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Maria Bruno: Hi. I’m Maria Bruno, head of U.S. Wealth Planning Research here at Vanguard.

Joel Dickson: And I’m Joel Dickson, global head of Advice Methodology at Vanguard. Welcome to our podcast series, The Planner and the Geek, in which we will discuss topics that are important to individual investors.

Maria Bruno:  And we’ll have some fun along the way.

Joel Dickson: So today we’re going to talk about, I don’t know what we want to call it —wealth planning, estate planning, managing …

Maria Bruno: Financial planning?

Joel Dickson: Financial planning, exactly. I just think it’s unfortunate though that when many people hear phrases and terms like estate planning or wealth management or heirs, they kind of tune out and stop listening because they think it only applies to the wealthy. Whoever’s listening, please don’t leave now. As we’re going to tell you, these considerations, approaches, planning in terms of your wealth and your legacy are relevant for pretty much everyone across the wealth spectrum, across the age spectrum, and we’ll talk a little bit in this podcast about why and how. Regardless of the net worth, people need to put time and thought into taking a holistic approach to managing the assets and thinking about what will happen to those assets after we pass away or thinking about all of the different considerations with respect to our families and extended beneficiaries or heirs or so forth.

Maria Bruno: And joining us today to discuss this topic, we have Alisa Shin. Alisa is a senior wealth planner with Vanguard Personal Advisor Services® where she provides expert guidance on estate and gift tax planning, works with personalized trusts and charitable giving. So Alisa, in addition to years of practice, as well as working with clients, has her master’s degree as well as a J.D. from the University of Pennsylvania. So, Alisa, thank you for joining us today.

Alisa Shin: Thanks for having me.

Maria Bruno: And I’m kind of happy because I was thinking back a bit, and Alisa, we haven’t been in the same room together for about 5 years now. We did a webcast on Roth planning.

Alisa Shin: Oh, that’s right.

Joel Dickson: Oh, the three of us did. Yes, that’s right.

Maria Bruno: Remember that? Yes, we haven’t been in the same room ever since, which gave me a little bit of pause. So, anyway, I’m happy to be back with you guys in the same room. So, Alisa, thanks for joining us. What we, and Joel alluded to this, in terms of what we call this, right, we used to call it estate planning back in the day. Now it may not be so much estate planning, maybe some of the laws have attributed to some of that. But we think about wealth planning, financial planning. Let’s talk a little bit about that, what it is, and why should we dedicate a whole podcast to this topic?

Alisa Shin: Sure. When we think about wealth planning here at Vanguard, we like to think about it as more than just your investment planning, your estate planning, your retirement planning, your charitable planning. You could kind of go on and on, right? You have this puzzle that’s making up your plan, and that’s what we refer to, that puzzle as being your wealth plan.

We really encourage our clients to think about this holistically and think about all these different pieces, and based on past client experiences, generations who try and transfer wealth, regardless of the level of wealth, there are things that we’ve learned. And one of those things that we’ve learned is that you cannot take each one of these pieces as one piece in a silo. It’s got to be put together, and you need to think about how you do all this hard work earning the money. You do the hard work; you pay somebody to help you with your tax planning. But then the piece that often gets forgotten about is how to prepare your heirs to inherit that wealth, that softer side of planning. And that’s why we call it more wealth planning than just estate planning or financial planning.

Joel Dickson: When you talk with clients about wealth planning overall, what are some of those biggest mistakes that you come across that kind of like, “Oh, shoot”? Just start banging the head against the desk or something like that.

Alisa Shin: I think there are probably three big mistakes folks make. One is they see their lawyer, they might get a will put in place, but they don’t take the next step to have that conversation about how your assets are titled, what my beneficiary designations are on my life insurance policies, my annuities, my retirement accounts. And so those are two different components that could change how your assets are disposed of, passed out to, that could totally contradict with what your will says. So that’s one. The second one is clients often think about their planning just as it pertains to them, what they want, who it should go to. What they don’t do is think about this from a generational perspective. So while the parents might have what I’m going to call modest wealth, that’s not subject to estate tax, but their kids might be doing well financially themselves, either because they’re accumulating their own wealth or they’re doing well enough that they can support their families and even support their retirement so that any inheritance they get from mom and dad might be then just saved. And so it’s really important to think about the tax impact as the generation goes on.

