Uncover the Secret to Maximizing Your Tax Savings

Are you unknowingly leaving money on the table with your charitable giving? Join us as we describe tax-saving strategies that maximize your impact while keeping your hard-earned dollars in your pocket. Discover why checks may not always be the best option for gifting and why understanding your chess pieces when it comes to giving is crucial.

Did you know that you can maximize your charitable giving by utilizing your retirement accounts? We explain the benefits of sending money directly from your retirement account to a charity and share insights on Qualified Charitable Donations. Learn how charitable giving through RMDs can significantly reduce the amount of taxes you owe. We also dive into the importance of having a financial planner who understands taxes and capital gains to guide you through this often-overlooked process.

Lastly, we tackle estate planning and beneficiaries, exploring the tax implications of splitting money between your kids and charity, as well as the consequences of leaving money to charity through a will. Uncover the potential for tax savings if the money is given to charity outside of a will and why it's essential to understand the people who are helping you with your estate and financial planning. Don't miss this game-changing conversation packed with invaluable insights on how to make the most of your charitable giving!

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Looking for additional content that can help you get the most from your life? Check out Unleashing Leadership with Travis Maus, premium bonus content from Ditch the Suits Fans, at https://unleashingleadership.buzzsprout.com/

Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com

Ditch the Suits is produced by NQR Media. NQR also produces the One Big Thing Podcast with Steve Campbell.

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Transcript

Steve: 0:08

Welcome to Ditch the Suits, a movement awakening and opportunity for you to start getting more from your money in life. I'm Steve Campbell. With my amazing co-host, travis Moss, we're going to share industry insights nobody wants you to know about, so buckle up and enjoy the episode. Dude, hopefully you guys got super inspired from our last episode last Tuesday, where we talked about donor advise funds. If you didn't get all fricking kind of jazzed up about how you can help your community get the most from your money in life, looking at ways to accelerate your giving, go back and listen to the last episode.

Steve: 0:39

In this three-part series, though. We want to talk about ways that we can help you through some tax-saving strategies that maybe you've never heard about or have never had the time to really have somebody explain it to you. That's why we got Travis Moss. He's our best kept secret, so I'm going to go ahead and turn this conversation, as we kind of frame it, in three parts. Today, we're going to talk about capital gains Maybe you've heard that before We're going to talk about RMDs, and then we're going to talk about wills, so in these three areas, there's going to be strategies and things you need to know. So, travis, let's hop right into it. What about capital gains? What do we need to know?

Travis: 1:09

All right. Well, let's back up a second Before we talk about Juicin, the donor advise fund charitable gifting conversation. Dude, I don't think you mentioned it again, but we were voted or ranked number one podcast of the year by-.

Steve: 1:25

Yes, we were Travis Yep. We were ranked number one baby.

Travis: 1:29

I don't even know how that happens, but that's freaking awesome. Yeah, it is. but Yeah, And I know it was like voting and like part of it was voting to get nominated and then they had like the experts look at it and the experts chose Yep, I'm not even on the Facebook. I don't even know how the voting happens.

Steve: 1:47

The fact that you even say the Facebook. Yeah, I know It's immediate But hold on, park there for just a second. So we had listeners actually nominate us with a pool of other podcasts.

Travis: 1:56

It was all these different subject categories, not least pool, i think was in that. Yeah, there was a lot of them, huge.

Steve: 2:03

So we were able to get through round one, which was all fan voted. But then round two was actually the leading podcast platforms, advertisers, marketers in the industry. They listened to the top five in every category and then selected their favorite. So ditch the suits was nominated for business podcast of the year Pretty cool But then also best podcast of the year, like the biggest award of all the podcasts. So we thought maybe if we can win best podcast of the year, it'd be kind of awesome. Well, we come to a final Downhill from here, dude Yeah.

Steve: 2:31

And we looked at best podcast of year and ditched the suits was right there And I thought, shoot, dang, we actually took home the main, the main thing, so it is pretty awesome.

Travis: 2:40

Yeah, i just, i just feel like we peaked. So, anyway, let's just talk about, let's, let's, let's just talk about our stuff, then We'll get right back to it, all right. So I got this saying that I use this. is this, this whole entire set of of episodes that we're doing on donor advice fund and charitable giving and stuff like that? This is actually from a presentation that we give to charitable groups and two different organizations, and and I'm getting ready for this because this has been in a long time coming, i think a couple of months ago we had a request for donor advice funds And so I just went to the presentation, i pulled the presentation apart and we chopped up into three episodes, but one of the the, the quotes that I I made up basically for the presentation was cash is king.

