much more favorable. So, same portfolio, different address for each piece. That’s the theme. Now, the natural question is what that is actually worth, right? And the honest answer is that it depends in entirely really on the family, the accounts and the tax bracket. You’ll see studies that put a number on it, treat those as illustrating the method, not necessarily promising you a result. Right? And I know we’ve seen some push back here, but you know, when someone’s looking at those three accounts, it might seem neat and balanced and look correct, but it might not be because the IRS again doesn’t treat those accounts the same. So, matching the allocations means you’re volunteering to hold your most heavily taxed assets in the account with potentially the least protection against those taxes. It looks tidy, but the tidiness is really what costs you here. So, these conversation points exist specifically here because of Tom’s age. So, let’s take a look at these. Tom is 71, right? Required minimum distributions don’t start until 73 for Tom, which means right now the Andersons are sitting in about a 2-year stretch where their taxable income is as low as it’s ever going to be probably again. The working income is done, but the RMDs, required minimum distributions, have not started yet. It’s like the airport window between clearing security and boarding. They’ll announce when you’re boarding and that part’s coming whether you’re ready or not. Most people aren’t. But nobody gets on the PA and says, “Hey, you’ve got 40 free minutes. Here’s what you know they’re worth. Here’s what you should do with them. You can hover by the gate pretending you’re boarding group one when in reality you’re just boarding group four, right? We all know it. Or you can eat a real meal, knock out some work, or, you know, finally call your mother back. Something really productive, right? One version you get something done, the other you kind of just stood there, right? So, it’s about taking advantage of those windows. That’s the window the Andersons are in. Nobody sent them a letter when it opened. The only date anybody told them matters is the one where it closes, where it shuts off. So, what’s the best work you can really be doing in that window? These two things are perfect examples. The first is converting IRA dollars to Roth. You take advantage of paying the tax at today’s lower rates instead of tomorrow’s. And you shrink the RMD that eventually gets forced out whether the money is really even needed or not. That’s just what the IRS forces you to do. That matters here because that $1.15 million IRA is the single largest thing that the Andersons own. Every dollar that they moved now is a dollar that the government isn’t going to hand them a bill for later, right? So, the second is capital gains. Those same low income years are when there’s really room to realize long-term capital gains at more favorable rates. For some families, that can even be as low as 0%. Same window, two different opportunities. And this is the pattern that Jonathan really opened up with, showing us you know how things show up as a tax bill. The Andersons do their tax thinking in December like you know most people, right? That was a perfectly reasonable habit when their financial life was really very simplified. It was just one paycheck and one WT W2. It was right once. But you know, as things change, it just doesn’t fit the years between retirement and RMDs where their situation is totally different. Now, so I’m not going to give you a conversation or, you know, conversion amounts or thresholds here because the right number is completely individual. It depends on the person. I just want you to know that window exists for every for most people. And it’s important one to take advantage of. So, take a second and answer this one for yourself. Do you know what your marginal bracket is this year? Not on April’s return, this year. Right? What is your projected income going to look like? If you don’t know, hopefully after today, you’ll take a look and you will you’ll know what that number looks like. So, I just mentioned harvesting gains, right? This is the other side of that same coin and it’s a lever that most people are really not using. First thing worth saying out loud is that this only applies in a taxable account. The Anderson’s $560,000 brokerage account, not the IRA, not the Roth. Most people assume it kind of works everywhere, but it doesn’t. You’re kind of limited. The mechanic here is simple. If something in that account is worth less than what you paid for it, you can sell it. Use the loss to offset the gain somewhere else or up to $3,000 of ordinary income and then reinvest the proceeds so your allocation stays right where it was. You remain invested. You’ve sold the position, but you kept the exposure. A position that’s down is kind of like a lemon. Harvesting is how you make lemonade without giving up your spot in the orchard here. Nothing about your portfolio really changes. You just went on the record with a loss you already had. And those losses are great. They don’t expire. They carry forward. They can, you know, sit there waiting for, you know, the year that you actually need them. So, you can be very strategic with this stuff. A loss you harvest today can offset a gain you haven’t even taken yet. None of it happens by itself, though. It takes somebody and, you know, a prudent investment manager to actually be watching for this stuff and looking for these opportunities. This is the only slide in this hour that’s going to show you how we work rather than what we know. Everything else I’m telling you today, you could eventually go and find on your own, but this piece specifically is one that’s really hard to do alone. So, look back at what we just covered that conversion window between 71 and 73. Which asset sits in which account, harvesting a loss, you know, in year one, which is, you know, actually available. Every one of those requires somebody looking at all three of the Anderson’s accounts at the same time in the same year with their tax return open in front of them, right? Having that complete picture. And here’s the thing about the Andersons. Their situation is not complicated. It’s just uncoordinated. They may have a good CPA that sees them in April, 4 months after every decision, you know, that mattered has already been made and there’s nothing we can do about it. And they may have someone watching the portfolio who just never saw the tax return. Nobody did anything necessarily wrong, but there wasn’t anybody holding the whole blueprint, right? It’s kind of like the general contractor problem. You can hire an excellent plumber and an excellent electrician and still end up with the only outlet in the room being hidden behind the refrigerator. Not because either of them was necessarily bad at their job. It’s just because nobody was standing in the room looking at everything all at once. The Andersons didn’t need more information. They needed someone whose actual job it was to look and to coordinate. And that’s exactly what this row is. It’s not a product list. It’s the set of levers that we’re actually checking against each other. The first four are how the portfolio gets built in the first place. Low-cost and low turnover funds, tax managed funds, municipal bonds where they fit, and tax engineering, which