RPF0308-Patrick_Renn_Interview
00:00:00.000 | [Spanish]
00:00:17.240 | [Birds chirping]
00:00:21.740 | [Spanish]
00:00:25.840 | [Spanish]
00:00:30.320 | One of my secret agendas with Radical Personal Finance
00:00:36.120 | [Evil laugh]
00:00:38.120 | is to expose the world of financial advice
00:00:42.000 | to the light and see what stands up and what doesn't.
00:00:45.760 | Now, it can be bad or we can point out some of the problems in the financial
00:00:50.800 | advisor world or as in today's show it can be pretty cool.
00:00:54.000 | Today we get a chance to talk with Patrick Wren, a long, tenured financial advisor.
00:01:00.600 | We're going to talk about what it means to find your money's greater purpose
00:01:05.520 | and most importantly, or I guess most interestingly, not most importantly, but very interestingly,
00:01:11.920 | we're going to talk about some specific tools and strategies that you can use
00:01:15.920 | to leverage the power of your money
00:01:19.440 | to increase your charitable contributions,
00:01:22.520 | increase the money that goes to your heirs,
00:01:25.520 | and you know the only person that gets shorted on this deal?
00:01:29.520 | The IRS. Not about you, but I'm pretty cool with that.
00:01:34.000 | [Music]
00:01:50.000 | Welcome to the Radical Personal Finance podcast.
00:01:52.240 | My name is Joshua Sheets and I'm your host.
00:01:54.560 | Thank you for being with me today.
00:01:56.040 | This is a show where we're all about living a rich life now
00:01:58.280 | and building a plan for financial freedom in ten years or less.
00:02:01.160 | But hey, guess what? You know what happens?
00:02:04.440 | If you do a good job of living a rich life now
00:02:08.000 | and you become financially free,
00:02:10.400 | most likely you're going to wind up with way more money than you can spend.
00:02:14.640 | So what do you do then?
00:02:15.640 | [Music]
00:02:22.640 | My guest today is a man named Patrick Wren.
00:02:24.360 | Patrick is a 69-year-old financial advisor.
00:02:27.640 | He's been a financial advisor for over 35 years.
00:02:30.840 | And the way we got connected here was his publicist contacted me.
00:02:33.840 | And this is a regular occurrence when you're a podcast host.
00:02:36.240 | You get lots of contacts from people wanting to just talk with you about,
00:02:42.000 | wanting to use the show as a platform for them.
00:02:45.080 | And I turned most of them down.
00:02:46.920 | But today I really wanted to talk with Patrick
00:02:50.160 | because of his tenure in the financial advice business
00:02:52.960 | and also because of his area of focus.
00:02:55.800 | He's written a book called Find Your Money's Greater Purpose,
00:02:58.360 | How to Make Your Legacy Count,
00:02:59.960 | which is a slim little volume that's just simply focused on giving you
00:03:02.640 | some tools and strategies and techniques that you can use
00:03:05.480 | to really enhance your charitable opportunities.
00:03:08.840 | But Patrick focuses on working with people
00:03:11.600 | at that kind of traditional retirement age,
00:03:14.400 | 60s, probably 60 to 80 years old,
00:03:17.400 | and helping them manage their retirement income needs
00:03:20.160 | as well as helping them manage their charitable needs.
00:03:23.640 | And so you're going to enjoy today's conversation,
00:03:25.200 | especially if you have a bent toward the technical financial planning side of things.
00:03:29.000 | We're going to talk a little bit about some estate planning strategies.
00:03:31.920 | We're going to talk about charitable remainder trusts and grantor.
00:03:36.240 | We're just going to talk about a few charitable remainder trusts.
00:03:38.680 | We're talking about gifting life insurance policies.
00:03:40.760 | So if you enjoy some of these little techniques,
00:03:43.000 | you're going to enjoy today's show.
00:03:45.400 | Patrick is a good guy, and especially if you're a financial advisor,
00:03:48.400 | if you like the idea or the topic of financial advice,
00:03:51.400 | this will be a show for you.
00:03:52.760 | Not a lot of rah-rah, not a big business-making show,
00:03:55.720 | just very practical, down-to-earth experience
00:03:58.320 | from somebody who's been there in the trenches for 35 years
00:04:01.200 | as a financial advisor.
00:04:02.760 | Before I play the interview for you, I want to do two sponsors today.
00:04:05.600 | Number one is YNAB. You need a budget.
00:04:07.800 | Guess what?
00:04:09.120 | Budgeting is the fundamental foundation of all good financial planning.
00:04:13.320 | Even in Patrick's book, we didn't talk about this extensively,
00:04:16.120 | but you've got to answer the question of how much money do you need?
00:04:18.760 | How much is enough? How much do you need to spend each year?
00:04:22.120 | And guess what? If you don't know that answer,
00:04:23.960 | none of these techniques are going to work for you.
00:04:25.720 | If you don't know what you're actually spending
00:04:27.160 | and you don't know how to allocate it,
00:04:28.840 | that's a skill that will grow over time.
00:04:30.480 | But you've got to start now, and the best way to start is with YNAB.
00:04:33.360 | You need a budget budgeting software.
00:04:35.240 | This is what I use. This is what I use every day.
00:04:38.000 | I have a personal budget and a business budget,
00:04:39.920 | and I budget all the money that's in the account using the YNAB software.
00:04:42.880 | That's as strong as an endorsement as I can make.
00:04:45.000 | Download a free 30-day trial at radicalpersonalfinance.com/ynab.
00:04:50.120 | radicalpersonalfinance.com/ynab.
00:04:53.400 | Second sponsor of today's show
00:04:56.600 | is student loan attorney and podcast host Jay Fleischman.
00:04:59.440 | Jay's been on the show a couple times.
00:05:01.200 | If you have student loans, I would strongly recommend
00:05:03.160 | that you consider reaching out to Jay for a review of your situation.
00:05:07.440 | He is an attorney, both student loan attorney and bankruptcy attorney.
00:05:11.120 | So if you're in any kind of difficult, contentious case
00:05:13.280 | or if you know anyone who is, feel free to connect them with Jay.
00:05:15.800 | He can help you on that.
00:05:16.720 | But most importantly, he's an expert at the student loan payoff options,
00:05:20.720 | and he's really done a great job of helping people
00:05:23.400 | establish the lowest-cost opportunity and ways to pay that off.
00:05:26.640 | Check out his podcast, "The Student Loan Show,"
00:05:29.560 | and also make sure to use the special referral link,
00:05:31.680 | and you get $25 off on initial email consultation
00:05:35.400 | at studentloanshow.com/radical.
00:05:37.600 | studentloanshow.com/radical.
00:05:39.920 | And here is the interview with Patrick.
00:05:42.520 | Patrick Oren, welcome to Radical Personal Finance.
00:05:48.080 | Thank you, Jay.
00:05:49.600 | When your publicist contacted me
00:05:51.440 | about potentially bringing you on the show,
00:05:53.840 | I usually say no to most of these inquiries,
00:05:56.240 | but I said yes to you because of the topic of this book
00:06:01.000 | that you've written, which I hold here in my hands,
00:06:02.520 | called "Finding Your Money's Greater Purpose,
00:06:05.000 | How to Make Your Legacy Count."
00:06:07.040 | And this is a topic that I've done short shrift to on the show.
00:06:10.840 | I'd like to have covered it more,
00:06:11.880 | but I just simply haven't gotten around to it.
00:06:13.360 | I said, "Well, let me have an expert who's written the book
00:06:17.000 | to share with us on the topic."
00:06:19.080 | So before we dig into the specific topic of the book, though,
00:06:22.720 | share with us a little bit about your professional background
00:06:25.120 | and the circumstances that resulted in your writing this book.
00:06:28.640 | Sure. I've been a professional financial advisor
00:06:32.720 | really all my adult career.
00:06:34.480 | That spans 40 years now.
00:06:38.080 | And I'm at the point of my life,
00:06:41.560 | along with most of my clients,
00:06:43.480 | where it's a little more reflective
00:06:47.880 | and a little more interested
00:06:50.360 | in what ultimate legacy we might leave.