Alisa Shin: And the third thing is what I alluded to earlier, which is people do a lot of work in terms of earning the wealth. You work hard during your career to saving it and then spending money to a lawyer to have a wealth plan put in place, an estate plan put in place. But then they don’t take it the next step to think about how that estate plan plays out. Do their heirs understand what the plan is? Because for most families, they want to make sure these kids and their kids stay intact with their family and that there’s good relationships so that communication, that education, making sure their heirs are prepared to receive that wealth often gets forgotten.

Maria Bruno: So, Alisa, could I just jump in with a question? So we’re talking a lot about wealth transfer, generational planning, which I think is important. But one thing that I wanted to get your perspective on, it’s not just for that, but it’s also for preparing for the unexpected. So as we’re probably going to talk about, having your affairs in order, communication, things like that, we had a podcast probably a few months ago now—Sharon Epperson was on—and we really talked about the importance of preparedness. So would you agree when we think about this, is it one and the same? Is it different?

Alisa Shin: It’s one and the same. It’s thinking about, you know, what happens on the certainty–everyone knows that we’re not going to live forever. But it’s also the unexpected. Someone gets into an accident, becomes incapacitated. You know, things don’t work out the way they do. There’s divorces, there’s marriages, what have you. A lot of unexpected things come into play, absolutely.

Joel Dickson: And I mean I guess it’s hard to plan for every contingency right? How do you think though about that flexibility in, I don’t know what’s going to happen 30 years from now, 40 years from now, when I’m gone.

Alisa Shin: Right, right.

Joel Dickson: How do we think about the values that I want to reflect in terms of my considerations but then having the flexibility as things might change?

Alisa Shin: Right. Yes, flexibility is key to all this. Tax laws are changing all the time. Family circumstances are changing all the time. And building in enough flexibility in your plan, whatever that might be, is the key component. So we really try to talk to clients about not being so stringent, in terms of the rules, as to what the money can and can’t be used for, about who can make certain decisions. Building in enough flexibility so that the plan can be changed by people that you trust I think is key because we just can’t predict what the world will be like in 20, 30, 40 years.

Maria Bruno: So, Alisa, where do you start?

Alisa Shin: Where do you start?

Maria Bruno: Million dollar question, where do you start?

Alisa Shin: I think the most efficient way to start is really taking the time to reflect and think about what your goals are and what your concerns are. The more prework you can do before you go see your lawyer, the better off you’re going to be, at least from a legal fee standpoint, right? If you know what you’re trying to accomplish, and you can go say to your lawyer, “These are my goals, these are my concerns,” and, better yet, if you had advisors that you could rely on to kind of bat some ideas around so that you can go in better educated, that’s even better. Once you kind of know your goals, you talk to your lawyer, you get your basic documents in place, your wills, your revocable trusts, your power of attorneys, financial and health care, and your living will, that’s probably step 2. And then from there it kind of varies from family to family. It’s really based on the makeup of your family, your comfort level in terms of communication. But it’s talking to them at some point to explain what the plan is in an ideal world, helping them understand who’s making decisions on your behalf in case you can’t. It’s about having a family meeting to talk about what your purpose of the wealth is, like what you hope your family uses your money for, whether it’s in the 7, 8 figures or whether it’s in the 4, 5, 6 figures. Helping them understand what you hope the money is used for and what you hope it does. Again, going to Joel’s point before, it’s not about saying, “Don’t spend money on buying this video game or buying this computer or what have you or investing in this particular stock.” It’s more the philosophy because items change, you know, so it’s important for them to understand what your philosophy is.

Joel Dickson: Alisa, let’s talk a little bit about the risk of not doing this. So there’ve been in the last couple of years a couple of pretty high profile celebrity cases where they passed away really without having thought through many of these issues. Now they may be in a different scenario than kind of a mass affluent, well under the estate exemption person, but at the same time, I look at my parents. My dad and my stepmom who didn’t have a will until about a year ago, and they’re now in their late 70s, early 80s. My mom, who is almost 80, and she really didn’t have a will until about 5 years ago. What’s the risk of not doing this and then keeping it current?