is, you know, the asset location piece we covered a slide back. The next three are what we do year-to-year. Tax loss harvesting, Roth conversions, and distribution planning, which is the question of, you know, really which account you’ll pull from and in what order. Once your paychecks start you know stop coming. And the last two are really the long game here that we’ll touch on later. Estate engineering and charitable strategies, both of which are coming up, you know, again a little bit later in this conversation, but very important to note. These are the levers. You know, what matters is knowing what’s out there. It’s not necessarily, you know, doing everything all in the same year, but it’s knowing what’s out there so that you can pull the right one at the right stage in your life when you need it. So, before I hand this thing off, one thing I want to say out loud. Income tax planning is about legally minimizing what you pay over your lifetime. Nothing here is clever and nothing here is necessarily aggressive. Every one of these is in the code, you know, on purpose, right? We’re not doing anything crazy. And notice the word lifetime. The goal isn’t about having the smallest tax bill this April. It’s about having the smallest one across the rest of your life. Those are two different answers. And sometimes the second one means paying a little more on purpose this year. So, run the Anderson’s really against this list. Optimizing lifetimes taxes starts with income coming from all three places. Taxable, tax deferred, and tax-free. They have already have all three and mostly by accident here. That’s what lets you choose which account you pull from in any given year instead of taking whatever you’re necessarily handed. Right. Income timing. That’s Tom’s window before 73. And that’s also when you know they happen to turn on social security. Waiting makes that number a lot bigger and a lot more useful in your plan. Tax loss harvesting using your brokerage account to your advantage just like we talked about making some lemonade. State specific tax planning knowing your home’s codes and you know looking ahead especially if you’re planning on moving in retirement or coordinating things across states and your assets. Charitable giving. Hold on to this one specifically because again we’re going to touch on this in the last section. But for a family like the Andersons, giving straight out of their IRA can cover a required minimum distribution and really ultimately drive down their tax bill considerably. So, no family does all five of these necessarily in the same exact year. Which ones, you know, are kind of go live depends on what year you’re standing in. For the Andersons right now, it’s that, you know, opportunistic window. You know that’s in front of him. And that’s really where we want to take a good look and see what makes sense to pull into the plan today and then map out for the next few years. So, Jonathan, the arithmetic here kind of assumes people behave, but is that necessarily always the case? No, unfortunately Evan, it’s not. And that’s not a criticism by any means. I mean that’s really just human nature, I would say. And two that’s the reason we have this next section Bill as well to speak to.

So, staying out of your own way there’s you know kind of everything we talked about here has really just been arithmetic and that’s kind of the easy part. This next section is going to be about the things that actually decide whether any of this works, right? Is which is what exactly do we do when things get uncomfortable or when decisions need to be made? The Andersons have two threads running through here. $180,000 sitting in a single stock with a basis around 22,000 and a move to cash in 2022 that took them quite a while to undo. So, let’s take a closer look. There’s five things on this slide and I want you to sort them really into kind of two piles as I go here. Three of them are good reasons to change your asset allocation, your time horizon, your risk tolerance, your lifestyle. You retire, you buy the second place, somebody gets sick, the money has, you know, really a different job than it had before. The other two are emotions driving decisions and market timing. Those feel exactly like reasons, but they are not, right? I think about it like a road trip. You change the route because the road is closed or maybe you decided to add an additional stop. You don’t just change the route because you don’t like the song on the radio or something. The trouble is in, you know, in that moment. Sometimes the song on the radio can be really loud and very distracting, right? So, time horizon is really what makes the rest of this section survivable here. Over a short stretch, almost anything can happen. The longer the horizon runs, the narrower the range of outcomes really gets. That is the entire argument for not really acting on any single stretch. So, let’s look at where the Andersons actually are. Tom is 71. Sarah is 68. That money likely has to work for another 25 to 30 years. And if Katie or Mark inherit any of it, considerably longer than that. Those are long time frames, right? So, the Andersons are not short-term investors and they shouldn’t be thinking like short-term investors. They have short-term feelings just like everybody else. But that doesn’t mean they should be making short-term decisions. So, let’s talk about five real pitfalls worth addressing here. Emotional decision making disrupts even a well-built solid plan. Timing the market, reacting to headlines, holding too much cash, or taking on too much concentrated risk in one position. Those all matter, right? And that last one I want to spend really the most time on here. Unique challenges show up when wealth is really tied and concentrated in one thing. A business, a stock, different options, real estate, you know, inheritance, a single position. So, look at the Andersons. $180,000 is in just one stock bought decades ago. Basis was around 22,000. So, it’s worth roughly eight times what they paid for it. A sizable gain. That’s about a third of everything they own outside of their retirement accounts. Tom worked alongside that company for years. So, selling emotionally feels a little bit like disloyalty. I completely understand that. And the tax bill makes that feeling very convenient to, you know, encourage him really to keep holding on to it. So, it sits there held for reasons that are mainly emotional, but it’s rationalized kind of as tax planning. I think of it like the oak tree in the front yard, right? The big oak tree. Somebody planted it 40 years ago and it was a great decision. You know, nobody’s arguing that. Everybody loves the tree and now it’s enormous and it happens to be leaning towards the roof. Nobody wants to be the person who says, “Hey, let’s talk about the tree.” So, every year it gets a little bit bigger. You know, the shadow gets a little bit deeper and that conversation gets a little bit harder. I want to be careful there because, you know, again, the tree, the position, it’s not a mistake. It was a good holding. It was bought for good reasons. But the problem is that no one ever set a date to revisit it, right? We want to make sure that as life changes, we’re taking a new fresh look at our plan for, you know, different opportunities and changes that we need to make. And that’s