Travis: 3:32

Kings are very important, unless you play chess, in which case kings are helpless in Queens rule. So you got to understand your chess pieces and you got donor advice fund. That's awesome, right, and we talked about last time a lot about giving cash to it and funding it with cash. That's actually maybe the last thing that you want to do the cash part. What we really want to be doing is figuring out how to pay less capital gains. So capital gains are those pesky taxes that you pay If you have money that's not in a retirement account. Every year you get a 1099, you got to pay taxes on stuff that was bought and sold in your portfolio And you're probably paying anywhere from ordinary income taxes to 15 or 20% on on them, depending on you know if they're short term, long term, what kind of taxes they are. Now this goes back to the whole financial plan, or not understanding taxes. I'm not giving you tax advice right now. I'm literally just telling you you got to understand how taxes work or it's going to blow up your portfolio and your gifting strategies and your budget. So this is just kind of part of good planning, but anyway. So back back off off my high horse here capital gains.

Travis: 4:41

When I'm going to say like nine out of 10 people, i'm just I'm just guessing, but about nine out of 10 people that I've sat with that gift to charity probably more than that, actually more than nine out of 10 people rate checks to charity And I'm going to say that at least two thirds of those people actually have, after tax, investment accounts. So these are non IRA, non 401k accounts, accounts that you're getting a 1099 from every year, and so we're and we're not doing the donor advice on, we're missing out on those tax deductions. And then we're writing a check for the charitable donation. And the reason why that's crazy is when I look at the tax return on that 1040, the front page of it, there's also a place where it shows us the capital gains. So I look at there and I see, okay, this person paid, you know, had had taxable gains of $30,000 last year and their investment accounts, or a hundred thousand or 10,000 or 5,000. And or I'll talk to an investor and they say, well, i don't want to sell any of my investments because I'll have to pay taxes on it.

Travis: 5:54

If you, instead of giving cash to a charity, if you give them your stocks, these investments that you are otherwise paying capital gains on or would have to pay capital gains on if you sold them, you do not have to pay the capital gains And neither does the charity.

Travis: 6:12

So where we were talking about, like with the donor advice fund, instead of putting, i think Steve and your example, we're talking 30 or $40,000 out of your checking account. If you had 30 or $40,000, let's say, an Apple stock that you had bought a couple of years ago and it's worth 300% what you paid for it. If you sell it, that's a lot of taxes, do Yep? Well, if you just give the Apple stock right to the charity or right to the donor advice fund, you don't pay any capital gains for selling the stock. You get a deduction for the whole amount, or the whole amount qualifies for a deduction. Better put They get it, or your donor advice one gets it, they get to sell it. No taxes are ever paid on those gains. Come on, the only other way you get that treatment is if you die. So this is a way better alternative.

Steve: 7:00

I'll take oxygenate, yeah, oxygenate. I'll live in gifts and stock Yep.

Travis: 7:05

So we want to give our capital gains. So some people say but that's my portfolio, that's my money makers. I want to. Why would I give away my things that make me all the money? Well, because you can buy them back. If I give away my apple and I turn around and buy more apple, what did I do? I gave away the apple that came with the big tax bill And I bought it back with my cash that otherwise would have given away, but I get the current price of my cost basis. So if the price goes down, i get an actual loss now, and if the price keeps going up, i get a gain, but it's only from where I re-bought it in. So or bought the stock back, so you can have your cake and eat it too.

Travis: 7:49

Back to our first you know fun quote You literally can have your cake and eat it too, but you've got to give the investments, the highly appreciated, the stocks that have done the best. You have to give that money over to the charity or over to your donor advice fund instead of cash. Cash is like that's the last thing you want to give, because cash doesn't have a tax bill associated with it. You want to give the charity your tax bill and get a tax deduction for giving the charity your tax bill. It's a double savings, it's a compounding effect.

Steve: 8:25

Well, let me ask you this, travis. So do you have to give all? so if you own so many shares of apple, do you have to give all the shares of apple? Can you give a portion of what you own over to a charity?