Alisa Shin: So the most obvious risk is your assets don’t go to the beneficiaries of your choosing. So if you die without a will, and assuming that you have assets that are in your own name or that you haven’t updated your beneficiary designations, there’s a good chance that your assets might not go to the people you want it to go to and in the proportion that you want it to go to. But the other risks are kind of what we talked about. It might not go in the right manner. It might be the right proportion. The intestate laws, the laws that dictate what happens to the assets if someone dies without a will, you know, it might say it goes equally among your children, which might be the right proportion, but it might not be the right manner. If you have a child who has trouble managing money, who is a spendthrift or who might be married to somebody who’s a spendthrift, then those are reasons why you might want to have it in trust. If you have a beneficiary who has a disability, giving it to them outright might not make sense, right? And the last thing is the taxes, right? So your mom might give you your inheritance outright. But in your personal situation, as time goes on, that might grow, and might subject your family to estate tax that might have been unnecessary had more thoughtful planning been done and thought through at the beginning.

Joel Dickson: Let me kind of extend that a little bit too, Alisa. And I think this is probably a fairly typical case. Again, this gets to the example of where it’s going to be nowhere close to the estate tax. So my mom is in that situation, nowhere close to the estate tax. I mean the market could triple, quadruple, whatever. Not an issue.

Alisa Shin: Yes.

Joel Dickson: However, her largest asset is a traditional IRA and then some other, a relatively small taxable account, a relatively small Roth IRA, a house, so forth. What are the planning considerations as you think about some of the IRA aspects of a wealth plan?

Alisa Shin: Sure. I mean I think in that situation, I think you’ve talked about it before, Joel, I suspect is Roth conversion. That’s something that we all talked about, Maria said 5 years ago. If your mom doesn’t have a taxable estate, is in a low income tax bracket, certainly lower than what yours is, it could make sense for her, over time and very strategically, to convert part of her traditional IRA, prepay the income tax essentially, and convert it into a Roth IRA so that when you inherit it, there won’t be any estate tax because she’s below the threshold amount. But then too when you start taking your required minimum distributions from that Roth IRA, you don’t have to pay any income tax on it, which arguably would get a higher rate than your mom had paid.

Joel Dickson: Yes, I just want to clarify one thing, obviously, because we often talk about Roth IRAs and not having required minimum distributions, but that’s only while the Roth IRA owner is alive.

Alisa Shin: Correct, that’s correct. That’s right.

Maria Bruno: And I think with that, Alisa, we’re getting to beneficiary planning and beneficiary designations. Can we talk a little bit about that? And I’m also particularly interested in, because I think we get this question periodically, what to consider when you have small children and potentially making minors a beneficiary of an IRA or any type of asset for that matter.

Alisa Shin: Right. Yes, so IRAs passed by contract, meaning the beneficiary designation, it doesn’t automatically go through your will, and it’s really important for clients to make sure that they have their beneficiary designations filled out because a lot of times your custodian, for instance Vanguard if you have an IRA here, your default might ultimately be your estate, which at least under today’s laws is the worst case scenario because the government will then force your beneficiaries to take it out in a 5-year period of time versus over a longer period of time.

So making sure that those are filled out are key. If you have minor beneficiaries or beneficiaries who have disabilities or beneficiaries who can’t manage money, then it is possible to have those IRAs, the beneficiaries to be trusts that are for those individual beneficiary’s benefit.

Joel Dickson: Yes, and that gets to this whole concept of you mentioned if you’re not careful, the IRA could be distributed over 5 years. But there’s this concept of a stretch IRA that’s often talked about where you can get, if you structure or think about it right, make sure you don’t make those mistakes where it would otherwise get accelerated, it can be stretched over the lifetime or expected lifetime of the beneficiary, correct?

Alisa Shin: Correct, at least under today’s laws.

Joel Dickson: Yes, we might get to that a little bit later. There’s some things, as you mentioned earlier, it seems like the tax laws are always changing.

Alisa Shin: Changing, right.

Joel Dickson: And there might be a change afoot here that could affect this as well. I did want to highlight one other thing, Alisa. You mentioned a little bit before, communication. We like to have fun facts around here, and Maria thinks I’ve stolen that from her. You know, that was her branding. But that’s okay. In business, it’s best practices. It’s not plagiarism. So the fun fact that, and this is from a publication around Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, that 90% of all families see their wealth disappear by the third generation. And the top reasons, by far the top reason being lack of communication and trust. And then you have other things like inadequate preparation and other things like taxes and legal issues and so forth. But we’ve talked about the inadequate preparation quite a bit. What about getting back to the communication piece of this?

