Diving Deep Into Estate Planning With Benjamin Rizzuto
Welcome to Season 4, Episode 3 of Meet the Expert® with Elliot Kallen!
In this episode, Elliot is joined by Benjamin Rizzuto from Janus Henderson Investors to discuss estate planning and why no one should hesitate to talk about it. Bravely facing the thoughts of Retirement and death, they explore its financial and non-financial aspects, from tax implications, splitting money among beneficiaries, to the impact of inheritance on legacy building. Benjamin also shares three simple ways to decrease estate taxes and two essential things to remember to ensure a smooth wealth transfer.
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Meet Our Guest
Benjamin Rizzuto
Author | Wealth Strategist | MBA Graduate
Ben Rizzuto in an international MBA graduate with broad experience in the financial services industry. He has proven sales, marketing and relationship management skills coupled with financial, credit, and investment analysis skills.
Ben’s work experience spans both the United States and Europe with and extensive study of Italian language, culture, and economy through living, working, and studying in Italy.
Diving Deep Into Estate Planning With Benjamin Rizzuto
I’d like to welcome you to another episode. It’s very exciting. We’re going to talk about a different subject, estate planning. We are here Benjamin Rizzuto from Janus Henderson Investors, a $300 billion company. He’s based in Denver, Colorado. We’re going to talk about estate planning and the mistakes that happen in estate planning. I want you to know as a financial advisor and CEO, I see these mistakes every single day of the week. We want to avoid these strategies that are doomed to failure. There’s all that family fighting that can happen and none of us want to leave that behind. If you need to reach me, I’m at ProsperityFinancialGroup.com. That’s our website. You can see 60 of these plus on our website. We’re in the top 2% of all financial shows globally, which is amazing. It’s Elliot@ProsperityFinancialGroup.com and (925) 314 8503. Ben, let me welcome you.
Thank you. It’s great to be with you today to talk about estate planning and legacy planning.
Common Estate Planning Mistakes
Legacy planning includes leaving money to my children or charities. It includes creating a foundation if you’ve got the net worth to do that. It includes even saying, “I don’t want to leave anything. I want to die bouncing my last paycheck, and I want it to die in my favorite restaurant.” There are lots of ways to create a legacy for yourself. Money is one of them different tools are available. If you want to find out more about these tools, come to me and ask us questions. They’re on our website. There are lots of articles about this. Schedule a time with me. We’ll sit down and talk about estate planning as part of your strategy. Let’s get right into this if we can. Let’s talk about some mistakes that people make right off the bat. What are 4 or 5 common mistakes you see?
When it comes to this idea of estate planning, one of the main things that people make a mistake around. It is hesitancy around talking about the issue. I’ve found that there are a few main reasons why people are hesitant to talk about estate planning. First and foremost, this is inherently a conversation about death. Many of us are loathed to consider such a thing, our own demise. No one wants to think about those things. Because of that, there is reluctance and hesitance to talk about estate planning because somewhere in our heads we may think, “If I talk about estate planning, I’m instantly going to die.” That isn’t going to happen. That’s one mistake that I found. Another thing that I find with people is they feel that estate planning is overly complex and there are a lot of legal costs and things that go into it.
There are complexities. There are legal issues that need to be considered, but these are important things to think about. That’s another reason why folks are hesitant to talk about it. I think that’s why it’s good to sit down with someone like yourself to go through some of those issues and explain some of those complexities so they make sense to that person and their financial plan or whatever it may be. The final thing that I see is that there are a lot of both financial and non-financial issues that go into this idea of wealth transfer or estate planning. Financially speaking, there’s money, taxes and things like that. More importantly, and more interestingly is the non-financial stuff, the family things. Those are the issues that are difficult for folks to think about and find answers to because we’re all different.
My family functions differently than your family. You have different values than I have. There’s no one right answer to these questions. The way that people should be thinking about this is from the standpoint of a legacy because if we think about it, every one of us is going to leave some sort of legacy. It’s going to be a combination of financial and non-financial. The question that people need to ask themselves is, “What is the legacy that I want to leave for my kids, my grandkids, my community, whatever it may be?” Is it one of confusion or is it one of making sure that things are clear and everyone is set up to succeed?
Equality Vs Fairness
Let me talk about one of the big mistakes I think people make, and I see this all the time. That is with good intent, the parents want to be equal with their children instead of fair with their children. Sometimes they own a company or they own property, or they’ve helped their child, one child out of three do something different. What’s the difference between equal and fair? Maybe get into that.