00:06:53.760 | So really the book is part of that for me.
00:06:57.480 | It is what I refer to from time to time
00:07:03.120 | as my instructional manual to the next generation.
00:07:07.480 | And tells a lot about some of my personal experiences
00:07:12.080 | and my life and how financial planning
00:07:16.040 | has played a part in that to enhance what I'm doing.
00:07:20.320 | Do you practice in this area as a specialty
00:07:24.880 | or is this more of, as you said,
00:07:26.880 | simply because your clients have gotten
00:07:28.200 | to this stage of life,
00:07:29.760 | it's kind of a natural growth process?
00:07:32.240 | I think it has developed into a specialty.
00:07:36.560 | It's a niche that I'm known for in my community.
00:07:41.560 | I work with several nonprofits and their donors
00:07:46.600 | and most of it has to do with integrating mission
00:07:51.680 | with those donors desire
00:07:55.440 | to really enhance their situation financially,
00:07:59.960 | but also to see if what they're doing can be improved
00:08:04.960 | in terms of their own personal situation,
00:08:07.880 | their family legacy,
00:08:09.840 | and those institutions and causes that they care about,
00:08:13.040 | if that can be enhanced financially.
00:08:15.320 | And the answer is that it can in most cases,
00:08:19.000 | people can come out better financially
00:08:22.680 | when they include philanthropy in some of their plans,
00:08:26.040 | believe it or not.
00:08:27.560 | - I wanna talk about some of the tactics
00:08:30.080 | and specific strategies,
00:08:32.000 | but I wanna start more with the bigger picture overview
00:08:35.040 | before we go below the horizon and dig into those things.
00:08:38.520 | Is philanthropy something that's only appropriate
00:08:40.840 | for people to think about at a certain stage of their life?
00:08:43.880 | - Well, I don't think so.
00:08:46.720 | I think frankly, today there's this whole group
00:08:50.400 | of social entrepreneur,
00:08:52.160 | the younger 30-ish to 40-ish,
00:08:57.760 | entrepreneur who has more of a social consciousness
00:09:02.480 | than perhaps my generation did.
00:09:05.600 | I'm part of the baby boomer generation.
00:09:08.360 | We did a lot of whining early on,
00:09:10.560 | (laughing)
00:09:13.760 | we're kind of known for that.
00:09:16.440 | And we complained about a lot of things.
00:09:19.120 | Then we went to work,
00:09:21.560 | and then after working for a while,
00:09:23.640 | we realized that we could integrate
00:09:25.760 | some of the bigger picture issues with our life's work.
00:09:29.680 | But to answer your question,
00:09:31.720 | I find younger people, frankly,
00:09:35.000 | that generation of Gen X and millennials
00:09:38.520 | are much more socially aware
00:09:42.520 | of what they might be able to do
00:09:44.600 | at an earlier time in their life.
00:09:48.800 | It's been a surprise to me, frankly.
00:09:51.320 | - Does this approach involve money and giving money,
00:09:54.760 | or are you simply talking about it
00:09:56.200 | just from the perspective of working?
00:09:58.840 | - Well, it involves giving money,
00:10:01.200 | but it also involves giving time and talent.
00:10:04.040 | I mean, I think you can do an awful lot
00:10:07.880 | without strictly looking at money.
00:10:11.680 | I'll give you a personal example.
00:10:14.000 | I've been involved with Special Olympics.
00:10:17.040 | That was one of the causes that early on
00:10:23.640 | kind of instilled a wake-up call in me.
00:10:27.440 | And I got my children involved in it.
00:10:29.480 | I had two boys, and I got them to volunteer.
00:10:34.360 | I got my employees involved in the program.
00:10:37.480 | And my children were preteen.
00:10:42.320 | They were in their years, I would say,
00:10:46.360 | was around six, seven, and eight.
00:10:48.600 | We'd go to the games, volunteer, spend the night.
00:10:52.120 | And I think it instilled in them some values
00:10:55.560 | that are not necessarily simply financial.
00:10:58.980 | - Where do you start in trying to figure out
00:11:02.680 | how to make your money count?
00:11:04.120 | - Well, I think you start with
00:11:07.440 | what is it that the money needs to accomplish?
00:11:12.760 | Typically, it needs to evolve into a nest egg
00:11:18.840 | or a pile of money that will support an individual,
00:11:22.760 | the family, and then eventually institutions
00:11:26.760 | and causes they care about.
00:11:28.040 | So I would start with the idea
00:11:31.240 | of present and future cashflow.
00:11:33.720 | What does that really need to be?
00:11:36.000 | And then see what the number is that would produce that.
00:11:39.880 | And how obtainable is that?
00:11:42.280 | Is that something easily obtainable?
00:11:44.400 | Or does the individual have to adjust a little bit
00:11:48.500 | in terms of their desires and objectives?
00:11:51.280 | - Do you find in practicing this segment,
00:11:55.160 | 'cause when I was a financial advisor,
00:11:56.640 | I had a few clients who were entering retirement.
00:11:59.280 | That was my competitive advantage.
00:12:01.720 | I said, "I'm gonna be the 30-year-old financial advisor
00:12:04.480 | "who specializes in working with 55 and 60-year-olds."
00:12:08.120 | That way I could tell them, "Listen, your advisor's
00:12:10.920 | "gonna be retiring when you are.
00:12:11.940 | "Don't you wanna work with me?
00:12:12.880 | "He's gonna be here for your whole lifetime."
00:12:14.440 | I figured I could cut against my smarter,
00:12:17.200 | more experienced competition by rephrasing the opportunity.
00:12:22.200 | But I didn't get deeply, I didn't have a broad client base
00:12:26.920 | of clients that I'd worked with on this topic for years.
00:12:29.520 | So I'd like for you to share your perspective
00:12:32.120 | specifically with specific situations and examples
00:12:36.200 | to help people begin with the end in mind,
00:12:38.960 | to help see where they're likely going to be.
00:12:40.700 | So when you're dealing with somebody
00:12:42.480 | who's at this traditional retirement stage,
00:12:45.440 | do you find that they wanna spend all the money,
00:12:49.320 | they wanna give it away?
00:12:50.360 | How do you find people approaching that problem
00:12:52.920 | in their own situation?
00:12:54.120 | - Sure, I'll give you a concrete example.
00:12:57.840 | I had a neighbor that worked with
00:13:01.260 | one of the financial institutions here in town
00:13:03.280 | for many years and was given an opportunity to retire early.
00:13:08.280 | This is not unusual when you get to a certain stage
00:13:14.600 | of the corporations may want to make an exchange
00:13:19.200 | of an older, more costly employee
00:13:22.000 | for a younger, lesser costly employee.
00:13:25.520 | And we have quite a few clients
00:13:28.040 | that were given that opportunity.
00:13:30.720 | So the whole question was, was there enough there
00:13:35.040 | to support the lifestyle they wanted to?
00:13:37.600 | They were still relatively young, this was a couple.
00:13:40.880 | They had two children who were adult children.
00:13:44.360 | So it boils down to a financial analysis
00:13:48.160 | to see if what is doable.
00:13:50.540 | I would tell you that for most of our clients,
00:13:53.920 | they very much live within their means.
00:13:57.040 | It's just one of those things
00:13:58.960 | that has happened to us over the years.
00:14:01.760 | We've attracted that kind of client.
00:14:03.960 | So in this particular instance, we work with these folks.
00:14:07.080 | He retired about five or six years ago now.
00:14:09.880 | And what is very common in our particular practice
00:14:14.880 | is we're now working with those children
00:14:18.480 | and the grandchildren who don't even know us frankly yet,
00:14:23.160 | but we're developing a family legacy plan
00:14:27.760 | such that the money is not gonna run out
00:14:31.680 | based on the way they're situated.
00:14:35.240 | And what happens to the money with the future generations
00:14:39.640 | is part of our planning as well.
00:14:41.320 | - Do you find, talk to me about how people should think
00:14:47.960 | or just talk observationally.
00:14:49.880 | How have you observed your clients
00:14:52.440 | considering the value and benefit of transferring money
00:14:57.120 | to their bloodline, to their heirs,
00:15:00.160 | versus the value and benefit of transferring money
00:15:02.560 | to external institutions with charitable,
00:15:06.080 | with a charitable focus?