really all a defined investment policy is. It’s the practice of setting that date in advance while nothing is happening or pressuring us. It’s about getting out in front of those decisions. And again, getting back to being a long-term you know, investor, having your plan build your strategy. So, the problem in today’s world is that there’s always something happening, right? There’s a lot of information out there, a lot of headlines, a lot of, you know, stuff that’s going to be coming across your screen going in your ear. There’s basically no way to avoid, you know, the news and kind of being influenced by something, right? So, chances are you’ve probably seen a version of this curve before. So, I’m not going to walk you through it label by label here, but I do want to take a moment and look at the curve and ask yourself the question, decide privately here. Where do you think we are right now? I have my answer. But I have asked rooms of people that question before. And truly, the answers spread across the entire curve. Even amongst one audience, people looking at the identical, you know, market day in and day out. They can be looking at the exact same thing but land in completely different places on this curve. That disagreement itself is the lesson, right? Every airport in America has that directory on it with the big red dot that says, “Hey, here you are.” Markets, unfortunately, do not come with that big red dot of telling you where we are actually at in the cycle. Nobody’s ever handed me a chart that says, “You’re here,” printed on it. And you know, anybody that says they know exactly where we are in those cycles is definitely just guessing with confidence, right? So, the purpose of an investment policy is not to figure out necessarily where you are in this curve. It’s to decide what you’ll do before the emotion shows up because in the moment the feeling, you know, can be genuinely in distinguish indistinguishable from analysis. It doesn’t feel like fear, but it can feel like you’re seeing clearly, right? So, in 2022 when we had significant market volatility, the Andersons moved a meaningful piece of their portfolio to cash. It felt like risk management, right? It felt like the right thing to do. It had reason attached. There’s always a reason. But getting back into the market, which you know they knew they had to do as long-term investors, took a lot longer than getting out. And that’s usually the part that actually costs investors a lot of money. They weren’t panicking. That’s just what makes this hard. It feels like prudence. It feels like you’re doing the right thing, right? Evan, I’ll come to the Anderson’s defense here a little bit. 2022 was a bad year. So, they were correct about that piece. That is correct. Yeah, it definitely was a bad year. There was a lot of volatility, right? The problem is, you know, being right about the year and wrong about the decision is the most common version of this that, you know, we tend to see. We always say that market timing is an incredibly difficult thing to do because you don’t have to just be run right once, you have to be right twice. You got to know when to get out and also when to get back in. And that’s the problem that we usually deal with. So, let’s zoom out. These decisions can be kind of costly if you were talking about much longer periods of time, right? On the short term, decisions can be 50/50, but jumping in and out, like we said, trying to be right twice is a difficult thing to do over the long haul. So, let’s take a look. Two investors, same index, same 35 years. One of them followed a rule that sounds careful, right? Sell at a 5% loss, buy back once it’s recovered 3% off the bottom. Doesn’t sound very reckless. It sounds like discipline here, right? But that rule produced 54 trips in and out of the market. It ended about, you know, really $158,000, right? In that total, you know, over that total time period. Doing nothing, on the other hand, as we see directly above it, ended at about $384,000. So, where did that gap really come from? Right? 11% a year versus 8.2, less than three points. That’s what turned into more than double the money. Now, this is a hypothetical illustration using index returns. It doesn’t include transaction costs and past performances, no guarantee of future results. But here’s what I want you to sit with. Every single one of those 54 decisions jumping in and out might have felt defensible at that time. Nobody was necessarily being foolish. Somebody was being careful just a lot of times, you know, making a lot of little decisions along the way. But honestly, it’s kind of like opening the oven to check on the bread. One time is reasonable, but 54 times, you’re not going to have any bread. You’re going to have a brick. And you got there by checking. So, it’s important to approach this as a long-term investor. You know, I don’t want to say it’s a set it and forget it, but it’s trust the long-term process here. Before we move on, I want to hold on to one thought here. The Anderson’s concentrated stock position is a behavioral problem and a tax problem all at the same time. Now, keep that in your back pocket because this final section, there’s a version of this that solves both at once. Jonathan, I’m going to throw it back to you. Thanks, Evan. Yeah. So, our next section here called passing it on. I’ll give another disclaimer. I feel like I’m the disclaimer guy today. So, so this isn’t legal or tax advice, right? Consult your attorney or trusted tax professional. But more of a general discussion as we get into this. So, let’s go to the next slide, Evan. You’ll see a map of the US here. And so, first thing I’ll point out, you’ll notice the top of our page here says estate and inheritance tax. So, with the increase in the federal tax, estate tax exemption over the last several years, that’s really not a factor for many people. And so, for today, we’re going to focus on the state component. The reason for that is I would venture to guess that some of you live in one of these states that is one of these colors, navy, gold, or green here. And I would also bet if you don’t live in one of these states that you own a piece of property in one of those states. So, maybe it’s a second home, maybe a lake house, maybe a farmland or a rental. And that’s key because real property is taxed in the state where it sits regardless of where the owner may reside, what the owner may call their state of residence. And so if you’ll think back to the Andersons, they had a situation like this. So, they had purchased a rental duplex about 20 years ago. And whether or not that duplex was in one of these states, a taxing state, definitely not a consideration when they bought it. They bought it because it was relatively nearby and the numbers worked. But that’s our pattern again, kind of going back to our theme. So, a good decision at the time, made for good reasons, but with a consequence in this arena here that we’re talking about. A consequence that really nobody was looking for. So, if you will take a moment, just find your state on the map if you’ve not already done so. And then a state where maybe you own property, if there are maybe even more than one if you own property in other states. So, with that in mind, Evan, I’ll turn it back to you while we go to the next slide to dig into this a little bit more.