That is an interesting one because of course parents want to make sure that their kids feel as if they love them equally. They may very well love those children equally, but there is a difference between equal and fair this gets into understanding the financial and family issues that affect each and every child. The way that I think about this is I bring up the example of a family with two kids. One kid is a successful surgeon and makes a tremendous living. The other kid is a starving artist, for example. There two different financial situations for those children.
Because of that, parents may say, “We’re going to make sure that that starving artist has a larger inheritance so that they can be as or a little bit more financially well off.” Equal is not always fair, and fair is not always equal. The real important thing, whatever the decision is that parents make, whether it’s an equal bequest or it’s an unequal bequest, is talking to those kids and making sure that they understand what’s going to happen, expectations are set, and those children understand the rationale for those decisions. That helps to make sure that there’s no infighting conflict after parents have passed away.
Children must fully understand what will happen to their parents’ wealth after their death to ensure no infighting will happen once they pass away.
House After Death
Here’s an example I want to give you, where you’ve got a surviving mother who’s elderly now. She bought each one of her children a house. She had the means to do that. The houses are in three different states with three different values. California being the most expensive house, and she had a mortgage, but she paid it off already. The kids, when she dies, are going to get free and clear. You’ve got the executor saying, “That’s more than enough in my book. I’m good. Leave me whatever you want. No rush.” One of the children is almost on welfare and says, “Don’t even sell your house worth multimillion dollars here in California because when I come to visit Northern California, I want to be able to use your house and I have no other place to live, even though it’s worth millions of millions of dollars.”
The other one who lives completely out of state is saying, “You owe me, and you owe me everything.” What’s a mother to do? She’s killing guilt-ridden about how to handle this. I said, “Leave it fairly. You’ve given different money. It’s not the value of the real estate. It is that everybody’s going to do very well. Sell your house. 2 or 3 are going to want the money. Don’t let the executor not sell got stuck in there and feel emotionally own about my sibling they want to use. Don’t get rid of that. Kids want the money more than they want the house.” Is that fair?
I think that is fair that’s one of those things that research has shown is one of the things that is always, or many times left when parents pass away is a house, or in this case houses. In some cases, that may make sense for a person to inherit a house if they have the means to keep it, pay the mortgage if that’s still part of the plan, property taxes and things like that. Maybe lot easier and a lot cleaner to sell the houses, provide cash to the beneficiaries, and let them do what they want or need with it.
One of the things we need to think about and probably discuss is what is the tax implication for each one of those recipients because their tax bracket may mean that they receive an equal amount. They may receive $1 million each, for example, but if they’re in a higher tax bracket, it may be a lower net or after tax amount. Those are some of the things to think about. Making it clear and easy to understand is a great idea depending on the family and circumstances.
Looking After Aging Parents
The burden of taking care of an aging parent often falls on either the single child, the unmarried child or the daughter more than does the boy in a disproportional amount of time. How does that come into play when I talk about splitting my state when you know that some people when get old, they get angry and bitter and they take it out and the closest person to them, which is in this case, the caretaker, most often the daughter, and this creates a horrible situation of resentment.
There are a couple of issues to think about with that idea. 1) When it comes to that caretaker, the care that they are providing may be repaid through some inheritance. If there are two children, one is the caretaker and one lives out of state. The parent may say because this person is going to do all this stuff to help me as I age, I’m going to compensate them for that, which could lead to a higher inheritance for them.
That is something that needs to be discussed and clarified before that parent is incapacitated or can’t communicate clearly. Even though that’s the case, in most cases, inheritance bequests are done equally. That doesn’t have to be the case. I think the other thing to think about is what are end-of-life issues. What are the healthcare issues or concerns that parent has? How do they want to spend the last several years of their life. If we talk about that before they’re incapacitated or they’re unable to communicate those things, then we can set up a plan. As you know, plans are important to us in this industry, but having that plan allows us to make sure that wishes are met, plans are met, and assets are set aside to ensure that people can be taken care of in a good way and in a way that they would like to be taken care of.
Having an estate plan allows lawyers to ensure that a person’s wishes are met when they die and their assets are set aside for other people’s benefit.
Dealing With Estate Taxes
On a different note, taxes, assuming that they’re both IRA taxes coming in and eventually estate taxes, even though it’s greater than $20 million per couple. What are some 2 or 3 great ways for families to cut down the amount of tax that they’re going to owe at one point?