Travis: 8:35

Right. Well, this is where understanding how investments work. So now you know I'm the guy who finance planners, but they don't touch my investments. I do the investments.

Travis: 8:42

Well, you can actually go in and pick the number of shares that you want to gift And you can actually pick the lot of shares that you want to gift. For instance, let's say that you had apple that you had bought over. You made three different purchases over three different years. You can go in and pick from the lot the purchase date. You have three different dates So you can pick, based on those dates, which shares you want to give. So if you made the most out of your apple stock for the second purchase date, you can go in and say, well, i want to give those shares. I don't want to give the ones that I bought after and I don't want to give the ones that I bought before. I just want to give those shares and I don't want to give them all. I just want to give half of them or a quarter of them or just two. Right, whatever you want to do, you can go in and you can cherry pick So you can really really game how you're doing this and really max out some serious benefits And it's all you're doing is you're just rearranging your inventory essentially to max out the tax benefits and you're just keeping more.

Travis: 9:52

The IRS will never come to you and say yeah, you know, you probably could have done that better, so here's five grand back. They're never going to do that. That's why this type of a planning is so important. You have to know to do it. They're not going to raise their hand and say you guys are. They're only going to raise their hand when you don't give them enough money. So this is you proactively understanding how the rules work and maximizing them.

Steve: 10:20

But if this doesn't get you jazzed up, kind of like that first conversation, i'm just picturing people that are philanthropic in their heart Maybe it's a couple that it's really special to them to make a cup of coffee on a Saturday morning. Look at their checking account, look at organizations that they care about, pull out the checkbook and probably just write checks right As they feel they feel. Led to the Boys and Girls Club, to the United Way, to NPR News, whoever it is. You know that's how they do it, that's how they give away things. That's not bad, that's good.

Steve: 10:51

But what we're trying to show you is that there might be a better way of maximizing those dollars and helping you as a taxpayer, because if you have to what I've understood from you single or joint accounts, brokerage accounts of some kind, and you have highly appreciated stocks. What I think is incredible is how you also helped somebody who might say Apple's my big moneymaker, i can't give that away, because you said that you can go in and pick lots to give away. So basically, what you can do is pop open the hood, find the times that it's basically made you the most amount of money and then say, hey, charity, take this.

Travis: 11:29

Take my tax bill. What that does is.

Steve: 11:30

It takes that tax bill off your back. Come on.

Travis: 11:34

Yeah.

Steve: 11:34

What other podcast are you going to listen to that, on one end, can give you real straight dope advice about what's really happening in the world and then counter it with actual planning guidance that can really help you? We can't have a tagline We help you get the most money in life if we never do it. So I don't know. I get super excited about this because I think this is a very cool concept And, like you said, it's nine, nine and a half, 9.7. There's 9.7 out of 10 people that are doing this wrong. So this is the group that we're trying to get all excited about. There might be a better way of doing this.

Travis: 12:07

We even go about this. Take the same concept if you give money to your kids every year, if your kids are in a certain tax bracket, when they sell the cap, when they sell the investments, they don't pay capital gains taxes. So if you understand the tax situation of your kids and you're gifting to them every year cash, give them these highly appreciated stocks. Buy the stocks back in your portfolio if that's what you wanna do, but give the highly appreciated stocks to the kids. The kids sell them. They don't pay taxes on them. There's a certain tax threshold where you don't have to pay capital gains taxes. So it's not just to charities too. You might say well, geez, you know I'm not interested in giving you charities. Well, if the alternative to that is give to your kids, you understand their tax situation because maybe, instead of giving them cash, you give them capital gains. But that's why this stuff is so important. And for charities, you know. Back to how charities can help donors out. If you have donors giving you large amounts of cash time out, open a brokerage account. Find somebody who can help you, you know, on your board, or something who understands how these things work. Or, you know, hire a fiduciary to work with you in your foundation or your endowment or whatever you're trying to do financially, but be prepared to accept stocks and understand how that works, like how it comes from the donor over to you and then how you turn it back into cash and can spend it. You need to understand that process.

