Read The Transcript Below:

Steven (00:52):

Hello everyone and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and this week on the show I have a fellow author Chad Holmes joining me on the show, the author of The Inheritance Playbook. Chad, welcome to the show. 

Chad (01:07):

Thanks, Steven, glad to be here.

Steven (01:09):

I was really excited when I saw that you had published this book Estate Tax. Definitely one of the issues that comes in with inheritance is one of those things that can be a big deal when it’s applicable and it’s not one I spend a ton of time on myself and so I can speak to it from a high level, but I love seeing resources that help people take action around a particular topic. So Chad, tell us a little bit about your background and what led you to want to write a book about inheritance.

Chad (01:38):

So background, I became a CPA, went with the big four route out of college and I ended up doing the audit route and that was just, I had no passion. They, I’ll say that I learned about financial planning through my grandfather. I was at their house and my grandfather was crippled and the advisor came to their house and I got to sit in on the meeting and I was just blown away by how cool that was. So an opportunity came up for me to switch from accounting over to personal finance and I thought it’d be pretty easy because undergrad was finance master’s in accounting and it’s all the same thing, but the two concepts and two industries could not overlap at all for me for what I was doing. And so it’s a big learning curve and I loved every second of it and I jumped over to financial planning back in 2016 and really, really enjoyed that job.

(02:28):

We had to move for my wife’s job and so right around the time we had a baby and it was Covid 2020 moved across the country without seeing the new home because flights were canceled. And so that was a really fun chapter and now I figured why not start a business during all that? So stayed at home with a baby and worked nights and weekends when the wife was home so that I could get some client work in and clients actually liked meeting nights and weekends. They didn’t have to take off work. So that was a unique prospect for my practice that didn’t intend to be something special, but people have enjoyed it so far. And so last year we were having another child and I was like, I can’t just keep bringing on clients and meeting with people. So I wanted to be productive with my time, but I didn’t want to just keep agreeing to meet with people and then having to cancel due to the chaos of having a newborn baby in the house.

(03:11):

So I said, you know what? How about I just work on the business or do something that can help my marketing later on And I specialize in serving families that are serving their aging parents as power of attorney. In doing so, we’re able to look at taxes and finances and estate planning from a two generational, and in doing so, I know the RTS team knows that, hey, minimizing taxes every year is not always the best thing. Sometimes we want to minimize taxes over your life. And I take that one step further and say, what if we minimize taxes over the bloodline or two generations? And so by having the client be power of attorney over the aging parent who’s an assisted living or a lot of sad situations out there, I’m sure you can imagine I serve basically one master in doing it that way and we’re able to do tax planning, estate planning and things like that so that the total family unit pays leased in taxes and then also we’re trying to prepare for the ultimate passing of that aging parent.

(04:14):

So we’re getting estate documents in an order and we’re making sure we’re avoiding a complex probate process or at least minimizing the time and money that has to go into probate, which is how we settle someone’s estate. You can’t pass out your inheritance until the estate is settled, right? So I decided to write a book and I called it the Inheritance Playbook, helping your parents pass the torch, not the tax because we want their legacy to be passed down, not ordinary income from an IRA in your fifties or sixties, your highest earning bracket you’ve ever been in and now you’ve got a 10 year gap right now, but you have to pay ordinary income taxes on an IRA versus what if we just had them pull that money out? They don’t have much income right now outside of Social Security, so why not do some advanced distributions from the IRA? Yes, they’re paying more taxes, but as a family we’re going to minimize taxes over those two generations.

Steven (05:06):

Chad, I love so much about the approach of description, I want to highlight a few things you said in there. I always love hearing advisors who have very specific niches and I think people get this wrong sometimes with how they define their niche, but it seems like you’ve really got this dialed in of the way I heard that was that I mean you specialize in working with families who have turnover, aging parents that is very specific. That’s something that you can easily take action on and then it helps guide the rest of what you do. And so instead of having to learn every aspect of tax planning, you can really focus on the clients you serve. And along with that, you talked about looking at tax savings over multiple generations, and I’m with you and my team is with you. It’s not just about saving as much in tax this year as possible. I like to talk about minimizing the tax over the lifetime of your wealth. You had a great example there at the end. Okay, this is especially for aging parents or for aging clients, whoever the person is. I mean death and taxes, the two inevitabilities. As we get towards the end of life and we’re planning for what we want that impact to be of that legacy, we can make some of these proactive decisions that might intentionally accelerate taxes, but over the lifetime of that wealth, it’s going to have the best outcome.