00:15:08.160 | - Sure, you know, many times you can leverage
00:15:10.640 | because of the tax advantages of gifting
00:15:14.960 | and the fact that you can make a future gift,
00:15:17.680 | even one that will occur after you're long gone
00:15:22.680 | from this life and receive a current tax deduction.
00:15:27.520 | The fact that that tax deduction actually puts money back
00:15:31.080 | into your pocket, allows you to do some planning
00:15:34.960 | with respect to the family.
00:15:37.080 | The other big advantage we have today is that for a couple,
00:15:41.680 | we have about $11 million
00:15:43.160 | that would not be subject to a state tax.
00:15:47.080 | So then the real question becomes how much of that,
00:15:51.600 | let's just say it's right at 11 million,
00:15:54.200 | how much of that 11 million should go to family?
00:15:57.840 | And usually there's a number
00:16:01.040 | that does not approach 11 million.
00:16:04.160 | And if that's the case,
00:16:05.920 | then where should the rest of it go?
00:16:08.040 | And most of us have some form of payback desire,
00:16:13.040 | let's put it, to our school or our church or synagogue
00:16:19.440 | or some institution that somewhere along the line
00:16:24.880 | had a beneficial effect on our life.
00:16:28.200 | And now we're in a position to maybe give back
00:16:32.760 | and help that institution thrive.
00:16:36.440 | And in some cases just survive,
00:16:40.520 | if they're financially in not the best of shape.
00:16:44.720 | - How do I decide on how much is the appropriate amount
00:16:49.200 | of money to leave to my kids?
00:16:50.640 | - That's a very subjective question, I believe,
00:16:57.520 | and a very subjective answer.
00:17:01.600 | And I would tell you that it differs tremendously
00:17:04.560 | within the family unit.
00:17:06.360 | Usually, and I tell people this,
00:17:09.720 | fair is not necessarily equal.
00:17:13.520 | So if there's more than one,
00:17:15.000 | I would caution against automatically assuming
00:17:21.160 | that everyone should get an equal amount.
00:17:24.440 | And usually we find in family discussions with siblings,
00:17:28.280 | they're okay with that.
00:17:30.720 | You may have a professional person on the one hand
00:17:34.320 | that is gonna have plenty of income and plenty of assets,
00:17:38.680 | ability to accumulate plenty of assets over their lifetime.
00:17:42.200 | And you may have someone else
00:17:43.600 | who is not in the same position,
00:17:45.840 | maybe a teacher, maybe in the ministry,
00:17:48.440 | maybe has some special needs,
00:17:50.480 | maybe just hasn't gotten their act together.
00:17:54.160 | And usually siblings are,
00:17:57.000 | I find very aware of that.
00:18:00.640 | And are okay with it.
00:18:02.040 | The ones that are,
00:18:03.080 | the successful ones are okay with helping out
00:18:06.880 | the other sibling financially.
00:18:10.480 | That usually means that the money needs to be
00:18:13.400 | somehow managed beyond the control of the sibling
00:18:18.400 | that is the one that needs the help.
00:18:21.080 | Because if they got their hands on the money right away,
00:18:23.880 | it could be a disaster.
00:18:27.080 | You can help one person by giving them money immediately
00:18:32.080 | and you can also hurt a person doing that.
00:18:36.600 | So I would say you have to spend a lot of time
00:18:39.560 | trying to figure that one out.
00:18:41.080 | - What would you look for to understand
00:18:44.840 | whether you're helping or hurting somebody?
00:18:47.000 | - Well, I would look at a little bit of history.
00:18:51.200 | I would look at what the expectations are going forward.
00:18:56.480 | Certainly health and mental condition
00:18:58.760 | are all factors that I would look at.
00:19:01.920 | And then that would determine the timing of these,
00:19:06.920 | of the gifting.
00:19:10.240 | It could occur while the parents are still here
00:19:14.040 | and sort of a dry run to see how that would happen.
00:19:18.440 | It might have to occur after they're gone
00:19:21.280 | because they need the money currently.
00:19:23.400 | So I would tell you every situation is quite, quite different
00:19:27.080 | but what determines it I think is mostly history,
00:19:31.880 | personality, what is their current occupation or profession?
00:19:36.880 | What is their, are they married, not married?
00:19:42.440 | Are they, what are their plans for their life?
00:19:46.240 | - Let's talk about formal financial planning.
00:19:51.160 | I'd love just for, if you're practicing in this area,
00:19:53.560 | you must have some interesting stories.
00:19:55.600 | So think back over the last couple of years of your practice
00:19:57.800 | and choose for me perhaps a very interesting case
00:20:01.320 | that you worked on where clients came to you,
00:20:04.000 | started talking through this process.
00:20:06.240 | You did your fact-finding process
00:20:07.920 | and then you put together a financial plan
00:20:09.320 | using the tools of financial planning.
00:20:11.320 | Describe the case, describe the scenario
00:20:13.800 | and describe the solution.
00:20:15.120 | And please don't be scared to be specific
00:20:17.480 | with technical details.
00:20:18.760 | My audience is interested in that topic.
00:20:21.560 | - Sure, let me tell you, let's call him Joe, okay?
00:20:25.480 | So Joe was someone that showed up at one of our,
00:20:30.480 | we do donor workshops for charities and Joe showed up
00:20:36.520 | and he was what I would call a modest donor,
00:20:41.480 | at least in the pyramid that the charity had.
00:20:46.400 | He was not one of their top benefactors
00:20:50.760 | and he came and heard some things about
00:20:54.120 | how he might do some charitable planning
00:20:57.440 | and what it meant, what it would mean to him.
00:21:00.680 | And he decided to take some action.
00:21:03.400 | He changed the beneficiary on his IRA.
00:21:07.720 | He changed the beneficiaries in his will
00:21:13.280 | and he had some stock and made a charitable contribution
00:21:18.120 | to a trust, to a charitable remainder trust
00:21:23.200 | and got a tax deduction for that.
00:21:25.560 | Increased his income currently by about 20 to 25%,
00:21:30.120 | somewhere in there.
00:21:31.680 | And as a result of that, he was able to double the gift
00:21:35.040 | that he was making to the institution.
00:21:37.600 | In this case, it was a hospital.
00:21:39.480 | So I always tell charities, you know, if you do it right,
00:21:42.840 | you can increase current giving with planned giving.
00:21:46.960 | And that was a perfect example.
00:21:49.480 | Joe died a couple of years later, the children showed up
00:21:53.680 | and this was a while back when the tax laws
00:21:57.280 | were a little bit different.
00:21:59.120 | And, you know, they were very interested
00:22:02.360 | in why Joe had made these gifts to,
00:22:08.080 | it was to the hospital, to his church and to his school.
00:22:13.080 | And as a matter of fact, the gift to the hospital
00:22:16.120 | was over $900,000.
00:22:18.520 | It was the largest gift they had received.
00:22:20.320 | - These were gifts as given
00:22:22.480 | as part of the estate distribution
00:22:23.800 | or these were gifts, lifetime gifts?
00:22:24.640 | - Yes, exactly right.
00:22:26.080 | That's exactly right.
00:22:27.880 | During the estate distribution.
00:22:30.640 | So the children, as you might imagine,
00:22:33.040 | question the motivation behind this.
00:22:37.160 | They felt maybe they were out a million dollars
00:22:40.040 | in inheritance.
00:22:41.120 | And so we sat down and we showed them a before and after.
00:22:45.240 | And as it turns out,
00:22:47.080 | they actually received more inheritance
00:22:51.320 | than they would have before
00:22:53.120 | because of the leverage that was obtained
00:22:56.560 | from the tax deduction and the fact that that was used
00:23:00.560 | to make some other inter-family transactions.
00:23:06.240 | And they actually came out about 30% better
00:23:10.400 | in their inheritance.
00:23:11.680 | The charities received about a million dollars.
00:23:15.560 | Well, I think it was a million three total.
00:23:18.360 | And the only loser in this deal, of course, was the IRS.