So, this is the payoff of that map we were just taking a look at. So, same family, same $3.1 million here, same documents drafted by the same attorney, three completely different answers necessarily. And the variable here is something that the Andersons mostly decided for entirely different reasons, right? Where they live and where they happen to own property. Most states, you know, over here in our first column, you have nothing owed. No state, no state estate tax, meaning, you know, the Andersons in this situation have no check to write here. Oregon, however, the threshold is $1 million, the lowest in the country, and it hasn’t been indexed for inflation in over a decade. A paid off house and an IRA already gets you there. The Anderson’s house alone is $640,000. Add the IRA and they aren’t near that line. They’re already way past it. Rates run about 10 to 16%. So, in a state around 3 million is looking at roughly $200 to $300,000 here. Massachusetts is 2 million. And here’s the part that surprises people. Cross it and the tax applies to the entire estate from the first dollar, not just the amount above the line. Massachusetts isn’t a step, it’s kind of a trap door. New York has a comparable cliff as well. So, it’s a little like a country line on a highway. Same car, same speed, same driver, right? Which side of the line you were on when the lights came on decides is going to decide what it costs you. Unfortunately, some of us have been there before. Then the part, you know, that lands the hardest. Most states have no portability. Minnesota, Illinois, Maryland, Oregon, DC, and most of the others do not let the surviving spouse claim the unused exemption. That federal election people have heard about does not help you at the state level. And there, you know, the fix is structural. It’s not necessarily on a form, you know, that you file. So, I’m not going to try and solve that from here. If that’s your state or your property is in one of those states, that is a real conversation with someone who does this work on the estate planning side. So, Jonathan, so where all you know the assets sit, that obvious obviously matters. How about how they’re held?

Yeah, let’s look at that. And I’ll just say so thankful, Evan, for you and your analogies to keep this a bit light-hearted as we’re in this section as we talk about death and passing away. So, yeah, let’s kind of quickly you know, go through some of these next areas. But, you know, as we’re talking about how assets pass, I kind of take these left to right. So, the first is forms or designations. IRA, 401ks, life insurance, annuities, POD and TOD, that’s payable on death, transfer on death accounts. So, all of these are going to pass according to what that form, what that beneficiary form says. And importantly, that form overrides anything in the will. So, again, let’s think back to our beginning of the Andersons. Remember Tom Saturday morning he was looking at that form that named his mom. Well, his will could have said that every dollar he owns is supposed to pass to Sarah and the kids, but that old 401k form would have overridden that. It would have resulted in that account passing to his mom’s estate in this case and she had passed away. I think this is maybe one of the more expensive mistakes that we tend to see, but it’s also one of the easiest to fix. It’s just one of those that you have to look at. Let’s go to that middle section there. Titling. So, you see joint ownership. Assets held in trust. Those are the more common ones that we see. This also overrides a will. So, you know how those assets are owned is going to rule the day. And then two avoids probate as well just like those assets that pass by beneficiary designation. And so, you know, the trap here for the Andersons, talk more about this in a moment, but they do have a revocable trust, so a living trust that they created and signed put in place back in 2011, but the trust was never funded. Meaning the assets that they own, their house, that duplex, those were never transferred into the trust. Those are still owned by Tom and Sarah in their individual name. So, creating the trust is really half the work, but the trust can only control what it owns. Can only control what we move into it. And then of course we’ve got the will here. That’s kind of everything else. You know, it’s going to be public record. What passes by will? That’s a probate’s a slower process for sure, more expensive. So, we’ve talked mentioned you know documents. Let’s go to the next slide, Evan. I’ll talk about what documents do we really need to have in place. So, I’ll start with the financial power of attorney. So, this allows someone to step into your shoes and act on your behalf. Really do anything that you could do from a financial standpoint, paying bills, filing tax returns, things like that. It’s always a good idea to name multiple successors, not just one person as your financial power of attorney, but have some backups. And then two, you know, check your document and see if it includes something called digital asset authority. So, that would be the ability for that power of attorney to control things like your email, social media, just think about how much of our life these days is in the digital world, lived online. Some more some older documents may not include that type of language. The health care power of attorney is the name would indicate similar type powers only just in the health care arena in that document you’re going to name a health care proxy and that proxy is going to be able to make decisions on your behalf if you can’t always a good idea to give a copy of this to your primary physician. And then the living will, this is different than the health care power of attorney. The living will is that document where you make decisions about the type of care either you do or don’t want to see want to receive typically an end of life type care. And then we have the last will and testament. Many cases, not all but many cases, a living trust or a revocable trust that sits kind of next to it. So, back to the Andersons, you know, in their case, they had all of these documents in place, all of them drafted, completed back in 2011 by a very good attorney, and all of them are still perfectly valid today. So, you know, that’s the that’s the trap, right? So, these are not necessarily one and done documents. They have to be revisited. And as they did that, they realized looking in those documents, they have a successor trustee that passed away in 2019, neither of their kids, Katie or Mark, are not named in any really key role within the documents because the documents were done 15 years ago, and they weren’t quite ready to put either of them, you know, in that position at that time. So, you know, really the documents are stale. There’s nothing necessarily wrong about them. They’re just describing the Andersons at a time and in a state that is not the Anderson’s as of today. So, when we think about these a trust is usually the living trust