Alisa Shin: Yes, you know, it’s crazy to think it’s communication, right? Some of the communication is your kids not being aware that they’re going to receive an inheritance and not understanding what to do with it. We have some beneficiaries who, believe it or not, kind of get paralyzed at the thought that they have this money, and they don’t think that that money is their money. They still think of it, even though their parents have been gone for 15 plus years, that it’s still mom and dad’s money, and they don’t know what to do with it, right? Some of it is not transferring your value proposition in terms of how you live your life and how you use your wealth. Is the wealth supposed to be used so that the kids can stop working and then they go back when they run out of money if they run out of money? Or is it supposed to be used as a rainy day fund or really set aside for retirement? Kind of how parents spend the money, they don’t spend the money, looking for the bargains, not the bargains, you know. Those are things that are engrained in a lot of people but don’t easily get passed on from generation to generation. It might get from parents to children, but then sometimes some things get lost in translation when it goes to children to grandchildren.

Maria Bruno: So I have a question, something for us to talk about. How does this change based upon marital status? So whether you’re single, whether you’re married, or in a partnership, with or without kids, let’s think through that a little bit in terms of what the nuances and what the areas of focus should be.

Alisa Shin: Yes, so, obviously this depends on circumstances and time of life, where you are in your life span. My default always is that if you’re single, you’re not married, regardless of age, it’s really important for you to go meet with an estate planning attorney to get things in place. Most states, if not all 50 states, intestate laws are really designed around the concept of a family structure, family unit. So if someone dies without a will, it’ll go to a spouse. And then if the spouse isn’t living, it would go to the kids and then start branching out to siblings, parents, and so forth, right? But if you’re single, there’s no spouse, there’s no kid, so it’s going to go possibly to your parents, which might not make sense, because usually estate planning you think downstream planning versus upstream planning. It might go to siblings you don’t like or it might go to cousins that you don’t even know and so forth. So if you’re single, having a will is really important, and just as important, it’s really important for you to have power of attorneys in place. That’s really probably even more important. Who’s going to make decisions for you on a financial standpoint and health care standpoint if you aren’t around? And for those of you who are listening, if you have kids who are either 18, in college, or older than that, making sure those kids have at least health care power of attorneys is crucial because you might still think you’re the parent and you’re paying those college tuition bills, but if those kids get hurt and they go even to the college hospital, the hospital will not necessarily at all give you any medical information about your kid because they’re over 18. So having some kind of document that gives you access to their health care so that you can help make decisions and understand what’s happening is really important.

Maria Bruno: So what about for individuals, a lot of this you had mentioned around married couples. But what if you’re not married, but you’re in a partnership? When you think about how assets are owned, those types of things, documents I would think would become even more important in that situation.

Alisa Shin: Right, so, again, very similar to being single. If you’re in a partnership but you’re not legally married, you want to make sure those power of attorneys are in place because there’s default laws that usually reflect family members that would be able to make decisions on your behalf if you had not signed these documents. So if you have a partner and you want that partner to make your health care end-of-life decisions, it needs to be documented. That might not be the same person to make your financial decisions, but that’s a thing that you need to think about. Having a will put in place is important. If you want assets to go to the partner, again, that’s not going to happen through the intestate laws. Some partners who are worried that the partnership could essentially end, not a divorce, but things could be less amicable, they might enter into a domestic partnership agreement where they’re agreeing who pays for what and that everyone’s walking away from other things if the partnership, so to speak, ends.

Joel Dickson: So I think maybe it makes sense, we have a number of questions that clients sent in on this topic, and in particular there’s an area that we haven’t really touched on yet that is actually covered in one of the questions. There was a little ditty sent in by Jack and Diane who ask, “What are the strategies for mid-income families who formerly benefitted from charitable contributions via itemized deductions? How can they maximize contribution benefits under the tax law as it sits today?”