Chad (06:17):

Yeah, I think proactive inheritance is an overlooked opportunity because typically advisors serve a client and they don’t have the generation above or below as clients. And so we don’t know a lot about those family aspects or dynamics and so it’s really difficult to do that kind of multi-generational planning. But I think with baby boomers getting up there, I truly think that inheritance planning is going to be the next big thing in the industry where we’re going to be looking at, hey, we want to get both generations as our clients because there are some studies out there that say something like 70 to 90% of heirs don’t keep their parents’ advisor. When the parents pass, they change it over. And I read that and I thought, well, what if we just had both generations to begin with and we worked from that angle and that way you’re not losing momentum and stuck in ineffective planning because solving one problem at a time and the great wealth transfer is upon us.

(07:13):

I know it’s like $70 trillion or something being passed down over the next couple of decades. And I talk about this in the book and I say a lot of this is being passed down without any proactive planning done. It’s just by default, Hey, here’s everything that I’ve got now. You get it? We’re not simplifying probate, we’re not being proactive. And one chapter of the book talks about getting an inventory of what your parents have, where’s their safety deposit box? What insurance policies do they have? Who do you need to contact when the parent goes to make sure that everything’s taken care of when we’re settling the estate and talking about this ahead of time, you’re not then playing defense with an unknown number of assets to find or liabilities to find when they’re gone.

Steven (07:53):

Yeah, there’s so much more to it than just the taxes, like to tell people we want to make good life decisions and then find out the most tax efficient way to do that. And just a quick comment on the multi-generational planning for, I talk about a couple of things I saw in your book, we’ve seen a lot of issues around how people are handling inherited IRAs as your example of, hey, it might make sense, just go ahead and distribute that before it becomes an inherited IRA and that can absolutely make sense, but I love your recommendation about advisors working with multiple generations because that’s a great way to ensure that those things get handled correctly when someone passes and that people don’t get killed on taxes by inadvertently taking inherited IRA all in the first year or the last year, but having an intentional plan.

Chad (08:36):

Hey, that should be a name for a book. Don’t get killed on taxes.

Steven (08:38):

Oh, that’d be a great name for a book. Lemme see if I can’t get that figured out. Appreciate the shout out there. Chad, you mentioned you started bringing up some of the other things that come along with planning for an inheritance. This is one of those areas that I really appreciate other people really being able to dive deep into this because I talk about the tax piece, the second chapter in your book titled Inventory We’ll Go with on this podcast stuff, but I appreciate the humor in the book, but stuff my parents have, I definitely, I mean as a child myself, I think about that sometimes of not even like, Hey, what of my parents stuff am I going to get? But it’s like, huh, I wonder what happens to all of that and how do we sort that? I’ve got six siblings and it’s not just the tax impact of someone passing and I hope that is decades away from me, but having a plan for how this stuff gets dealt with.

Chad (09:22):

Yeah, do we know where the nice jewelry is? Is it all costume jewelry? I’ve heard so many stories of people giving away their mother’s costume jewelry when she’s gone and then realizing, oh wait, where was that ring? Or where was that super-expensive piece? Oh, it must’ve been given away as costume stuff.

Steven (09:37):

Yeah, there’s so many important aspects. What are some other things that you like to help make sure clients are covering beyond just the taxes?

Commercial (09:44):

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Chad (10:53):

Risk tolerance. So if I am still in my working years and I’ve got a while until retirement, I’m probably a little riskier in my investment approach as opposed to my 85-year-old parents. They may be very conservative because they can’t tolerate or they feel like they can’t tolerate major market swings, but what I talk about in the book is this chapter is called Risky Tolerance Business. What we want to do is say, Hey, if there’s enough money that we know without a doubt parents are going to be just fine and we know there’s a certain amount that is intended for the next generation, let’s let that amount that is not for the parents, but that’s intended for next generation. Let’s let that mirror the risk tolerance, the intended beneficiaries. It doesn’t need to be in cash. If I’ve got a 30, 40 year time horizon, my parents are very conservative, allocate a piece that we know they’ll need for care and whatnot for that conservative piece, but the rest of it, let’s make it a little more aggressive and match what the intended beneficiary is going to be.

(11:51):

There are also strategies in the book about Step up in basis doing the wrong thing here, acting, gifting the house or things like that. I know you’ve covered throughout this podcast before, but playing along with Stepping up in basis is very valuable. And there’s another chapter about charity, so there’s tax efficient ways to give to charity and there’s tax inefficient ways to give to charity. So I talk about a few of those and I even include some QR codes to the YouTube channel where I created a character called Sassy St. Peter and he’s the tax-savvy gatekeeper in heaven who insults your parents for, what do you mean you gave charity like that? It’s a comedic take on and then it’s, I think the tagline is don’t let your parents get burned at the stakes at the gates. I’m sorry, at the gates, so it’s just a punt on that. But this book, is not written in the language of CPAs and CFPs, but it is intended for the general audience out there. I use characters and parable-like stories and this couple’s going through life and they do this, but guess what? We found out they did wrong. And so then we tally up what should they have done, why should they have done it, and here is the ultimate missed opportunities or fees, whatever, that they didn’t have to pay that unnecessarily or affecting their legacy, things like that.