00:23:22.240 | And that's a concrete example.
00:23:24.400 | I use a good bit, both with families and with charities
00:23:29.400 | to help them understand
00:23:32.480 | that the tax leverage can be tremendous.
00:23:35.480 | It can benefit the individual.
00:23:38.520 | In this case, Joe got more income, got a tax deduction.
00:23:42.320 | It benefit the family.
00:23:43.520 | They got more inheritance and it can benefit the charity.
00:23:47.840 | - Explain the tools involved.
00:23:51.840 | Did he set up, did he give,
00:23:54.400 | what did he give, when did he give it,
00:23:56.120 | and why did he use those tools?
00:23:57.800 | - It was charitable remainder trust,
00:24:02.840 | primarily to produce more income and a tax deduction.
00:24:06.440 | There were gifts through will and IRA.
00:24:11.720 | And there was a trust that was set up
00:24:15.600 | for the benefit of the family,
00:24:17.800 | into which he put in some life insurance
00:24:21.320 | as a result of the tax deduction
00:24:24.080 | that was obtained from the gifts.
00:24:26.120 | There was more discretionary income
00:24:28.240 | that he could use and replace to the family.
00:24:32.760 | Those gifts that were going to go to charity.
00:24:35.240 | - So let's walk through-- - Through the life insurance.
00:24:37.960 | - Perfect, that's exactly what I was hoping.
00:24:39.400 | And I know normally you're not accustomed
00:24:42.240 | to talking about necessarily the technical details,
00:24:44.400 | but it's of interest to my audience here.
00:24:47.800 | So what is a charitable remainder trust?
00:24:49.520 | How does it work and what did it do for Joe
00:24:52.360 | and what did it do for the charity?
00:24:54.680 | - Okay, Joe transfers stock into the trust.
00:24:59.280 | He names the charity as the beneficiary at his desk.
00:25:03.120 | - This was stock, publicly traded stock
00:25:04.600 | or stock of his own private company?
00:25:05.880 | - Publicly traded stock with very low dividends.
00:25:08.400 | - Okay.
00:25:09.800 | - So under 1% at the time.
00:25:12.800 | - Appreciated stock? - Transfers that in.
00:25:15.040 | - Sorry. - Yes, appreciated stock,
00:25:16.520 | low cost basis.
00:25:17.480 | So if he sold it, he was very reluctant
00:25:21.640 | to sell it and pay the tax.
00:25:23.880 | Kind of a classic, what you look for
00:25:27.760 | in these types of transactions.
00:25:29.920 | So he transfers the stock into the trust,
00:25:34.040 | gets a tax deduction.
00:25:35.760 | This is a function of his age, life expectancy,
00:25:39.360 | and the amount that he's putting in.
00:25:43.680 | So he gets a handsome tax deduction for that,
00:25:46.920 | current tax deduction.
00:25:49.100 | Now the trust can sell that stock without paying any tax,
00:25:53.280 | reinvest those proceeds into some income-producing
00:25:58.280 | property, stocks, bonds, whatever they happen to be,
00:26:02.000 | and produce more income for Joe.
00:26:04.360 | So now Joe's income has gone up by 20, 25%.
00:26:09.360 | He got a tax deduction in the front end.
00:26:12.320 | So those are the benefits to Joe.
00:26:14.520 | - And let me clarify, the reason why that's permitted
00:26:16.520 | is because this is a charitable remainder trust.
00:26:19.020 | So the remainder of the account will transfer
00:26:22.000 | to the charity at the time of Joe's death.
00:26:24.800 | - At his death.
00:26:26.240 | Okay, so now you disinherited the children
00:26:29.680 | by that amount of money.
00:26:31.480 | In order to replace that--
00:26:34.680 | - Real quick, Patrick, do you remember,
00:26:36.920 | or are you willing to say about how much he put in
00:26:38.640 | and about how much his income was from it?
00:26:40.740 | - There was, oh, jeez, I'm trying to remember.
00:26:45.280 | - Ballpark.
00:26:46.120 | - Yeah, I think the trust was in the neighborhood
00:26:49.600 | of $900,000.
00:26:51.680 | And the income would have been in the 35 to 40,
00:26:56.680 | which is substantially more than it was before.
00:27:02.140 | Does that answer the question?
00:27:04.840 | - Yes, it does.
00:27:05.680 | And the reason I'm probing on this is often,
00:27:07.440 | so the world of estate planning,
00:27:08.840 | we've done a good job as financial advisors
00:27:11.600 | of trying to keep a sense of mystique here.
00:27:13.480 | We feel it's one of those ways where we try to
00:27:15.680 | pretend we're better than everybody
00:27:17.040 | 'cause we know how to do estate planning.
00:27:19.480 | But I wanna demonstrate to people
00:27:21.440 | that it's very accessible.
00:27:23.160 | And certainly you don't need to have $100 million
00:27:27.000 | to do good estate planning.
00:27:27.960 | Sometimes, if you're dealing with a couple million bucks
00:27:30.720 | or somewhere in that modest seven-figure range,
00:27:34.000 | you can still use some of these tools and strategies
00:27:36.440 | to substantial effect.
00:27:37.440 | That's why I'm asking for the details
00:27:39.760 | to demonstrate that to my audience.
00:27:40.600 | - Sure, sure, and if we have time,
00:27:41.600 | I'll give you a very simple one
00:27:43.200 | after we talk about this.
00:27:46.520 | But now you have a tax deduction,
00:27:48.320 | you have increased income.
00:27:49.880 | So Joe increased his current giving to the charity.
00:27:54.880 | The fact that he got a tax deduction and increased income
00:27:59.600 | allowed him to fund a life insurance policy into a trust.
00:28:04.480 | And the reason you would do the trust
00:28:06.640 | is to keep it out of the estate.
00:28:08.280 | And so you replace the lost inheritance
00:28:15.880 | with the life insurance, which is now in a trust
00:28:19.480 | and does not get taxed at all in terms of the state taxes.
00:28:23.120 | And that goes to the children.
00:28:24.800 | It has replaced the wealth that is going to the charity.
00:28:28.480 | So who's benefited here?
00:28:30.040 | Joe has benefited from increased income
00:28:33.160 | and less taxes to pay.
00:28:34.880 | The children have benefited in that it actually,
00:28:39.760 | he replaced the insurance was more than
00:28:44.840 | what the inheritance was going to be.
00:28:47.320 | So that he was afforded that opportunity
00:28:52.240 | because of the tax deduction and the increased income.
00:28:55.520 | And then the charity received the million dollars
00:28:58.600 | at his death, million three at his death.
00:29:01.480 | So to me, it's a win, win, win.
00:29:03.960 | Obviously Joe was charitably inclined.
00:29:09.040 | He came to the workshop because he was a donor.
00:29:14.120 | So there was motivation there to begin with.
00:29:16.640 | - And yeah, and so the reason we go through it in detail
00:29:21.600 | is because it demonstrates how by locating,
00:29:26.280 | by looking at an asset structure,
00:29:29.000 | and it's impossible to teach,
00:29:31.440 | the reason the scenarios are useful
00:29:32.720 | is you can't teach this subject and say,
00:29:35.120 | well, you should always do this
00:29:37.040 | because you have to look at the asset.
00:29:38.440 | If you have, for example, okay,
00:29:40.120 | if the stock is privately held versus publicly held,
00:29:42.440 | that's gonna make a difference.
00:29:43.400 | If it's appreciated stock,
00:29:45.080 | if he has a low tax basis in it,
00:29:46.720 | he paid a little bit of money and now it's worth a lot,
00:29:48.880 | that's very different than if it's depreciated stock.
00:29:51.280 | He paid a lot of money for it and now it's not worth much.
00:29:54.080 | So in that situation,
00:29:55.800 | you would never put that asset into a trust.
00:29:57.520 | You'd sell that asset.
00:29:58.480 | And if you wanted to convey some money to the charity,
00:30:00.280 | you would always sell it,
00:30:01.320 | take the loss and then transfer it.
00:30:03.520 | So these scenarios I think are useful
00:30:07.080 | to demonstrate to the interested lay person
00:30:11.080 | that here are some actual techniques
00:30:13.720 | and everybody wins in that scenario.