Travis: 13:35

I see a lot of organizations that don't, and that frustrates donors quite a bit. A donor's ready to go, they wanna send you 10,000 shares or something and you don't know how to accept it. They're thinking, okay, what's going on here? And it does create some issues, i promise you because I'm on the other side of those calls. So you really the charities if you're trying to bring this value back to the organizations that you believe in and that you care about, help them understand how to accept equities, how to accept stocks from people And stocks not just stocks but mutual funds. You know, kind of in that same ballpark, you know the same kind of realm how do you accept investments from somebody and then what do you do with them once you accept them.

Steve: 14:20

Well, and you might be somebody who's been listening to our first episode in this series and even now, when you've realized you've been paying capital gains taxes all these years and it's frustrating because your advisor won't talk to you about your taxes, because they give you the legalese and the bottom little italics that says we don't give legal tax advice. We're also trying to paint the picture of what if there was a different experience. What if there was somebody, a financial planner, that can come alongside you and your money, without commissions, without conflicts of interest, with a fiduciary capacity to really help your financial planning be unique as your life. Welcome to Seed Planning Group. If you've been looking for a different kind of planner, head over to seedpgcom. That's seedpgcom. Schedule your free consultation and find out how seed financial planners can help you do some of the things that Travis just described. I know we got two other areas that are usually gifting areas that people will try to look at, but let's get right into RMDs and charitable giving through RMDs.

Travis: 15:17

So there's a thing called QCDs, or Qualified Charitable Donations or Charitable Direct Donations, and that is where you actually take money directly out of your IRA and you send it to the charity. So this is not something we can actually do with the donor advice fund, but it is something that is a strategy you're gonna use in conjunction with the donor advice fund. So we'll talk about that in a little bit, but actually I think that in the next episode we're gonna get in how to put those things together. So what we wanted is just kind of lay out how this works, because people are really, really missing this. This is kind of like using cash for donations when you don't need to.

Travis: 15:58

When you hit a certain age, you have to take money out of your retirement account. The IRS says you have to because they wanna start taxing you Right And they keep pushing back that age, so it keeps getting older and older for people who haven't started taking RMDs yet. But they passed the law a couple of years ago that allow you to do these QCDs right out of your retirement accounts, your IRAs, and they didn't link that with the changing retirement age or not the retirement age, but the changing RMD age. So that changing RMD age is getting up to like 73 now. It's gonna get to 75 in a couple of years. You can do this, starting at 70 and a half, and you could do up to $100,000. So most people don't do a total of a hundred. We have a couple of clients doing $100,000, but a lot of people will do, you know, whatever they normally would be gifting 10, 15, $20,000 a year they're gonna do out of QCDs. And one of the other benefits is when you do take, when you are at the age where you have to take RMDs, it counts dollar for dollar against how much you have to take out. So let's say that when you turn 73 this year you have to take out $20,000 from your retirement account and you do $10,000 of QCDs, your required distribution drops from 20,000 down to 10 because you already took 10 out to send to the charity.

Travis: 17:23

So the reason why that's important is because when I go straight to a charity it's like not even passing go. It's as if it never existed in your account in the first place, meaning you never receive it. So there's no tax bill due on it. It doesn't even pass through your taxes, so it doesn't affect how much of your social security is taxable. It doesn't affect your modified just-to-gross income, which impacts if you owe increased Medicare premiums, which a lot of people don't understand how that works. But when you hit RMDs and some of these RMDs are larger just just throwing you up you could be a couple hundred dollars more a year in Medicare premiums just because of your RMDs. So it gets that number down for you basically.

Travis: 18:08

But so you send the money directly from your retirement account over to a charity and you don't have to worry about whether or not you qualify for tax deductions. It's automatically off the top. There's no taxes due on it. All the money in your retirement account was tax deferred money anyway, so you're benefiting from that. So there's a lot of benefits to that. So you get to still. Let's say that you did a $5,000 gift the year you turned 70 and a half using a QCD to charity And you still get your standard deduction. So if that was this year I think we talked last episode it's the $27,700 if you're married and you file a joint. Plus there's some catch-ups if you're over 65. So it's gonna be even bigger for you. You're still gonna get all that deduction And then you have that amount over the top that's coming out of taxable dollars and you're not paying any taxes on that, so it's really goosing the total amount of tax-free income, essentially that you have for the year.