Alisa Shin: That’s a great question. Yes, the tax laws have totally changed when it comes to the charitable planning. For those clients who are no longer itemizing their deductions, but they are still charitable, we really encourage clients to think about what I call bunching their charitable contributions. So, for instance, you might choose, probably the easiest way to do it is if you make $20,000 worth of deductions each year, in year 1 you might make a $100,000 contribution to say a donor-advised fund. You’ll get the charitable deduction right away, but then you can make distributions to the charities from your donor-advised fund in what amounts you want and at whatever rate you want. But you are able to itemize in that year 1 and take full advantage of that deduction, just by way of example.

Joel Dickson: Yes, so that the charity still benefits from the regular cash flow and then you get the charitable deductions when you’re able to, yes.

Alisa Shin: Correct. And then you’re still able, through the donor-advised fund, to control things. So if you didn’t like the way the charity was going or your interest changed in year 3, you could say instead of giving it to this charity A, I’m now going to give it to charity B and C.

Maria Bruno: We have another question. Syd asks, “How do you tell your children about your wealth without diminishing their motivation to work hard?”

Alisa Shin: That’s hard. That’s a hard one. That’s everyone’s fear. But that goes back to the communication. That goes back to preparing your kids, educating your kids about financial planning concepts, right? Understanding what compounding interest means. Understanding stock/bond/mutual funds if you want to go even further back, right? But expressing to them, helping them understand how the wealth can dissipate and how it can grow, but the importance of the family values around being productive and contributing back to society. It’s all about the communication, education.

Joel Dickson: But, Alisa, I think related to that though is oftentimes won’t we see things set up in such a way that it’s not, for those that are worried about this type of issue, it’s not that all of a sudden you get a million dollars or $3 million. It’s, if you will, a dribs and drabs. It’s $20,000, $30,000, $40,000 a year so that, yes, it is nice in terms of an add-on, but it’s not in and of itself going to allow you to sort of do that.

Alisa Shin: Absolutely, absolutely. So using some kind of trust structure is vital, right? Anything you guarantee them, they’re going to get. So if you guarantee them too much, that could replace wealth that they have to earn themselves to live on that might then allow them to become unproductive for lack of a better word, right? So building in flexibility, like giving trustees discretion to make decisions, so if they see a beneficiary going down the wrong path, they might start not being so generous with the distributions. But if they see that beneficiaries are being productive, but they still need some extra help to send the kids to college, they can pull the money for those reasons. Those kinds of things are important, absolutely.

Joel Dickson: Yes, and that’s actually related to another question that Kristin asked, which is, “At what point should you create a trust, and what are the benefits of creating a family trust?”

Alisa Shin: So the trust, there’s a lot of different kinds of trusts, right? But I think what Kristin’s talking about here is an irrevocable trust. Most times I would say most of our listeners have these trusts created at their death. So you put it in your will or the revocable trust, the terms, that’s going to give the guardrails as to how that money can be used, but that trust doesn’t come to life until the person passes away. That’s probably the most common time. For clients who are trying to take advantage of tax planning whose net worth is at around or even exceeds what you can give at the federal limit, they might create lifetime irrevocable trusts, but those are probably less common from a national standpoint across all the different wealth levels.

Joel Dickson: But this also though gets to the point about the control and the values and putting in place what you want to be put in place for future generations and so forth, right? And that’s true whether you have $100 million or $100,000.

Alisa Shin: $100,000, yes, absolutely. And again, we want you to build flexibility. So find people you trust to be your trustees who’s going to make those decisions about how the money is used. Let your beneficiaries, if you trust their judgment, figure out what should happen for the next generation because you don’t know what those kids are going to be like. Don’t guarantee the money at 25, for instance. If you had strong feelings about what the money can and can’t be used for, that’s where we really encourage clients to leave what I’ll call a letter of intent or a letter of wishes where they can memorialize those more fine points as to what their thoughts are. Again, it provides a map. It’s not legally binding, so trustees don’t have to follow it, but most trustees will at least use it as a guideline when they start managing the money and making decisions with the beneficiaries about when and how to use the money.

Maria Bruno: Guess we have one last question. We talked a little bit about, Joel, you had mentioned the stretch IRA. So IRAs for many, when you think about, particularly retirees who are leaving the workforce today, large tax-deferred balances. Also for many people who are working, saving monies within their employer-sponsored plan. So IRAs constitute, for many, a pretty sizeable amount of someone’s net worth. So Ed from New York actually asked this question. You know, “Can you tell us more about a stretch IRA?” But I think more broadly, stretch IRAs and how the legislation around beneficiary planning and things that might be in play there I think is, it comes up a lot. So let’s talk a little bit about that, maybe what to think about when you’re determining the beneficiary of tax-advantaged accounts and then particularly with the stretch IRA what to think through.