00:30:15.360 | Joe gets more money.
00:30:16.480 | He fulfills his charitable goals, which are important.
00:30:19.280 | The charity gets more giving now
00:30:21.000 | and more money at the termination of the trust.
00:30:24.280 | The children have their inheritance secured
00:30:26.980 | and they get more money.
00:30:28.680 | And then the financial advisor wins
00:30:30.400 | and provides a valuable service
00:30:32.120 | and you earn money on the transaction.
00:30:34.840 | But everybody wins.
00:30:35.680 | The only person that loses is the IRS,
00:30:37.600 | but I don't feel so bad about that.
00:30:39.520 | I feel pretty good about that.
00:30:40.360 | - Well, you hit the nail on the head.
00:30:43.120 | I think most people would agree with you.
00:30:45.680 | - So is there anything else we can learn
00:30:47.720 | from Joe's example before you go on
00:30:49.320 | to the other example you mentioned?
00:30:51.520 | - Well, I think what you can learn is that
00:30:55.320 | in most cases,
00:30:58.940 | people are not aware of techniques
00:31:02.940 | that would increase and benefit them,
00:31:08.240 | increase their financial wellbeing and benefit them
00:31:12.000 | only because no one has brought it to their attention.
00:31:15.720 | And if you have been around for a while,
00:31:19.800 | you know as well as I do,
00:31:21.640 | that many people feel that their situation is well in hand.
00:31:26.640 | They've done some planning.
00:31:28.080 | They don't need any more.
00:31:30.320 | They're resistant to having someone take another look.
00:31:34.460 | But in most cases,
00:31:36.840 | if they haven't been exposed to some of these techniques,
00:31:40.800 | they're really doing themselves a disservice, I feel.
00:31:45.320 | And I can tell you there are numerous cases
00:31:50.320 | where we've reviewed documents that were outdated
00:31:55.180 | in terms of what clients thought their desires
00:32:00.180 | were reflected in these estate documents
00:32:06.240 | were not the case for various reasons.
00:32:08.780 | - Right, and I know for me,
00:32:10.700 | people often build these barriers
00:32:15.600 | because frankly, as a financial advice community,
00:32:19.200 | many of us have abused,
00:32:20.520 | people have felt abused by us,
00:32:22.120 | we who are financial advisors.
00:32:24.240 | And in the scenario that you explained,
00:32:26.480 | there's the appropriate placement
00:32:29.000 | of an appropriate life insurance policy.
00:32:31.120 | And so what a new financial advisor
00:32:33.440 | or a new insurance agent would do is say,
00:32:35.080 | "Listen, let me tell you about the islet.
00:32:36.480 | "Let me tell you about how an islet,
00:32:38.120 | "an irrevocable life insurance trust works
00:32:39.780 | "and looks so great,
00:32:40.620 | "and you can put a life insurance policy in there."
00:32:42.600 | But a new life insurance agent
00:32:44.480 | is not gonna know how to structure
00:32:45.720 | a charitable remainder trust
00:32:46.920 | and is not gonna have the connection.
00:32:48.080 | So what happens is that we who are new in the business,
00:32:51.440 | we go out and burn a bunch of bridges for people
00:32:53.680 | and they don't wanna hear about it.
00:32:54.880 | And then they gotta come along down the road and say,
00:32:56.920 | "Well, listen, okay, hold on a second.
00:32:58.740 | "Let's talk about a specific situation.
00:33:00.580 | "Let's run some math and let's see if there's a way
00:33:02.880 | "that we can use these various techniques
00:33:04.960 | "and tools that are at our disposal in an intelligent way."
00:33:08.840 | And in the example that you gave,
00:33:10.660 | it's not the life insurance policy that did the magic.
00:33:13.140 | That's just one way of assuring the estate for the kids
00:33:16.680 | within that trust.
00:33:18.200 | And the reason the life insurance policy works so well
00:33:20.800 | in that example is because Joe already gave away
00:33:24.480 | all the money.
00:33:25.320 | He put the money, or he gave away a lot of money,
00:33:27.720 | and he gave that away into the charity.
00:33:29.680 | But with a life insurance policy,
00:33:31.720 | he just needs to buy some money
00:33:34.840 | to transfer to his kids at the date of death.
00:33:37.000 | And within an irrevocable trust,
00:33:39.240 | he can go ahead and make the transfers in there
00:33:41.320 | that are sufficient to pay the premiums,
00:33:42.960 | and he can buy some more money for his kids
00:33:46.440 | with the use of the life insurance policy.
00:33:48.400 | But it only worked because of the other
00:33:51.120 | offsetting tax savings.
00:33:52.840 | And so that's why when I, frankly, I mean,
00:33:56.100 | Patrick, the reason you're on
00:33:56.960 | is because you're working in this area,
00:33:58.200 | and this is the type of conversation
00:33:59.880 | I have been wanting to expose
00:34:01.280 | the radical personal finance community to,
00:34:02.580 | and I haven't.
00:34:03.560 | Too many financial advisors are stuck
00:34:04.840 | behind their compliance department.
00:34:06.000 | They can't come on and talk about these things.
00:34:08.600 | So I think it's valuable that we can share this
00:34:10.480 | with people in a useful format.
00:34:12.600 | - Well, Joshua, you make a good point.
00:34:15.840 | I think that what happens is in so many cases
00:34:19.400 | is that advisors lead with techniques
00:34:24.400 | and before they really have a full grasp of the situation.
00:34:28.900 | And it's so helpful to know everything
00:34:33.900 | that you possibly can about that client
00:34:37.620 | or potential client, including reviewing
00:34:40.540 | tax returns and documents.
00:34:43.260 | But even more importantly than that,
00:34:45.260 | what are their desires?
00:34:46.500 | What do they really want to accomplish in life?
00:34:49.420 | And once that communication develops,
00:34:55.540 | then these techniques just kind of fall into place.
00:34:58.140 | - Right.
00:34:59.460 | - And you don't need to, like you say,
00:35:02.020 | hammer on an eyelet.
00:35:03.740 | It may be appropriate, it may not.
00:35:06.140 | In this context, it was, because as you mentioned,
00:35:09.980 | some money was freed up, and I liked what you said
00:35:13.460 | about buying some money.
00:35:15.020 | That's exactly what happened here.
00:35:17.140 | - Yeah, and Joe was insurable.
00:35:18.780 | I mean, if Joe hadn't been insurable,
00:35:19.980 | it wouldn't have worked.
00:35:20.820 | He'd have to find another solution.
00:35:22.460 | It doesn't mean that there's not an option.
00:35:24.900 | It just might mean you're transferring a policy
00:35:27.020 | that's elsewhere or you're using another technique.
00:35:29.420 | - Absolutely, there may be one, yeah.
00:35:31.300 | If there's an existing, you always want to take
00:35:33.700 | the lowest cost option.
00:35:35.940 | - Amen.
00:35:36.780 | - And if there is one already existing,
00:35:40.300 | restructure what is already available.
00:35:43.780 | - Yeah, give us that next example, Patrick.
00:35:45.940 | - Okay, so you don't have to have tens of millions
00:35:51.460 | of dollars, a colleague of mine who works
00:35:56.460 | in the planned giving area at the charity
00:36:00.940 | has told me over the years that one of his favorite
00:36:05.900 | situations is to find one of their donors who is elderly,
00:36:10.900 | who is single, and either widowed or never married woman,
00:36:20.740 | who has an interest in the charity,
00:36:23.700 | owns a home and has an IRA.
00:36:26.980 | And he talks to them about donating the home currently.
00:36:31.980 | You can donate your home, live in it for the rest
00:36:35.540 | of your life, retain an interest to live in it
00:36:39.620 | for the rest of your life, get a current tax deduction
00:36:43.340 | for this gift of the home.
00:36:46.620 | And even if you're in the lowest tax bracket,
00:36:50.720 | 15% tax bracket or so, this gives you a tax deduction
00:36:55.720 | that would allow you to take more money out of the IRA
00:36:59.060 | without paying tax on it.