Travis: 19:14

So, again, if somebody's using cash. People do this all the time. Well, i give cash and they have a list. They have 20 different places they give 50 or 100 or $200 and a couple places they give 1,002. None of that's tax-deductible for them. And then they go and they take their money out of their retirement account for the year. They take out four or five grand and put it in their pocket. You just paid four or five grand taxes on four or five grand to turn around and give it to charity, but you can't deduct it.

Steve: 19:40

Yeah.

Travis: 19:41

So you literally gave the government money that they told you that you don't have to give them because you don't know how the mechanics work. And I've literally talked to foundations before that have said that they've asked me why don't financial advisors promote this more to their clients, why don't they tell clients how to do this and that they can do this? And well, the answer is, if I tell you, give your money away to charity, i don't have as much I can't. you know, there's less stuff to sell you, there's less money to make fees on. So a lot of times the advisor is like I'm not touching that, that's up to you. you figure it out And it's a super simple thing. I mean, it's a pretty standard process at this point.

Steve: 20:21

Well, i know in conversations I've had in the past, when people think about RMDs, a lot of the people that I've talked to may not necessarily need an RMD for retirement income. They just know it's a bucket of money that the IRS makes them take every year. Many times it's begrudgingly like God, i don't want to take that RMD, i gotta pay taxes on it. And then you look at their philanthropic ideas and they give towards organizations, towards churches, every year. Basically, what you're saying is we know you gotta take an RMD every year. Rather than just writing a check from your checkbook and giving money to organizations. Just use that directly from your IRA to give directly towards the charity. In that begrudging RMD that you've been looking at, you're reducing that dollar for dollar. All of a sudden people are like wait, you can do that.

Steve: 21:02

You're not cheating the tax code. You're not, you know, doing anything fancy illegal. You're just using a code as how it's supposed to be set up to do exactly what you've been doing it, just doing it in a very different way. And so people can then just produce the list of the organizations they want to give to. There's forms at the institutions that you follow, and basically what you do is you say, cut a check for this organization, and checks are sent directly from the IRA as part of your RMD. So it is a very, very cool strategy where many people are just leaving money on the table.

Travis: 21:32

Well, and there's they delayed. how early you have to take RMD is now going forward, and so some people are happy about that. They're like, oh great, i can let my investments continue to grow. The IRS isn't dumb, the treasury's not dumb. the government has. the people who can afford to gift are also some of the people who don't need their like you said, don't need their RMDs. That's our kind of experience. They get to that age and the money's just kind of piling up And we're talking more about gifting and what to do with this next.

Travis: 22:07

And the longer you delay that RMD, or a longer you delay taking money out of that retirement account, the bigger the balance is gonna be. Well, the bigger the balance is the more required amount you're gonna have to take every year. The older you are, the higher that required amount, the higher the percentages, which means you're gonna have more in higher tax brackets. So it's more tax dollars that are gonna come out of that if you don't do anything early. So people who are saying, well, i'm just gonna keep giving cash until I'm forced to take the money out, then I'll do it. Number one you're missing a tax deduction. Number two you're creating a tax bomb for a couple of years, they're gonna get their pound of flesh out of you one way or another. It's not a freebie. And ultimately too, if you were saying, well, i don't wanna sell my investments in my retirement account, why, if you got the cash to gift, sell the ones in the retirement account, turn around and buy them in a personal brokerage account with your cash. Yeah, if you love Apple and you don't wanna sell your Apple because it's made you all this money, sell the darn Apple on the retirement account, send it with the QCD and buy it with your cash in a brokerage account. It doesn't cost you like, literally, you can go online and do that for free now these days Like zero transaction purchases Or even better. yet, let's say that you're like well, i don't need it because my tax bracket if I do the QCDs, i'm still within a pretty low tax bracket. I'm not worried about it. So do this. then, if you don't care about paying the taxes, do the QCD, give the five or 10 grand to charity directly out of your retirement account and then do a five or $10,000 Roth conversion. If you're comfortable paying the tax bill or maybe the tax bill wouldn't be that significant to you do it but convert the money over to a Roth. and what's the benefit of that? That Roth is tax free for the rest of your life. It's great for you. So the whole point here is that that tool gives you incredible flexibility If you understand how it works.