Steven (13:09):

Well, I’m definitely going to have to check out Sassy St. Peter. I am all for the puns, all for having some fun with this. A couple of things you mentioned in there that I have talked about different times on the podcast, it certainly bears repeating because I’ve come across some of these issues recently you talked about making sure we’re understanding how to step up in basis works because there’s so many of these planning things that aren’t going to happen correctly if you just let them happen by default. And so an easy example with Step Up in basis is a parent getting close to the end of their life and trying to liquidate assets and saying, wow, why don’t I just sell the house and give my kids cash? Or on the opposite end of it, okay, if the plan is this is going to charity, it’s incorrectly selling the house instead of gifting the appreciated asset to charity, and there’s always nuance in these things as to whether charity’s equipped to deal with that, but with some proactive planning, we can really increase the impact that we’re going to have.

(14:06):

As you talked about risk tolerance in there Chad, just brings me back to we’ve got to understand what the goals are. As much as I like to preach the values of Roth, I’m really intentional about saying that Roth should be considered for everyone, not that it should be done for everyone because it’s another example of one of these areas that we’ve got to know what the lifetime of that wealth is supposed to look like. What are those intentions for the next generation and then start making these decisions about risk tolerance and about tax qualification in some of these other areas.

Chad (14:36):

If both generations aren’t brought to the table to discuss this openly and in America culture says you don’t talk about money, but we’re leaving so much on the table by not being open with our generation above or below, depending on where you’re at. Sharing this and planning ahead of time with these proactive strategies can save tremendous time and money with probate and taxes. I’m all for paying what’s due in taxes, but let’s not, as you say, tip the government. There’s a lot to be done in a state document-wise. Trusts are obviously very popular to simplify probate, but you talk to a lot of families that aren’t mega wealthy and they hear trust and they say, that’s not for me, and they’re just never going to follow through on any of that advice. With the Rubik’s cube inheritance planning, you move one item and then six other things are moving around the other way. You really have to include both generations or as I mentioned, I do, I power of attorney, we talk about it through one person and we consider both generations, which I think is very powerful.

Steven (15:36):

Yeah, Chad, who you mentioned there, the very stark reality for a lot of people not following through on some of these legal documents or that’s the power of attorney or trust or whatever it might be. It’s actually one of the reasons we’re so excited that we’re partnering again for our summit this year with wealth.com. They provide a great resource for advisors to be able to get this stuff done and help their clients execute it. And for people who’ve been listening to the podcast, you know that from September 25th through 27th we’ll be doing our Summit once again this year it’ll be in Phoenix, Arizona. It’s going to be a great event and there will certainly be some discussions around this very topic. 

Chad (16:08):

Can’t wait.

Steven (16:09):

Chad, I do have to ask, you mentioned who this book is not for, big fan of your approach to writing a book like this that’s for the everyday person. There’s a very similar approach to what I took as I wrote about tax planning in general. There aren’t great resources for the everyday person around this, but at the beginning of your book, when you list who this book is not for, you mention it’s not for Brad. Is Brad a real person? 

Chad (16:31):

Brad is not a real person.

Steven (16:33):

Oh, okay. Okay. Just thought I’d check. I like the reference either way, but it would’ve been a little bit extra.

Chad (16:37):

Yeah, I had two jokes in that this book is for and it lists a few and then one of the things that listed my ego, who it’s not for it lists a few different groups, and then Brad from high school or whatever, I specifically chose the name of someone who did not exist.

Steven (16:52):

Perfect. I love that you’re having fun with this. I mean you mentioned it earlier, these are heavy topics. These are hard topics a lot of times topic that people would rather just avoid than take the time to practically address. So at least for me, maybe I’m a little on the morbid side, a little on the dark humor side, but I do appreciate the lightheartedness for what’s otherwise a serious topic.

Chad (17:11):

Yes, it can get dark and in our industry, we put positive spins as much as we can saying when your parents reach the finish line or say it’s something with some poetry, to me it’s the advisor and a lot of people can relate out there. We don’t have the emotional attachment to the family, and so we kind of think of it from a numbers standpoint. We have to remember these are very sensitive topics. It can be complex and one of the final chapters discusses, hey, numbers and money and all that’s great and all, but if your parents are still able to communicate, and it’s not always the case for people reading this book, but have you talked to them and said What you like me to do with this gift? I mean for a lot of this 70 trillion that’s about to be passed down, families are leaving behind more money than they ever thought they would ever have, and so getting the input from that generation one, Hey, what was your intentions with this? Is there a trip or do you have a thought about it? Sometimes they may say no, but it’d be really cool to get the input on that and let that be part of the legacy. Empowering that generation to leave behind a specific legacy for their loved ones is very cool. 