00:37:01.980 | So it accomplishes very much what a Roth IRA would
00:37:06.940 | if you were to take withdrawals without having
00:37:09.920 | to do the conversion and pay the tax.
00:37:12.460 | So that's a very simple example.
00:37:14.760 | There are a lot of people out there with a house and an IRA.
00:37:17.760 | And if they don't have beneficiaries,
00:37:20.060 | this is a technique that works pretty well
00:37:23.860 | in those cases where they're gonna live there
00:37:26.940 | for probably the rest of their life.
00:37:30.140 | They can get the current tax deduction,
00:37:32.020 | the charity gets the home, and they can increase
00:37:35.580 | their income and maybe go take a trip as a result.
00:37:38.740 | - And then, yeah, it's a good example.
00:37:43.620 | What is the mechanism?
00:37:45.060 | Would you donate the house to the IRA
00:37:47.300 | and retain a lease?
00:37:48.280 | What's the mechanism that you would use?
00:37:50.280 | - You donate, yeah, life interest.
00:37:53.060 | You donate the house to the charity, retain a life interest.
00:37:57.340 | - And a life interest for the layperson is a legal right
00:38:01.000 | to live in the property for the duration of your life.
00:38:04.140 | - That is correct.
00:38:06.120 | - Let's talk through, in your book,
00:38:07.980 | you provide just a few pages where you talk
00:38:09.800 | about the sampling of strategies.
00:38:11.040 | Just wanna talk through these at a high level.
00:38:13.660 | Tell me about what a charitable gift annuity is
00:38:15.560 | and how it works.
00:38:17.580 | - If you're familiar with a commercial annuity
00:38:21.980 | where you just transfer money in return for an income
00:38:26.900 | and get a current tax deduction,
00:38:28.900 | you don't get a current tax deduction
00:38:31.740 | in a commercial annuity with an insurance company.
00:38:35.780 | This would simply be the same concept,
00:38:39.780 | only the charity would act as the insurance company.
00:38:42.580 | They would guarantee you an income
00:38:44.380 | for the rest of your life.
00:38:46.240 | You would make a donation of,
00:38:50.720 | let's just use a simple example
00:38:54.160 | where you donate $100,000
00:38:56.860 | and maybe you get $5,000 for the rest of your life.
00:39:01.680 | You might get a 15 or $20,000 current income tax deduction,
00:39:06.680 | depending on your age.
00:39:09.080 | And the charity would guarantee that income for you
00:39:14.200 | or you and another beneficiary,
00:39:16.360 | typically a spouse, for the rest of your life.
00:39:19.280 | Given low interest rate environment we're in,
00:39:23.680 | many times this is an attractive option
00:39:27.360 | for people that are in their advanced years,
00:39:30.920 | need more income,
00:39:32.620 | and could benefit from the tax deduction as well.
00:39:35.320 | - Tell me about the pros and cons
00:39:38.360 | of leaving my retirement plan to charity.
00:39:42.680 | - Well, I would tell you that the pros are pretty strong.
00:39:47.620 | The retirement plan is subject
00:39:51.240 | to both income tax and estate tax.
00:39:55.600 | And one of the advantages of leaving the IRA,
00:40:00.600 | there are two options today.
00:40:02.920 | One is you can leave it at your death.
00:40:05.880 | That would avoid the estate tax
00:40:10.080 | if you're in a state taxable area.
00:40:14.240 | And it would certainly avoid the income tax
00:40:16.840 | on those distributions.
00:40:18.840 | Your beneficiaries are going to have to take that money out
00:40:22.160 | and it will be taxed.
00:40:23.800 | So it'll avoid all of that.
00:40:25.540 | So it's one of the best assets to give away.
00:40:30.160 | I would tell you that it is preferable in many cases
00:40:34.560 | to naming a charity in your will.
00:40:37.020 | So a very easy thing to do to just add charity to your IRA.
00:40:41.840 | Also, we now have clarification
00:40:44.080 | on what's called the charitable IRA,
00:40:46.120 | which is if you're over 70 and a half
00:40:48.880 | and you're taking what are your required
00:40:51.600 | and minimum distributions,
00:40:54.020 | you can make a gift to charity
00:40:56.200 | and it will satisfy that required minimum distribution
00:41:01.200 | to the amount, up to the amount that you give.
00:41:05.560 | And it will not affect your adjusted gross income.
00:41:09.200 | Now that's a small item that a lot of people miss,
00:41:13.480 | but it will not, if you were to take the money out first,
00:41:18.080 | it would increase your adjustable gross income.
00:41:20.440 | And then you make contribution to charity,
00:41:23.600 | it would not be as effective as doing the charitable IRA
00:41:26.960 | directly to the charity from your IRA.
00:41:29.760 | And that's a current gift while you're alive.
00:41:34.160 | - What's a donor advised fund
00:41:35.600 | and why should I consider using one?
00:41:37.400 | - Donor advised fund is set up by either a charity
00:41:41.960 | and today the largest ones are financial institutions.
00:41:46.440 | Fidelity, Vanguard, Schwab are the three largest
00:41:50.560 | donor advised funds.
00:41:53.640 | The advantage is you make a gift today
00:41:56.520 | to the donor advised fund,
00:41:58.540 | and then you can later designate the beneficiaries
00:42:03.640 | that would receive these gifts and the timing of them.
00:42:08.080 | This is used a lot when you have an event,
00:42:10.660 | like a sale of a business,
00:42:14.200 | or I don't know too many people that have won the lottery,
00:42:17.900 | but if you were to come into Sudden Wealth
00:42:21.240 | and you needed a tax deduction today
00:42:23.720 | and you were charitably inclined,
00:42:25.840 | you could make this contribution into the donor advised fund
00:42:30.520 | and then take your time deciding
00:42:33.800 | which charities would benefit.
00:42:35.460 | No full well though that this is a gift.
00:42:38.960 | You are getting a tax deduction today,
00:42:43.360 | but ultimately this money is going to charity.
00:42:46.160 | - Right, and let's just hammer that point home.
00:42:49.200 | A lot of people might be thinking,
00:42:51.760 | well, there's some way that I can manipulate this system.
00:42:54.880 | After all, I've heard if I just set up a trust
00:42:57.020 | then I get tax advantages, and of course a trust,
00:42:59.280 | I can control that, so the answer is no.
00:43:01.800 | The law is very clear.
00:43:04.520 | When you get a deduction,
00:43:05.440 | it's because you have abandoned your control of the money.
00:43:09.080 | You've made a legitimate bona fide gift.
00:43:12.060 | So at the foundation of your planning,
00:43:14.200 | you've got to have that as an intention.
00:43:16.640 | Now, of course, there are some techniques
00:43:18.840 | that can be implemented to allow you to make sure
00:43:21.840 | that your goals are furthered.
00:43:23.400 | You can write a trust document in a way
00:43:24.960 | that's gonna get you much closer,
00:43:26.640 | but you are actually giving money away.
00:43:29.320 | You've gotta actually give it away,
00:43:31.320 | and that is going to be an irrevocable transfer.
00:43:34.360 | So some techniques and tools give you
00:43:37.720 | a little bit more control than others,
00:43:39.420 | but you are giving money away.
00:43:40.800 | You can't just, these are not games that we're playing here,
00:43:44.120 | just making stuff up.
00:43:45.120 | It's a proven out, developed body of work
00:43:48.920 | where, yes, you can leverage the money,
00:43:51.520 | but you're actually giving it away.
00:43:53.280 | - That's exactly right.
00:43:56.400 | Finally, as far as technique,
00:43:57.960 | and then we'll go back to big picture.
00:43:59.680 | So I've got a life insurance policy,
00:44:02.600 | and I'm sitting here looking at this thing saying,
00:44:04.040 | well, I don't really need it,
00:44:05.440 | and my wife doesn't need it, my kids don't need it.
00:44:09.440 | What should I do with this thing?
00:44:10.800 | Talk to me about the idea
00:44:11.760 | of using that life insurance policy.
00:44:13.560 | - Sure, I think this is one of the most
00:44:16.320 | overlooked areas there is.