Travis: 24:07

and back to our kick about how charities can use this. most charities, again, they're so concerned about not rocking the boat. If I were a charity, i would be telling every single person who donates to me don't send me a check this year. send me money out of your retirement account, because it will do this for you And a lot of the folks that give money every month to charities.

Travis: 24:29

a lot of them are in the income range where possibly their social security wouldn't be taxed if they didn't take that money out of the retirement account first and then gift it Because of the way that the calculations work or possibly it may not affect their modified just to gross income enough to increase their Medicare. So these are huge values that you can bring. You leave more and more money in people's pockets. that people have more money to gift then, whether it's to church, to kids or more vacations, whatever you wanna do with the money, but again, you're not shipping it out of your community, you're not sending it to the government or the state capital to essentially spend on pet projects. You're literally keeping it within your community.

Steve: 25:11

Well, i'm just sitting here, a partner listening to you, and I'm thinking maybe there's listeners that have been working with an advisor for a long time and they've been trying to figure out the value of a relationship. You wanna hold your advisor to the fire? go back to them and say talk to me about QCDs, dafs and capital gain strategies, gifting to nonprofits and charities, and see what they talk to you about. Right, because the majority of people's relationship, as we said, with financial professionals is they have somebody that picks investments but can't give them tax, tax, illegal advice. You're missing a huge component of financial planning when you don't talk about tax strategies, something that's gonna affect all of us over our lifetime. You've just given three strategies so far and we're gonna get into this last one here through donor advice, funds, capital gains and how to use QCDs that maybe people have never heard of all of those And in this third episode we're gonna help you kind of layer all these concepts together.

Steve: 26:06

But this is incredible value add. Do it at what you want. Go take it to a professional and do it. God bless you in it. But put your professional to the hot seat If they're not talking to you about these things, because it's important. If you are giving to charity, that means you're philanthropic in nature and you have a heart to give. Why not give in a way that is not only meaningful for you but, as you said, for charities, for organizations that can put more back in your money and life? So, man, this doesn't get you excited. These are some things that you have every right, as a consumer to hold your professionals to a standard to say. Why aren't you talking to me about these things? So then let's pivot here, kind of talking to about wills. We have a will, right, so we wanna give to charity through our will. Is that a good strategy, travis, or should we rethink that?

Travis: 26:54

And you might be thinking okay, so now we're talking about when I'm dead. I wanna figure it this that while I'm alive. So how's this gonna help me? This does help you because one of the things I think is so important For instance, when we do financial planning, we do the estate planning after we do the financial plan, a lot of people go get in the estate plan done Or they'll have an investment plan and then they'll go get in a state plan done.

Travis: 27:20

You got to do the financial plan because you got to know where you're going and you got to know what you want to do. For instance, if you're going to leave a lot of money to charity and let's say, let's pretend that you're going to Sunday Pass away, you're gonna have two million dollars and you're gonna leave half your money to your kids and half the money to charity. And you have a million dollars in a retirement account and a million dollars in a brokerage account, an after-tax investment account Pretend as company stock from where you used to work. When you pass away, if you leave 50, 50, 50 percent of the kids and 50 percent the charity, what happens to most people is they cut the counts in half. Each account gets cut in half and 50 percent goes in each direction. The problem with that, though, is that retirement account when that goes to charity, that's tax-free. When it goes to your kids, it's gonna be taxed as income. They get to spread it over a couple years, but it's gonna be taxes income. They get a tax bill where the charity doesn't. So think about this for a second that that, after tax money, that you had that million dollar brokerage account That gets a step up, a cost basis at death. So there's no taxes. Do I know income taxes do on it. So the charity doesn't care because they don't pay taxes either way.

Travis: 28:30

Give the charity the tax bill, give them the million dollar IRA. There you go, have fun. Charity, you pay the tax. Well, you don't have to pay the tax bill. You. You basically get to erase the tax bill. For me. You get your million bucks, and then I want to split the other million between the kids. With the tax-free money, the money they got to step up, there's no taxes do on it. Alternatively, if you split it both ways, you'd have a tax bill and a half a million bucks That's got to be subtracted out of what the kids get. So the charities will actually get more than what the kids get.