is usually the one that there’s more questions about on the next slide you’ll see kind of some more details here of how that revocable living trust works. So, first of all let me just walk through kind of the mechanics here. So, when you create a revocable trust or a living trust kind of either name that you want to use. So, a grantor is going to create the trust and then that grantor usually serves as the initial trustee. The trust is going to hold those assets for the benefit of the trust creator during that trust creator’s lifetime. And then at death, sometimes beforehand, but typically at death, there’s going to be a successor trustee that takes over. So, our original creator, our grantor of the trust has passed away. A successor trustee comes in. They’re either going to continue the trust according to the rules, the terms of that trust document, or that trust document may say that the assets need to be paid out. They need to be distributed to a group of beneficiaries. That revocable trust is going to become irrevocable at death. And so that doesn’t always mean it can’t be changed. Sometimes there is some flexibility, but I don’t want to go down that tangent too far. But not always permanent. So, sometimes there are some tweaks that you can make. So, as I said before, you know, the Andersons have this document, put it in place in 2011, but their house, their duplex still owned individually. The trust, this living trust, can only control what it actually owns, what assets are placed inside of it. So, I’ll talk a little bit about what why would you want to create this trust? We’ve hinted at it a bit here, but one, it does avoid probate, as we’ve said. Okay. So, there’s some efficiency there, some cost savings. There’s privacy. So, a will is going to become a matter of public record. If you do not want the division of your assets to be public record, a trust does not fall into that arena. So, someone could not look and see maybe if you made cash bequest dollar amounts within your will or directed certain pieces of jewelry or items to particular people and you had that in your will. A trust would keep all of that private. And then two, the trust gives you really all the same flexibility that a will does. You can create sub trusts, meaning trusts that are specific to individuals or groups of individuals. You can incorporate staged distributions, meaning distributions that happen over, you know, multiple time periods, maybe different ages, as opposed to passing all of the dollars or all of the trust assets to someone at one time. And then two, you can build in what’s known as protective provisions like a spend thrift provision or creditor protection, too. So, a lot of flexibility, a lot of power there that you can put inside that living trust. You’ll notice one thing I did not name under the reasons that you would create a trust, and that’s tax reduction or tax mitigation. A living trust, it’s not a tax play. It’s not a tax strategy. It’s an administration tool. And that’s really the typical reason, you know, that we see people do that. And then, you know, I’ll come back to the Andersons. Again, you know, we’ve got, Katie, she’s a teacher, she has two children. Mark in a situation where he’s doing some contract work, but his income is unstable. So, given those different situations, you know, a trust is going to allow the Andersons to, ensure that both of them receive dollars, but they may not receive dollars in exactly the same way. So, it gives them some flexibility there on how they may want to do that. So, with that, Evan, I feel like I’ve talked long enough about these death considerations here. So, let me send it back to you here for a little happier topic.

No, no, it was great info, but yeah, let’s kick it up to a little more sunshine here and talk about one of my favorite sections here really. And last, this last one is really my favorite because we got to talk about giving. Everything, you know, up to now has been about efficiency. This section is about efficiency and intention at the same time. It’s the only place in the hour where we can do, you know, a really smart thing and do a really generous thing at the same time with the exact same move. So, the Andersons gave about $9,000 a year. Every dollar of it is going out basically the least efficient tax door possible or really available to them. So, let’s dive into it a little bit. I want to open up with really the most common mistake here really instead of the technique. I’ve seen this more than once. Somebody calls in December and they’re very pleased with themselves as they should be. They just sold a big position that they’ve held for years and wrote their church the largest check that they’ve ever written. The church was thrilled. So, were they. It was an awesome time. However, they also wrote the IRS a check that they did not need to write. Same gift, same year, same charity, right? All it would have taken to kind of rearrange this and save some taxes would to have just been to transfer the shares, right? Instead of selling them. So, giving appreciated stock versus giving the proceeds after you sell it. And nobody had told them. Why really would anybody? Their adviser managed the portfolio. Their accountant filed the return in April, 4 months, you know, kind of after anything had happened. Nobody was wrong. They just, you know, weren’t coordinating like we’d mentioned before. So, here’s the mechanics of it. You give the stock, not the proceeds, right? You don’t necessarily need to realize that gain. You get a fair you get a deduction at a fair market value and the capital gain is simply never realized. The charity doesn’t pay it and neither do you because you gave the pre you gave the appreciated security away. So, you know, it’s an amazing thing to be able to coordinate because that charity really or that charity doesn’t pay any capital gains tax. That gain just evaporates. So, appreciated securities are subject to a 30% of AGI limitation and you can layer another 30% in cash on top of that. Okay? So, important things to know about the amounts and you know how much you plan on gifting and where you’re going to fall with this tax year. So, think about a check made out to you. You can cash it, pay the fee, hand over what’s left, or you can endorse it over and hand the whole thing across the table. Same intention. Very different amount arriving, you know, at the end to the charity. So, the sequencing matters here really more than anything else on this slide. Once you’ve sold, that opportunity to give is gone. You can’t undo it. This is a decision with an expiration date. And that date is really the moment of the sale. So, now let’s go back to that $180,000 position that we had talked about that concentrated stock that the Andersons had, you know, in those last couple sections. Their basis was around 22,000 20 minutes ago. That was a behavioral problem. But look at it now. The stock Tom can’t bring himself to sell just became the single best asset he owns to give