Alisa Shin: Yes, so, you know, with the stretch IRA, you have to think about, it goes back to what your goals are.

Maria Bruno: Well let’s talk about why is it called the stretch IRA?

Joel Dickson: Because it stretches. You try to stretch it over, getting away from the 5-year distribution as we had talked about a little bit earlier.

Maria Bruno: Right, so you’re allowing the account to potentially benefit from tax free or tax-deferred growth while still taking mandated distributions. That’s the stretch.

Alisa Shin: That’s the stretch, right?

Maria Bruno: We talk about stretch all the time. I just want to make sure our listeners are with us.

Joel Dickson: No, I got you.

Alisa Shin: Right, so if you have a stretch IRA, all IRAs are stretch IRAs, at least innately, right?

Maria Bruno: Good point.

Alisa Shin: You can lengthen or shorten the stretch, depending on what decisions you make. But when you think about who your beneficiaries of these IRAs should be, it goes back to what your goals are. So if you’re philanthropic, arguably then one of the best assets to give is your traditional IRA to the charity. But if you’re not philanthropic in nature or charitable or at least to the extent, the size of your IRA, then thinking about does it go to the kids? What concerns do you have for your kids? There’s no rule saying that you have to do the exact same thing for each and every one of your children. You could do different things. Some clients don’t believe that. Others do. But if you have a child who either is earning their own wealth or is in a profession where there is a lot of risk for being sued or they don’t know how to manage money or they’re easily influenced by others, you might not want to give it outright to them. You might want to have it in trust. Now clearly if you have a beneficiary who’s a minor, you would almost default to always having it in trust for them. There’s just too much unknown in terms of what kind of person they’re going to grow into, who they’re going to marry, what they’re going to be doing for a living, and so forth.

Joel Dickson: Yes, and we had talked a little bit Alisa before, about flexibility and things are always changing, the tax law is changing. There’s a current proposal that’s already passed the House of Representatives—we’re recording this at the end of June—that may end up becoming law. We don’t know. We’ve never tried to guess the political winds. But it just gets, as an example of how it’s important to stay on top of this and have the flexibility and revisit things because the particular legislation, it’s known as the Secure Act, in terms of what passed the House, would change the stretch IRA rules, essentially for most instances other than spouse and minor children or dependents, adult dependents situation, would end up having now to have everything distributed within 10 years.

Alisa Shin: Right, yes.

Joel Dickson: This particular proposal. So that idea of the stretch just got compressed a little bit, right?

Alisa Shin: That’s right.

Joel Dickson: And the RMD or the required minimum distribution age would shift from 70½ to 72. So there are a lot of other provisions in the plan, but I think for our listeners, those are the 2 big ones. How might that impact how you think about some of the planning elements here?

Alisa Shin: Yes, that 10-year distribution or 5-year distribution, depending on which bill you’re looking at, that changes the game a lot, right, even for a relatively smaller IRA. If you have a $100,000 IRA that’s going to go to a beneficiary, instead of that beneficiary taking it out in miniscule fractions, right, now you’re faced with them taking $10,000 a year every year for 10 years. Some beneficiaries can manage that; others can’t. And certainly as the size of your IRA grows, you have a million dollar IRA, and that’s going to be distributed in 10 years, that’s $100,000 a year that’s going outright to somebody if it’s not in the right kind of trust. And I think in the past, I mean, we’ll see what the law says. In the past a lot of lawyers have defaulted to using what they call conduit trusts, right? So they put the money in, put the IRA into a conduit trust. They’re at least assured that all their beneficiary’s going to get is that required minimum distribution, that RMD. And they were okay with that amount. But now the RMD’s going to be one-tenth of that account. $100,000, someone could say, “I don’t need to work for $100,000. I could live off of $100,000.”

Alisa Shin: So it’s going to change the kind of trusts that we use. We might start seeing clients moving away from conduit trusts to accumulation trusts where the trustee will pull the $100,000 out, but it will stay in the trust wrapper. And the trustee will then determine how much of that $100,000 the beneficiary should actually get each year.