00:44:18.680 | There are plenty of folks out there
00:44:21.160 | that took out a life insurance policy
00:44:24.120 | when they were maybe younger
00:44:26.400 | and had a mortgage and children to educate
00:44:30.240 | and a spouse to take care of
00:44:33.840 | if they stepped out of the picture
00:44:35.320 | and they paid on this for years and years and years,
00:44:37.880 | and now they're older, they have some wealth.
00:44:40.120 | There's not a need for the insurance
00:44:43.280 | for any income replacement.
00:44:44.960 | There's not a need for the insurance
00:44:46.520 | to pay any estate taxes, for example.
00:44:48.780 | A gift to that insurance policy to a charity
00:44:53.920 | is, I think, a tremendous leverageable tool,
00:44:58.920 | and the reason I say that is
00:45:01.160 | you get a current tax deduction
00:45:03.400 | for whatever value is in that policy,
00:45:06.080 | typically cash value that's in that policy,
00:45:09.200 | and that's a shortcut.
00:45:11.360 | There's something a little more complicated to that.
00:45:14.680 | - You don't wanna talk about
00:45:15.520 | the interpolated terminal reserve?
00:45:17.480 | - Yeah, I don't wanna talk
00:45:18.760 | about the interpolated terminal reserve,
00:45:22.520 | but you do have to get a qualified opinion on it
00:45:26.080 | and make sure that your CPA understands
00:45:31.080 | that what that is and is willing to sign the tax return
00:45:35.760 | for that value.
00:45:36.960 | There's not huge risk in this,
00:45:40.160 | but there is some difference of opinion from time to time,
00:45:44.120 | so you do have to get that analysis performed,
00:45:49.640 | but once you do that, you get that full tax deduction.
00:45:54.000 | You can either continue paying premiums
00:45:56.600 | if that's what you wanna do.
00:45:58.320 | You can gift an equivalent amount
00:46:02.480 | of the premium to the charity.
00:46:03.920 | They can pay the premium.
00:46:05.740 | We know for sure everyone's going to die,
00:46:09.400 | so there will be a point in time
00:46:10.800 | when the charity will benefit from this,
00:46:12.880 | or you can just take a paid-up policy.
00:46:16.040 | The charity can take a paid-up policy and just wait.
00:46:19.460 | Now, the charity can also access those cash values
00:46:24.120 | if they want to, but typically, that's beyond your control
00:46:28.080 | and really not something that would affect you,
00:46:32.180 | but I think this is one of the areas
00:46:35.280 | that is overlooked both by charities and individuals.
00:46:39.800 | A lot of people just cancel their policy.
00:46:42.600 | They pay a lot of tax.
00:46:44.480 | The net effect is not as good as if they donated it.
00:46:48.440 | - Yeah, I'm with you.
00:46:49.620 | This is a particular passion of mine.
00:46:51.260 | One of the reasons I started Radical Personal Finance
00:46:53.420 | was I got sick and tired of hearing financial pundits say,
00:46:55.840 | "Bob, you have a whole life insurance policy.
00:46:57.480 | "Just cancel that thing."
00:46:58.980 | I got tired of screaming at whatever radio or speaker
00:47:02.860 | I was hearing and saying, "You are stupid.
00:47:04.920 | "That is absolutely the wrong advice.
00:47:06.780 | "Stop and look and find out if there's a way,
00:47:10.440 | "something effective and efficient that can be done."
00:47:13.060 | I mean, you get a nice, healthy policy
00:47:18.440 | and exactly what you said, you transfer it to a charity.
00:47:21.040 | Let's say you continue to pay the premiums.
00:47:23.420 | Now you've turned your premiums
00:47:24.500 | from a non-deductible expenditure
00:47:26.700 | to a deductible expenditure.
00:47:28.160 | You've received a deduction for the value of the policy,
00:47:31.360 | the cash value or the ITR.
00:47:34.060 | The charity has the, if they need the money,
00:47:38.180 | of course, they could always cash it out
00:47:40.140 | or they could even just use it as a form of collateral.
00:47:43.100 | They could take a loan against it.
00:47:44.340 | They could pledge some of the cash value.
00:47:46.180 | Now you might be able to take a charity
00:47:47.860 | from a poorly funded charity
00:47:49.620 | and now they know they've got a solid asset behind them
00:47:52.500 | that could be a sizable asset.
00:47:54.020 | And then the board of directors there
00:47:57.060 | could possibly take that leverage ability
00:48:00.180 | and use it to leverage their own finances
00:48:03.140 | by having such a healthy asset backing up their plans.
00:48:07.140 | And then at the end of the day, it's gonna pay out.
00:48:09.500 | I mean, it's a really under-talked about option.
00:48:13.680 | And I get, yeah.
00:48:15.300 | So what you just went over is exactly the reason
00:48:17.780 | why I started Radical Personal Finance
00:48:19.220 | 'cause I got sick and tired of people not,
00:48:21.260 | who didn't know how to use some of these techniques,
00:48:23.660 | not discussing them in public.
00:48:25.180 | - Well, I tell you, it's refreshing to hear someone
00:48:30.220 | that feels the same way I do about this.
00:48:32.220 | This is one of those well-kept secrets.
00:48:35.160 | And a lot of people make a mistake in this area
00:48:40.100 | only because they don't get advice about it.
00:48:42.780 | And just, as you say, go ahead and cash it in
00:48:47.660 | and that's the last option.
00:48:50.300 | I think, you know, unless you're in dire financial straits,
00:48:55.300 | I think these other options,
00:48:58.820 | especially the charitable one, is very, very dynamic.
00:49:03.820 | - Yeah, I'm with you.
00:49:05.340 | Patrick, let's go back big picture.
00:49:08.700 | What have you learned about your own finances
00:49:11.740 | and your own plans for your money
00:49:14.780 | since starting to work more heavily
00:49:16.580 | with clients in this space?
00:49:18.020 | - Well, I guess the process has been one of,
00:49:23.540 | it even goes back to, you know, my father
00:49:27.740 | and some of the values he taught me.
00:49:31.060 | He was a very conservative guy
00:49:33.500 | and was an accountant by background.
00:49:36.620 | But even with that, I found out later
00:49:41.620 | that there were some things that if I would have had
00:49:46.140 | the opportunity, I could have helped him a great deal,
00:49:49.940 | enhance his wealth more than he did.
00:49:52.580 | He did okay, but he could have done really well.
00:49:56.140 | So it starts with that.
00:49:58.020 | And I vowed to study enough about this area.
00:50:03.020 | It attracted me such that I could take advantage
00:50:07.980 | of that knowledge and not make some mistakes
00:50:11.540 | and continue to build wealth and live a good life.
00:50:16.540 | And once I got to a point where that looked
00:50:22.580 | like it was pretty assured, I would devote myself
00:50:28.460 | to what I'm doing now, which is pretty much
00:50:30.540 | helping charities thrive financially.
00:50:34.980 | I think it's important that they grow
00:50:38.260 | their endowment reserve funds so that they're around
00:50:41.700 | and a great example was in 2000, 2001,
00:50:45.620 | and again, 2008, nine, those charities that had reserves
00:50:50.460 | that could call on those funds did fine.
00:50:55.460 | They were able to meet payroll.
00:50:57.740 | They were able to make some expansion plans
00:51:01.540 | and see those through.
00:51:03.180 | So I would tell you what I've learned is that, you know,
00:51:06.820 | with a little bit of knowledge, well-applied,
00:51:09.260 | it can do an awful lot of good in a lot of places.
00:51:11.860 | - I have a lot of financial advisors who listen to my show
00:51:15.100 | and I receive many emails from people
00:51:17.540 | who have either thought about or have become
00:51:20.180 | financial advisors because of radical personal finance.
00:51:23.100 | I'd like you to share, what was your path
00:51:25.780 | through this industry to where you are today?
00:51:27.700 | Where did you start?
00:51:29.060 | What were the career turns that led to your current practice?
00:51:32.100 | - I came out of graduate school,
00:51:35.860 | was hired by a life insurance company,
00:51:38.380 | went to work in their home office.
00:51:40.140 | And my job was to, what was called advanced underwriting.