away. So, this right here is really frank frankly among you know the best material in the deck. Good bit of it has changed from this last year. So, bunching in plain English right as we’re talking about different strategies we can employ means concentrating several years of deductible expenses into one year so that you clear the standard deduction and then you take the standard deduction in the off years. For 2026 that’s 16,100 you know and I’m sorry $16,100 for single brackets and 32,200 for married filing jointly. If your itemized deduction lands just under that number every year, you’re getting no benefit at all from your giving. Not a reduced benefit, but really none. Three things changed for 2026 that makes this a little more valuable. First, and really this is the one that matters most for the steady givers out there. Charitable deductions now have a half percent of AGI floor. Only giving above half a percent of your adjusted gross income is deductible. Second, the salt cap rose to 40,400, which pulls a lot more people into itemizing. And third, high-income taxpayers are now capped at 35,000 or I’m sorry, 35% benefit from itemized deductions. Here’s why that floor matters so much. Think of it as kind of like a cover charge. Every year you walk in, you know, the door and you give and you pay it, but given three separate years and you pay the cover three separate times, give the same total in one year, you only got to pay it once. The Andersons give about $9,000 a year like we’d mentioned in monthly checks. Under the new floor, a slice of that is non-deductible every single year, and it will be again next year and the year after that. 3 years of that giving moved into one year through a donor advised fund potentially clears that for a single time instead of losing it to three times. Same $9,000 a year, you know, same gift. It’s the same organizations and really the charities don’t necessarily, you know, they don’t notice a thing. It’s the same flow to them. So, the deductions worth concentrating are the ones on the bottom line there. State and local taxes, mortgage and investment interest and charitable giving. Focusing on all those and coordinating makes that strategy much more effective. Next, QCDs, qualified charitable distributions. These are one of the best tools in the toolkit. If you have an IRA and you’re over 70 and a half, why they chose the half, I’m not sure, but if you’re over 70 and a half and you give to charity, this may be the highest value slide of the hour for you. Tom is 71, right? So, he is eligible right now. Eligibility starts at 70 and a half and notably, you know, again, this is not 73 where his RMD age starts. The 2026 limit is for QCDs is $111,000 per person, right? So, this is not necessarily even a small door. But here’s the part people miss. A qualified charitable distribution does not give you a deduction, right? It keeps the money out of your adjusted gross income entirely, which for most people is better than a deduction. It counts toward your required minimum distribution and it works whether you itemize or take the standard deduction. And because that money never enters your AGI, right? It’s simply going to the charity instead of flowing through to you. It steps right around the new half% floor we just talked about, it can also pull your modified AGI down enough to affect your Medicare premium, which is a bill most people had no idea was even connected to all of this. So, very helpful to do so and take a look at if you’re giving. So, for the Andersons, $9,000 a year to their church, you know, food bank monthly coming out of their check checking account. That is the most common gifting pattern I see. You know, kind of that mix of stuff. It’s also, as we had mentioned, quite inefficient, right? So, that same $9,000, same two organizations, same months. If we route it from the IRA instead of the checking account, that taxable outcome is really completely different. Nothing about their generosity, you know, really change. It’s only the plumbing here. So, if you give regularly, ask yourself where the money physically comes from today and does it make sense to take a look at any other avenues that might end up saving you a lot in taxes. Most people have never really thought once about it. You know, it’s not something that comes across the table or is immediately brought to your attention as an opportunity, but it is a great tax saver and tool available in the toolkit for you. So, most people have heard the term donor advised fund as we kind of just mentioned before, but you know, we’ve never necessarily laid it out. So, let’s kind of break it down. A donor advised fund is a giving account. It is not a charity itself, right? You put money in, you take the deduction in the year that you put the money in, and then you decide later what organizations receive it from that donor advised fund and when. The contribution is irrevocable. So, that money is going into that charity one way or another, but the timing of the grants is entirely yours. One of the really cool things about donor advised funds as well is that funds can continue to be invested and grow and accumulate within that bucket. Only increases your available dollars to give away to charity. So, it’s really a gift card you’ve kind of already bought and paid for. The money is really committed. You just haven’t really decided what sort to use yet, right? And that is exactly why it pairs with kind of those two slides we just did. Bunching only works if the charities don’t have to absorb three years of money all at once, right? And then go two years with nothing. You want to keep things smooth for them. The donor advised fund holds it and pays it out based on the schedule you would like. It’s also the natural home for appreciated stock. You contribute the shares, the gain is never realized, and the grants go out in cash. So, put all three together for the Andersons here. They move roughly $27,000, three years of giving into a donor advised fund in a single year. And then they fund it with a slice of that $180,000 stock position instead of with cash. They clear that floor once and then they trim the concept trade a position and that gain is never realized and it’s kind of a double win from the outside. Nothing about their giving changed. You know, Church and everybody’s still getting the same amount. We’re just changing again the mechanics here. So, one thing I will flag because somebody really always asks is a qualified charitable distribution from your IRA cannot go into a donor advised fund. A fair question, but definitely not something to be mixed up here. So, those are all the opportunities. You know, again, different, you know, strategies and ways that we can get creative with our gifting. You know, like we said, you can’t decide whether or not you pay taxes, but you can really control when you pay them and how you pay them. So, Jonathan, there’s a version of this that has really nothing to do with taxes. You want to take us through it?