Joel Dickson: And I even think then, we talked a little bit before about Roth conversions.  And, that money that’s coming out, if it’s traditional IRA-based, is taxable. And if it’s now a larger amount, it could be pushing the heirs into higher brackets and so forth.

Alisa Shin: Absolutely.

Joel Dickson: So Roth conversions could make the difference.

Maria Bruno: Yes, and I think this has evolved because over the years we used to talk about income tax and estate tax competing. Here’s the situation where you really need to think through the income tax rates of both the owner as well as the beneficiary, right?. So the focus may be more on income tax rates, but it’s not necessarily your rate but the rate of your beneficiaries or potential heirs that you need to think through.

Alisa Shin: Yes, absolutely. I mean as the estate tax exemption amount, the amount that you can pass free of federal estate tax goes up, it really becomes for the vast majority of the country less about estate taxes and more about income taxes. The only caveat I’ll make is if you’re part of that, I forget where the number actually is now, but 17 states or 14 states that have a state estate tax, a lot of times those state estate tax threshold exemptions amounts are significantly less than the federal level. So you might think you don’t have a federal problem, but you could very well have a state estate tax problem that you have to think through.

Joel Dickson: Well that’s great. Alisa, thank you for joining us today, and I think we’ve given our listeners some to-dos coming out of this. A number of the takeaways, these issues about thinking about wealth planning and transfer of wealth and the generational issues that we had talked about, is really not just for the wealthy. It is for everyone to think about, and that it’s something that just can’t be done once and then never thought about again. As circumstances change, as laws change, and so forth.

Maria Bruno: Everything with financial planning, right, it’s not once and done. You’ve got to revisit it.

Joel Dickson: That’s exactly right.  And really at the heart of this is a lot of communication and making sure that kind of everyone is on the same page across the board.

Alisa Shin: Right, you don’t want this to be a surprise.

Joel Dickson: Exactly.

Maria Bruno: And think holistically, right? So think about the entire spectrum, not just assets, but documents, beneficiary planning. I would even put in risk management in there as well to insurance and things like that.

Alisa Shin: Absolutely.

Maria Bruno: But think about the entire picture.

Alisa Shin: The entire plan, yes, the entire puzzle.

Joel Dickson: We do have a number of resources at Vanguard that talk about this, whether it is in conversations that there might be from an advice standpoint and, Alisa, you work with a lot of our clients on a regular basis on a number of these issues. So whether it’s the Advice Services area or we actually have a blog, and you can find a link on the episode page, but a blog earlier this year in January of 2019 titled, Your Legacy is More Than Just Your Portfolio that in many ways talks about, at an even higher level, some of what we were talking about today but, also a bit of a roadmap and a game plan that you might think about.

Alisa Shin: Yes.

Joel Dickson: So, Alisa, any other final perspectives or thoughts that you think are important to share with the listeners?

Alisa Shin: Sure, absolutely. It’s really important for clients to know that they’re not alone in this. They don’t have to navigate all of these decisions by themselves. They have a plethora of resources at their hand that they could go to. Joel pointed out two great ones that we have at Vanguard. There’s probably even more at in terms of articles and thought leaderships. Clients, you have your attorneys, your tax accountants. Don’t hesitate to ask them their opinion. They’ve worked with many different clients. They’ve seen different situations. They can really help you think through it. As well as your financial advisors. They probably have even worked with more clients and see lots of different scenarios and how decisions can impact family relationships. So don’t hesitate to reach out to your advisors, to your team. Bring them together. Our belief is that you’re best served if your advisors are at least figuratively, if not literally, at the same table on the same page about what your goals are and what your plan is. You’re not alone.

Maria Bruno: And, Alisa, I’ll just add one more. As I had mentioned, we had done a podcast a few months ago around preparing for the unexpected, so I think that could be another one if listeners want to learn more.

Alisa Shin: That’s a great idea.

Maria Bruno: So thank you. It was great having you in the studio. I think we covered a lot, and I wanted to say thanks. It’s been great. And, Joel, thank you as well.

Alisa Shin: Thanks for having me.

Maria Bruno: We hope you enjoyed this episode of The Planner and the Geek. Just a reminder that you can find more episodes of The Planner and the Geek on iTunes® and on

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