Travis: 28:58

So we see this all the time with a state plan and you go to an attorney or something. You're like I want a state plan, i want to leave 10%, the church, or something like that, and they put that into your will, they bake it all into your will and What happens is is now we're gonna be fighting with what's 10% of the house worth, and I didn't really want the house to go to the charity. I was really talking about my investment accounts or something like that. Or if I have beneficiaries. Those things don't even pass through the will. They completely skip it. So there's all kinds of practical issues that come up with. I Put my beneficiaries in the will. An example that I have I had a client that passed away and He left in his will that he wanted money to Go to a couple of charities.

Travis: 29:42

Well, instead of putting that on his investment accounts As a beneficiary so they would have got it outside of probe. No, like no issues, right, they would just got a check at death. Here you go out of the investment, can't? nobody would have had to deal anything with it. So the estate had to cover it, while his accounts had beneficiaries. They all went to a spouse. The only thing that was left in the estate that didn't have a successor owner were the 529s the college accounts for the kids, his grandkids. The estate has to cover the bequest first, so it had to grab the 520 the college savings account give to the charity. Meanwhile he had plenty of other money to give to the charity but it's got to come from the estate and He had done this he didn't want.

Travis: 30:27

He was just basically an investment. I really didn't want the financial plan here, anything, just wanted the investment stuff. Just, he was just with us for investment advice. We really get into the estate plan. Had done this estate plan through a different attorney that we had never talked to, didn't know what he was doing. I had another client who had, you know, some family situations and wasn't comfortable with them and wasn't comfortable necessarily talking to us about it And we ended up with a huge IRA going on to a family member And then having to use after tax money to fund gifts to charities Because it was listed in the will instead of being, you know, comfortable Sharing.

Travis: 31:04

You know this is. I'm having some stress or struggles in the family, so this is maybe I want to separate the accounts and We probably would have saved about a forty thousand dollar tax bill. Yeah, and, and that's that comes down to. You have to trust the people that are working for you And you have to give them all the information. You can't pick and choose what information you're giving to people if they're trying to help you right, because we can miss out on opportunities.

Travis: 31:29

But especially when you're talking about Wills, when you put stuff in the will, the will is, it is not a good, it's not even a good estate planning tool. It is the catch-all. It's. I forgot to list beneficiaries, or I needed to list some, some really interesting contingencies, like if my spouse dies and both of my kids died, then what happens with my grandkids, money type of stuff, right. So it's really the what-if Scenarios that you build into your will because you can't list them on a beneficiary for there They're too kind of. You know a trust would have to be created or something like that. And So the more that a client goes to an attorney and says I want to do five thousand, this organization, ten to this, 50% to that, that's like they're gonna. The attorney will always go. That's great, they'll put it in the will and Every time you change your mind, you got to go and pay to have it rewritten. And when you pass away, we got to figure out how to fund all those things. And if that's not in line with what the financial planning is doing, you're gonna have some of these horrible mistakes That are really avoidable, right, and should be avoided.

Travis: 32:34

If we're doing this, you, one of the challenges that we have as financial planners sometimes is Professionals are territorial about what's their space. Well, this is legal stuff. I take care of legal stuff, right, but you can't take care of the legal stuff with the estate planning without crossing over into the financial stuff. We got to be on the same page. You can't just be working on an island, but they prefer to work on an island because it's threatening sometimes. Yeah, financial advisors do the same thing. You're gonna get financial advice.

Travis: 33:00

I don't want anybody else working on it because they don't want anybody undermining what they're trying to sell you, right, which is anytime. Somebody doesn't want to work with other professionals. The question is why? and if they say, well, because the other professionals not very professional and they don't work well with others, okay, that's one thing, but if they're like, well, because we don't need them and they're trying to kind of like hoard it. Then the question is is you know what are they doing? Are they doing something that they're concerned somebody else is gonna pick up on, type of thing? But so we build all these things into our wills and The much easier way is just build them into the beneficiaries of the accounts It happens to me and then you can cherry pick the accounts much easier.

Travis: 33:35

You can go to the IRA and say any charitable gifts I want to give come out of the IRA. One of the cool things about that If you know that you have more money to, let's say, you're, living off your pension and Social Security and the dividends off your investments And you don't need those RMDs, you're just not gonna need them, right? You can look at it like when I get that money, i don't know what to do with it, which is a lot of our clients. They just they get frustrated with it. They're like I don't need all this, what do I do with it? Yep, and there's a lot of tax planning goes around, that duty, roth conversions early, take extra out that kind of thing, trying to get that tax Bug down before it gets really big in your older years.