Steven (18:19):

That’s such a great recommendation there, Chad, both for advisors who are thinking about how they work with their clients and then I mean for anyone listening to this, I mean this is going to impact you personally at some point in your life and to be able to have those conversations and really put meaning behind some of what feels like kind of marketing taglines at times of tie all your money to specific goals and these different things, and I’m probably guilty of some of that times too, if you’re only listening to particular sound bites, at the end of the day, this really is about the impact. It’s not the money. It’s about accomplishing what’s important to you in life or in the life of your future generations. It’s not about the dollars and cents.

Chad (18:53):

And the title of the book. I wanted to illustrate that, so the subtitle was Helping Your Parents Pass the Torch because we are helping them in this and it is about their legacy and that’s the imagery. I was conjuring up with the torch language and the main title itself, the Inheritance Playbook you mentioned earlier being tax-efficient. I came up with the idea Tax Efficient Inheritance to be the book, and I loved it so much that I bought the domain name immediately and I told my wife about it. She goes, I hate that. I don’t know what it means. And we have to realize that if our audience is the general public, we have to speak a language that is understandable by the masses. I get so wrapped up in tax lingo sometimes that we all have to focus and make sure because we don’t want to insult clients and families. We want to make sure we’re empowering them to do what’s right, save them money, and all that fun stuff. Some of these complex ideas that RTS brings and my company Formula Wealth brings. You want to be able to break it down in a way that is enlightening, informative, not overbearing. It’s a hard line to walk sometimes.

Steven (19:51):

Absolutely. I certainly appreciate you sharing that because I’m definitely guilty of that at times and it’s nice to have people on our team and our circle, our significant others who can help point that out sometimes of, oh geez, I hate that. I have no idea what it means. I’d have to go back and look. We played around with a couple of different titles of the book that I helped write, but at the end of the day, Don’t get killed on taxes. That’s something that people can relate to. The inheritance playbook. That’s something people can relate to If we get it overly hung up on the complexities, it just turns people away and so it becomes that fine balance of people need an expert, they need someone who understands the details and nuances but then can also communicate it in a way that they can understand and engage with.

Chad (20:29):

Otherwise, people are going to walk away.

Steven (20:31):

Yeah. Well, so that’s a great segue. If people don’t take action, what’s the point? And we feel the same way about this podcast, so Chad, other than people going out and getting your book, it’s available on Amazon, The Inheritance Playbook, helping your parents pass the torch, not the tax. I know for me, one of my action items out of this episode is to go check out Sassy St. Peter. As you think about inheritance in general and helping people plan for this, what are action items you’d recommend to our listeners? 

Chad (20:54):

There is the theinheritanceplaybook.com. I have some resources, just free downloads, and one of them is the inventory checklist, like, Hey, have we thought about where the military documents are? Or whatever it is, if they want military burial, but it’s a great comprehensive list of things that we need to be thinking of right now. That’s one of my favorite things as far as resources go that are on that book website, so that’s one. And then my favorites, obviously Roth conversion strategies are up there. Oh, titling. That’s one thing we didn’t cover today is sometimes simply just changing the titling of an account and not every state allows this, but instead of just your parents having an individual bank account or joint bank account, make it a payable-on-death account that costs you no money to do, but it avoids probate because you add a beneficiary to it and so then you’re able to access that money virtually immediately upon proving death certificate and everything, but that helps you pay for funeral expenses and all that stuff out of the estates account. But if you wait for all that to go through probate, you may find yourself fronting the cost for funerals and all the noise that happens around that. Just a few ideas there, but the audiobook is like, I think if you listen to it at one and a half speed, it’s two and a quarter hours. It’s not long at all. I tried to hit you with details and then shut up.

Steven (22:10):

Well, Chad, I have written a book as well. I know the time commitment that goes into this, so I certainly applaud you for your commitment to getting this information out there. I actually just went out to the inheritanceplaybook.com and gee, you’re a lot more generous than I am because you can download these resources without even putting an email address in, so you really are trying to have a big impact. So that inventory spreadsheet looks fantastic. That’s definitely a great resource.

Chad (22:32):

I’m glad you saw it and liked it.

Steven (22:33):

Well, Chad, the other action item of course I’ll throw out there is that everyone needs to be getting tax returns for all of their clients every single year because that’s how we make sure we have detailed and specific conversations about what needs to be included in this planning. And then since it came up so nicely earlier in the episode, I’m just going to reinforce the RTS Summit this fall, September 25th through 27th, go out to retirementtaxservices.com to get registered for the event. It’s going to be fantastic. Chad, thanks so much for taking the time to be here today. Really appreciate everything you’re doing. 

Chad (23:02):

It’s a pleasure Steven. Thank you.

Steven (23:04):

To everyone listening. Thanks for being here, and until next time, good luck out there, and remember to tip your server, not the IRS!