Yeah, let’s talk about this. So, we’re going to kind of change change tone a little bit to this topic. And really what we’re talking about here and bringing the family with you, it’s based on the idea that it’s really difficult. In fact, I might say that it’s really impossible to align your money with your values if the people who are going to inherit your money don’t know what your values are. Right? So, you know, going back to what Evan shared, the Andersons, they give about $9,000 a year. They’ve done that for many years. But Katie and Mark do not know that. They don’t know the amount that Tom and Sarah give. They don’t know the organizations they support. They’ve just never been told why. And so it’s not that there’s anything necessarily wrong in that from Tom and Sarah’s perspective, but it’s a missed opportunity, right? It’s kind of that missed opportunity to be intentional about sharing those reasons and why they support those organizations. So, how do you communicate what’s important? Well, one as I just said, it’s being intentional, making sure that you share that whether it’s a family gathering or whatever the environment or the situation may be. Communicating that to your kids or your family of what organizations you know, what charities that you support. You know, another is a document. It’s called an ethical will. You may have heard of. So, if we were looking at a definition of that, it would be a written statement of experiences, values, and lessons that sit alongside the legal documents. And so sitting alongside is key. An ethical will is not a legal document. It is the why. It’s the why behind the giving or the decisions that you’ve made that goes alongside the what and the how that you would see in that last will and testament that actual legal document. So, we talk about or mention here preparing heirs rather than surprising them. So, you know this can you just simply mean making your children aware of your level of wealth at the right time of course right typically adult children and when you are ready to share that kind of giving them the lay of the land as I said and then two you know use that opportunity to share the reasons for your giving you know great way environment to do that you know it can also mean having a hard conversation. So, our analogy, our story here with the Andersons, you remember Katie and Mark, two very different situations, it would seem. And then, you know, Tom and Sarah have never really said this out loud, not to the children and really not to each other. But the question of should the kids be treated differently?, should they be treated the same as they’re looking at a state plan and the like? And I think a lot of families have some type of version of that question depending on their own circumstances. Most haven’t really communicated it kind of said it out loud. But I think it’s fair to say it doesn’t get easier by waiting. So, you need to we need to begin talking about that and addressing it. We mentioned family meetings here as a practical tool. What is a family meeting? It’s not a really you know formal type thing. It can be as simple as a conversation that you plan to have that has an agenda. You’ve got a date schedule that you’re going to have this. Obviously, you’ve decided who you want to attend. Maybe it’s adult children in yourself. And then you have decided what you do want to share and what you don’t want to share with the group. And that may look different. There may be a series of these meetings you do. So, you may start with less is more. Whatever the case is, you know, I have found we have found those meetings can sometimes really benefit from having a third party in the room, kind of that neutral party to help facilitate. Sometimes that just makes it easier to have some of the conversations, but particularly if there may be, you know, a difficult conversation that you’re going to have. So, we’ll move on from here as we wrap up, but let me ask you a couple of questions before we do. One is, do your children know what you give to and why? And I think those are good questions to think about. If not, right, maybe find time to share that with them. So, we’ll go here to our last section as we’re getting close to wrapping up. So, you know, we’ve titled this everything was right once. And we’ll kind of do a recap now as we look at the Anderson’s on this next slide, Evan. So, you kind of think back to where we started. We had Tom there on a Saturday morning at the kitchen in the kitchen drinking his coffee looking at that form that he realized he had not revisited and had not updated. So, in addition to that, we found some investment and some tax habits that were built for a much simpler financial life as Evan said that included a Roth conversion window that nobody was keeping an eye on and was not aware of. There were those instincts that served them well while they were in their earning years. The move to cash back in 2022, that stock they just could not bring themselves to sell. Then there’s the estate documents that I talked about, but that really, you know, were created for a family from 15 years ago. It was really not who the Andersons are today. And then we saw that unfunded revocable trust, a deceased beneficiary in Tom’s mom there. And then they had the successor trustee that had passed away. And then two, we had, you know, children that were treated as children back when they were, you know, children. But now we’ve got, you know, older adults, much different situation. And so, you know, really this is the key, right? We’ve got a lot of decisions that were made. None of them were a mistake. Every one of the decisions was correct when it was made. They were made by capable people. Many of them had, you know, professional assistance or help to Tom and Sarah when they made them. But again, that those decisions and that plan was built for a family that was not the family that they are today. And nothing prompted them. Nothing told them when that stopped being true. So, the takeaway is it’s not that it’s that nothing in your financial life you know send you a notice when it goes out of date. So, with that Evan let’s go to the next slide. I know you’ve got some questions to pose to everyone to consider.

Yeah I think these are really the four big questions that we want everyone to take away from today. None of them require necessarily an adviser to answer and all four of them are really answerable this month, right? Pretty soon. So, one, is there a Roth conversion window open between now and when your RMDs are projected to start? The Andersons had a 2-year window and didn’t even know it. Most people know what their tax weight tax rate was last April, but very few know what it is right now or have done the projections to see what it’s going to look like in the next few years. Two, when did I last change an investment decision out of worry? Right? When did I bring emotion into that decision-making? That’s not a trick question. Everybody has, right? The useful part isn’t the guilt here. It’s remembering what the reason sounded like at the time because it will probably sound just as good and just as reasonable next time. It’s important to, you know, answer this question. Take a look at yourself and see what is driving your decisions and what needs to be driving your decisions. Three, who is named on every account and are they still living? I’d put your energy here first. You know, as Jonathan said, this is a fairly quick exercise. It costs nothing, takes about 20 minutes, and it’s a very meaningful number. You know that you might find going through this. You know, it’s kind of the question we really started off with. It’s a great exercise to go and clean some things up and make sure that you’re not going to run into any roadblocks or generate any unknown issues, you know, should something happen and, you know, dealing with the passing of your accounts. You want to make sure that everything is up to date, right? Lastly, do my children know what we give, you know, what we give to and why? That’s the one nobody really expects to see on something like a financial webinar, but it’s also the one that people tell me they remember the most. Finally, if you go looking and you find something, you know, asking yourself all these questions and it maybe even unearths more questions, that’s not necessarily a failure of anything. That’s just the system working the way it’s supposed to. That’s where, you know, we want to take a look and I think the biggest thing we want to take away from today is that start asking the questions. Time is on, you know, your side. The best time to start doing this is yesterday, right? So, Jonathan, those are really the biggest four questions. Where do we go from here?