Let’s level set for a couple of reasons. As you mentioned, for most families, the federal estate tax may not apply because the annual or estate exclusion amount is $13 million approximately per person. If your family has over $26 million, then you need to worry about federal estate taxes. That may not affect a lot of people. To your question, what are some things that folks can do to manage their estate tax? I’d say three things come to mind.
Lifetime gifts are a great way to take the assets that you have and make sure that someone can do something with them now in the present. Each US citizen can provide $17,000 per person per year without any gift or estate tax. That’s something that we can do. Many times parents or grandparents will take that $17,000 or more and put that into like a 529 for a child or grandchild to fund their education.
That’s a great way to help that recipient do something good with that money. It also helps to get assets out of your estate and decrease the probability that there may be any federal or state estate tax.
Lifetime gifts are a good thing to do. The other thing about lifetime gifts is they have a financial component to them, but there’s also a non-financial component to them. By being able to provide a lifetime gift, that’s going to make you feel good. If you provide someone with a gift after you’ve died, as I always say, you’re not going to feel anything. That’s another reason to consider lifetime gifts. Another thing that we can talk about is charitable giving.
In the United States, you can provide unlimited amounts to charity. That can do something good for the community or for an organization and can also help you feel good about what you’re doing for that community or organization. It may also be a way to pass on that value of Philanthropy to the next generation. Providing the charity is a great way to do that. If you do it right, depending on the assets that you have, you won’t see any tax hit. The charity won’t see any tax hit. Finally, the more complex thing to think about are trust. There are all sorts of trusts and legalese that we can talk about when it comes to trust. Those are simply legal structures where we can hold assets that get them out of our estate. I’m not going to go into too much more depth on that because they can get complex, but that’s another idea depending on the family and on their level of wealth.
We’re talking about estate planning. I got a couple more questions. This has been great. I want to piggyback on what you said about gifting in 529 but gifting at $70,000. It’s not just $70,000 to my child. It’s to my child, my grandchildren, their spouses, friends, family, family and friends. It’s unlimited. If you want to dispose of money, it’s any way you want to do it. They could turn around and take whatever they want with the money that you’ve given them. You’ve given 9 or 10 people $17,000 and one wants to give it to the other person separately. That’s their business. They do that. It is a way to get around it.
Most 592s allow you to refund five years in advance. 5ive times 17, which is great. You get a one-time write-off on that too then you don’t have to fund it ever again because if you have enough time and error, it’ll get to the maximum. Why not? I want to add one more thing to charity. As you know, as someone who is CEO O of ABrighterDay.Info at California Charity that deals with stress and personal resources, talk to us about, and it doesn’t matter about our charity, whatever is important to you, including maybe your own foundation because that is a great way to work with it if you have the net worth to do that.
It is grits, grits, actual cash, life as proceeds and including real estate rental property to take out of your estate now and put in some type of irrevocable way in to give it to the charity and get a tax write-off or if it’s important to you that real estate come in and go out of your trust, then you might get a partial deduction as well as a charity benefit. A charity could be a church or a synagogue. It doesn’t have to be a brighter day or the American Cancer Society or diabetes. It could be because going to church on Sunday or going to synagogue on Saturday is important to you. It’s an important way of life.
A foundation, if you’re worth $5 million or $10 million or above and you want to change the next generation, if you put that into your own personal foundation, you must give away 5% of it a year. That means that if you’ve got a child that let’s say is struggling to find a career path and your other two are a lawyer and a doctor. Child number three is struggling. You could name that child as CEO of your foundation and because they have to give away 5% of $10 million, that’s $500,000 a year. They will be invited to charities and black tie balls every week for the rest of their life. They will have created some self-importance and done good by society.
One more thing you could do on a personal level is you could do a donor-advised fund you don’t have to pick the charity. You could stick it in there where you do it with Schwab. You put whatever you want in there and take a tax deduction for that as long as it’s within your personal exemption requirements and decide somewhere down the road while you’re still alive, which charity you want that going to.
Parents could take money, put it into that donor-advised fund and then say to that child, “You figure out what we should do with this money.” That allows those parents to pass on that idea. That value of Philanthropy gives that child something to do, and helps them feel good about themselves and the wealth that their family has created.
Parents must pass on the value of Philanthropy to their children. This way, they can feel good about themselves and the wealth their family has created.
Will Vs Trust
A couple of quick questions at the end here. This has been great. What’s the difference between a will and a trust?