Travis: 34:11

But if you know that and if you're charitable inclined, that might change. Let's say how much Roth conversion you do. Yeah, if you're gonna give a half a million dollars a charity over the next 20 years, why would we convert your half million dollar IRA to a Roth? Because you're going to give it all out of the IRA in those QCDs when you hit 70 and a half. So let it continue to bake, because we're going to give it all away Anyhow. So it's never going to be a tax burden.

Travis: 34:44

So you have to, kind of, you have to see where you're at today. You have to see where you might be, and sometimes people will say, well, that's a long time away, i don't know by then. But that's where good planning comes in, because it can help point out. You know, here's what other people ahead of you have experienced And based on my experience, looking at where your numbers are going, i think you're going to be in a similar situation. So here's what we want to include in your will And here's what we want to exclude. We maybe don't want to put any of the charitable stuff in your will. We're going to list all those out in your beneficiary assignments. So when you actually look at your beneficiary account, it'll say it'll break it down just like you thought you wanted your will done. The benefit to that, though when you change your mind about something a percentage or a dollar amount or a charity itself you just file a form. It doesn't cost you anything. You're not spending $800 to go rewrite your will every six months But it allows us to optimize the taxes. It allows us to change maybe, if we know that we're going to be leaving stuff to charity change the way that we're using some of these accounts in our lifetime.

Travis: 35:46

Another great example if you had an IRA, let's say you have a million dollar IRA and you're like I'm never going to need this money. I've got $3 million outside of that account. This thing's just going to create an RMD and it's going to be a tax headache for me. But you are philanthropically inclined. Take the RMD and go buy a $2 million life insurance policy. Now you're going to leave $3 million. So maybe that IRA it would have grown to $2 million. Now it's only going to grow to $1.8 million because you took money out to buy the life insurance policy. Or even if it grows only to $101.5 million, you still added an extra million and a half by buying the life insurance.

Travis: 36:28

And if you were competing between do I want to give money to church or do I want to give money to the kids, i feel guilty about this. Well, leave the IRA to the church and leave the tax-free life insurance to the kids. That's stuff that you understand by having a good charitable plan, by understanding what mechanisms are available and how to manage your long-term taxes and kind of how your projections look and how these tools work. And I think you mentioned it. We're going to spend the next episode really getting into a case study of how to layer these things, because there's a place where that donor advice fund butts right into the QCD and then the QCD butts right into what you do when you die With your stuff.

Steve: 37:11

Basically, Yeah, and I think when I hear from listeners they've said the series that you and I did on mutual funds are you really as diversified as you thought? By the time we got to that third episode and brought it all home, they were like I had no idea that's what I was going through, because a light bulb went off When we talked about early retirement kind of the same thing. We did social securities, then we did pension, then we brought it together in how this works through financial planning, and so many listeners said that series inspired me because I finally realized how this works. I think it's the same thing with charitable giving. What we're doing in episode one is talking about donor advice, funds and how it works. Get you all excited. Talk about capital gains. We've talked about RMDs.

Steve: 37:50

In this last episode, though, we're going to kind of layer all these concepts to show you how incredible this is to maximize your money, maximize your life. And I think to your point as I listened when you talk about estate planning and you talk about the wills I've never met anybody that when you've actually looked inside the will and brought it back to the financial plan and showed them ways to match what they want to have happened to have their documents match that. No one has ever been grateful that you've discovered that there was something missing or that could help their kids, or language that was in there. People appreciate a professional or anybody that adds value to their life Right, and so it's really important in all of these episodes.

Steve: 38:30

It doesn't matter for charitable giving or any one of these areas. There is always potentially better. You can't make money just appear from thin air like we've talked about, but there's definitely better ways of maybe rethinking how we're doing things, and that's what we hope. Every time you listen to our episodes. We want to challenge maybe, the way that you've been doing things, to think differently about it, because it's the difference between sometimes hundreds of thousands of dollars over your lifetime. So stick with us. This third episode is going to be awesome, but, as always, travis and I want to thank you for stopping by Ditch The Suits. If you guys got any questions, send us an email at ditchthesuitscom. Steve Travis, we're so happy to stop by. Until next time, stay tuned for episode three.