Yeah, great questions. You know, I would say, you know, for our attendees today, if any of those resonated with you, I think that’s worth a conversation. So, it’s a free 15minute call. There’s no obligation. You can see the link on the screen. So, I’m looking here at the Q&A. Evan, it looks like we’ve got several questions. Maybe we’ll take as many as we can here. Yeah, let’s see. I’ll fire off the first one to you. Let’s see what we got. So, we have a trust. How do I know whether it’s actually funded? Yeah, good question. So, I’ve talked a lot about that with the Andersons and that trust from back in 2011. So, you know, for real property, you know, the house, the duplex, you are going to want to pull the deed on that and see, you know, has that deed been updated? Accounts like investment accounts are a little simpler. You can just look at the account statement, right? What name is on the account statement? Does it say Tom Anderson or does it say the Tom Anderson 2011 revokable trust? So, those are your two kind approaches depending on the type of asset. Let’s see. Let’s go turnabout here. Okay. I’ve got one, Evan, the Roth conversion. So, is a Roth conversion still worth it if the money is going to charity anyway?

Oh, that’s a great question. So, is the Roth conversion worth it? I’m going to go ahead and say generally no. It’s kind of a satisfying one. A charity doesn’t pay income tax on an inherited IRA, right? So, converting it means paying the tax that the charity really would never have owned. So, I’m going to go ahead and say no. Definitely leave the IRA as it is. If it’s marked for charity, that’s perfectly fine and go ahead and leave it entirely to charity. Don’t do that Roth conversion. Anything in Roth we want to leave towards, you know, the family where those, you know, tax-exempt assets are much more advantageous to pass on rather than to an entity that really doesn’t have to deal with the taxes. So, that’s a great question. So, let’s see. We got another one here. My spouse and I don’t agree on how much each child should get. Very common. How do families handle that, Jonathan?

I had a feeling you were going to pick the easy one for me, right? Hey, I appreciate that. Yeah. Well, I’m the one that covered the topic. So, yeah, I think this is, you know, one of the more common disagreements, right? Discussion points between spouses. I would say, you know, first let’s separate the two issues of what is fair and what is equal because that’s not always the same thing. I think a lot of times it’s really not the same thing. Kind of rarely the same answer there. And I think, you know, discussing this with I’m going to say a trusted advisor somewhat. Maybe it’s an estate attorney, maybe it’s an adviser, you know, of another type. I think that can be helpful to have input from others who have maybe had these conversations with other couples and families that have gone through this. So, you know, sometimes that can really you know, help move the conversation along as opposed to just kind of continuing to have it, you know, maybe at the dinner table or the kitchen table over and over between, you know, just the two of you.

All right. So, see if I can find one that’s just as difficult for you, Evan. Here’s one. I don’t think I covered this when I was talking about estate services. Do I need to worry about estate tax at our level? Yeah, that’s a good question. And I will say federally unlikely. It’s almost, you know, where the exemption sits today is at 15 million per person, right? So, that’s 30 million combined between a couple. So, at the state level, like we talked about on that slide 17, yes, possibly. At the federal level, that’s pretty high right now. Now, not to say that couldn’t change in the future. If you are, you know, potentially looking at that level, it’s definitely important to take a look at, you know, should you be doing any advanced planning today to, you know, help mitigate that potential tax? Absolutely. But for that level, I would say it phases out, you know, a lot of people. But definitely is something that could change down the road.

So, let’s see. Think we got one more question. I think we got time for one more today. Let’s see. Jonathan, where would you start if we’ve never done any of this? So, I guess where would you start if you haven’t, you know, taken a first look at you know, any of this financial planning topics?

Yeah, I think you actually said it may be on the previous slide, Evan. And you know, it’s a great way to kind of come full circle here. We think about Tom where our story started looking at the beneficiary form. I think I would start with beneficiaries. Just like Tom did. It is, you know, one of the easier kind of topics to take on, right? It does take a little bit of work, right? You got to track down, you know, who is named on each account. Start with making a list of retirement accounts, life insurance policies, and then one by one, whether you need to call a company to confirm that, maybe you have online access. I think that’s a really sensible way to start. I like that. Yeah. Starts with a small step. That’s right. Well, awesome. Well, I think that’s all the time we got for today. Covered a lot of great info. Went through, you know, a lot of different sections, but I think we’re going to have to cap it there. So, want to just take a moment and say thank you to everyone for spending some time with us today. I hope you guys found the session, you know, extremely helpful. If at any time you’re looking for more info about Savant or what we do, go ahead and check out our website at savantwealth.com to learn more or definitely schedule that 15-minute call with us. We’d love to talk with you. So, thanks again everybody. I hope you guys have a great day ahead and we’ll see you next time. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books. Checklists and other useful financial resources.