A will is simply your instructions, “This is what I want to happen with my assets once I pass away.” How should they be divided up, what are the rules, what are the parameters as to when and who will receive the trust is going to be the actual structure or thing that may hold those assets in the future. That’s the main difference. An important point will and trust, many folks may have them, but a lot of folks don’t. I think that would be step number one. If you don’t have a will, make sure that you get one set up.
At Janus Henderson, we did some research asking participants about their bequest intentions and how they wanted to dispose of their assets. What’s interesting is we had to take 54% of the participants out of the sample because they didn’t have a will. That would be step number one. I think that’s a great year-end task to have if you are a family. Sit down and make sure you have that will and that there are those instructions available to your executors or whoever they may be.
Family Dynamics And Understanding Money
We got to make sure we’re doing it right. Lastly, back to family dynamics, because I have to deal with the emotional side of it and I want readers to know that it is complicated family dynamics because of the emotions of people dying. One is closer to the one parent who’s dying, the other one might have been closer to the other or felt completely disposed of and discharged as a family member. All these things come back into play. We’re talking about family dynamics.
Sometimes we get abusive. I saw in my own family as my dad and even my mother became more incapacitated my sister who was taking care of my mother especially, started to do things that today I find poor and horrible way she treated her. Horrible. She was able to manipulate her as a lawyer to get everything she wanted at the end of the day.
There are an awful lot of family dynamics. Sometimes we can protect against that and sometimes we cannot because of the emotional side of it. If you’ve got that in there, besides family counseling, which some people do need during the process, let’s talk about where the money goes. One more thing you may want to comment on is when you’ve got somebody that does not understand how there’s not understand money, and if you leave them whenever you leave them, they’re going to blow through it in a short period of time, all the other ones will use it over a long period of time. There are ways, I’m sure you’ve seen them to protect the person almost from themselves.
That’s a great point. One of the stats that I talk a lot about when it comes to wealth transfer, many of our listeners would probably be surprised to hear that 70% of wealth transfers fail. Failure is defined as assets being involuntarily taken out of control of one or more of the beneficiaries. The question that first comes to mind is, “Why is that?” Many would think it’s got to be a tax or finance issue. The reason is because there’s a lack of trust and communication. That’s the first main reason. The second reason is the lack of preparedness or lack of financial literacy of the beneficiary.
Two things that I would say can help guard against that. 1) Helping prepare your heirs while you’re still alive. One way that I think it is great to do that is to bring them into the conversation around wealth.
Talk more freely about what you have, even though money can be a taboo issue. I think talking more freely about it helps to turn down the temperature and make it something that is part of your family’s culture. Doing that within a family is great.
Parents, children and financial advisors, sitting down in what we call a family money meeting is a great way to bring them into the conversation and increase their overall financial literacy. If we want to get more technical and protect them from themselves, that’s where we may talk about trusts and something called a spendthrift provision, which may set certain provisions or hurdles that a beneficiary would have to meet or overcome before they received that wealth. That’s one way to ensure that a beneficiary doesn’t get everything upfront. They don’t blow through it before they reach the age of 25 or 30 and they’re set up for the long-term.
We are talking about estate planning and I hate to use it, it’s a horrible phrase, but you can see there are many ways to skin a cat here. That’s probably a phrase that should go away. Estate planning can be very complicated. Not only are the trust shelters, trust bypass trust, A, trust and crummy provision. There are lots of words we can use here, but then you’ve got the emotional baggage associated with these.
You’ve got the family that says, “You owe me,” versus, “You’ve already favored my sibling his whole life. How about leaving something,” or vice versa? If you’ve got these questions, this is the time to sit down with people like myself here at Prosperity Financial Group. If you want to talk to Ben, we’ll get Ben on the phone because he can help you with this or sit down with us. I want to thank you, Ben, for joining.
It’s been great talking. I hope folks have walked away with a couple of things that they will talk to their spouses and their significant others about when it comes to estate planning. I would remind folks to think about this issue. We all leave a legacy. What are the goals for you and your family? Make sure you’re thoughtful about that. Remember, there are folks like Elliot and me who are out here to help you with all of these issues. Thank you, Elliot. I’m happy to be with you.
Closing Words
Thank you. We’ve been talking about estate planning. Come join us on the next episode. We’ll look forward to seeing you there. Have a great day.
Important Links
- Janus Henderson Investors
- ProsperityFinancialGroup.com
- Elliot@ProsperityFinancialGroup.com
- ABrighterDay.Info
The post Diving Deep Into Estate Planning With Benjamin Rizzuto appeared first on Prosperity Financial Group | San Ramon, CA.
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