00:51:45.820 | I worked with agents that would go out on a death claim
00:51:50.500 | and we had bought a Boston money manager
00:51:54.220 | and I would design the investment plan
00:51:56.580 | for the widow and the children
00:51:57.940 | so they could continue to live in what was a lifestyle
00:52:02.940 | they were accustomed to.
00:52:05.500 | Also, we had some Fortune 100 companies
00:52:10.260 | that had their executives.
00:52:13.220 | We counseled their executives in the use of stock options
00:52:18.220 | and retirement plans and how to tactically use
00:52:24.060 | what was available in those days
00:52:26.860 | to help them get to a retirement
00:52:31.420 | where they would live a comfortable retirement.
00:52:35.140 | So after a few years of that,
00:52:37.820 | there was a company in Atlanta that I met some of the people,
00:52:41.300 | they hired me away.
00:52:43.380 | I came to Atlanta, worked with them for a while,
00:52:48.060 | met my two future partners there.
00:52:50.220 | We left after a few years,
00:52:53.780 | they were having financial difficulty, we were not.
00:52:57.020 | And we started a firm and for 25 years grew that,
00:53:03.380 | became very successful.
00:53:05.740 | And then back in 2000,
00:53:07.660 | I decided that I would sort of downsize my life,
00:53:13.020 | if you will.
00:53:14.220 | It's fun running a firm with 30 people
00:53:18.220 | and growing assets,
00:53:21.180 | but you kind of get away from what you love
00:53:25.260 | and you spend a lot of time in administration
00:53:29.340 | and HR issues with folks.
00:53:33.340 | And so now I've got four people and we have 65 clients
00:53:38.340 | and it's very manageable and I really enjoy what I'm doing.
00:53:45.140 | - How old are you now?
00:53:45.980 | - I've enjoyed all of them, I've enjoyed all of them,
00:53:48.620 | but I really enjoy what I'm doing now.
00:53:51.100 | - How old are you now?
00:53:52.220 | - I am gonna be 69 on Saturday.
00:53:56.380 | - Congratulations.
00:53:57.780 | Do you intend to retire?
00:54:00.020 | - I don't.
00:54:02.060 | It's a wonderful business in that
00:54:06.260 | it's very much a lifestyle business.
00:54:08.260 | I played four days of golf at a golf tournament
00:54:13.300 | at a resort last week.
00:54:14.940 | I go on trips whenever I want to,
00:54:20.820 | I've got a great staff, they're very tolerant of that.
00:54:26.260 | We've got great clients.
00:54:27.860 | So it's a wonderful lifestyle business,
00:54:32.340 | but it also turns me on enough
00:54:34.900 | that I wanna continue doing it as long as I'm able.
00:54:38.060 | And I think I'm still sharp enough
00:54:43.060 | that I can do it, I'm healthy.
00:54:47.620 | So as long as that continues, I'd like to continue working.
00:54:50.620 | Retirement for me is not attractive.
00:54:56.660 | I like doing it two or three or four days at a time,
00:54:59.740 | but not forever.
00:55:02.460 | - In working with your client base,
00:55:06.260 | who's in probably an age range,
00:55:09.220 | bracketing yours by 10 years below and 10 years above
00:55:11.980 | if the normal experience of a financial advisory practice
00:55:15.580 | is applicable, what have you seen,
00:55:18.980 | have you traced any threads of retirement
00:55:20.980 | from those that you've watched retire?
00:55:23.340 | Have you found that most of your clients
00:55:25.220 | who've been able to retire haven't wanted to?
00:55:27.020 | Have you found that some of them
00:55:28.220 | have been very enthusiastic about it?
00:55:30.540 | What have you learned about retirement
00:55:32.260 | from watching your clients?
00:55:33.700 | - I'll tell you what I learned from actually a client of mine
00:55:39.860 | spouse of a client.
00:55:42.380 | She said, we always have the conversation
00:55:45.740 | about how long am I going to work?
00:55:47.820 | And I have young people here
00:55:51.340 | that work with the next generation
00:55:53.900 | and also give some comfort like you were referring to
00:55:58.900 | when you were in your thirties working with retired people
00:56:03.660 | or those about to retire,
00:56:05.660 | they're comfortable working with younger people
00:56:07.420 | 'cause they know they're going to be around.
00:56:09.820 | So I have that here,
00:56:11.420 | but here's one thing I learned that the more I see this,
00:56:15.980 | the more right she is.
00:56:18.420 | And she said, what I have found
00:56:22.500 | is that people that work for themselves
00:56:26.100 | typically don't want to retire.
00:56:28.140 | People that work for a large corporation,
00:56:30.980 | a financial institution,
00:56:32.740 | where someone else is making decisions for them
00:56:37.540 | and telling them where they need to be on Wednesday
00:56:40.460 | and their metrics they have to meet,
00:56:43.700 | no such things.
00:56:44.940 | Those people are anxious to and really enjoy retirement.
00:56:49.460 | And I've seen that played out more
00:56:52.060 | ever since she said that.
00:56:54.020 | I've been very aware of that.
00:56:55.460 | I will tell you most of the ones that I have
00:56:58.460 | that love retirement,
00:57:00.300 | don't do anything but play golf, work out
00:57:02.820 | and go out to dinner
00:57:05.220 | are those that work for large corporations.
00:57:07.740 | - Yeah, my own anecdotal experience more limited than yours
00:57:12.620 | would corroborate that.
00:57:14.580 | That's why I think that the simplest way to retire
00:57:17.220 | is simply first get control of your life with your own,
00:57:21.060 | get a little bit of autonomy
00:57:22.820 | over your daily comings and goings.
00:57:25.340 | And all of a sudden you think to yourself,
00:57:26.860 | well, this is what I wanted.
00:57:29.220 | This is what I was after.
00:57:30.700 | Even just going from managing 30 people
00:57:32.660 | to managing four people.
00:57:34.420 | I mean, you would have, my guess, feel free to disagree,
00:57:36.980 | but if you were still trying to manage an office of 30 people
00:57:39.980 | and you're trying to meet growth targets
00:57:41.820 | and you're trying to expand from 30 to 60,
00:57:44.500 | that wouldn't be nearly as fun as you're having,
00:57:46.180 | as much fun as you're having now.
00:57:47.380 | And you'd be much more likely to wanna hang up your hat
00:57:49.900 | and turn in your calculator.
00:57:51.620 | - I think you're right.
00:57:53.980 | I think there's a big difference
00:57:55.780 | the farther you get removed from the client contact.
00:58:01.900 | - Yeah, definitely.
00:58:03.860 | Patrick, when you look at the financial advice business
00:58:07.660 | with 30 years of exposure,
00:58:10.860 | are you optimistic about some of the trends?
00:58:12.860 | Are there things that concern you?
00:58:14.380 | What's your perspective on the overall industry?
00:58:18.860 | - I would say I'm optimistic.
00:58:20.660 | I would say that because there are more people
00:58:25.660 | with more wealth, there are more challenges.
00:58:30.620 | I can tell you that every year I've been in this business,
00:58:36.340 | I can always reference the recently changed tax laws.
00:58:41.340 | You can make that statement every year
00:58:44.660 | because Congress meets every two years.
00:58:48.060 | They either tweak or totally change tax laws.
00:58:53.060 | That's always a challenge.
00:58:54.620 | So what was done five years ago
00:58:56.620 | is not appropriate today, perhaps.
00:58:59.740 | So that keeps it interesting
00:59:02.820 | and makes it worthwhile to engage in financial planning.
00:59:07.540 | And I think this whole issue of transfer
00:59:10.060 | to the next generation,
00:59:13.140 | this current generation is the richest
00:59:17.260 | that ever existed on the planet
00:59:19.700 | in terms of per capita wealth.
00:59:22.180 | And it's a worldwide phenomenon.
00:59:25.980 | And how they go about that
00:59:28.820 | and some of the issues we talked about earlier
00:59:31.180 | about what's an appropriate amount for children
00:59:36.060 | and how do you train them up
00:59:38.100 | to be good stewards of this money,
00:59:40.980 | all of that I think offers continuing
00:59:44.260 | and even expanding opportunity for financial planning.
00:59:47.500 | - Patrick, tell us, so you're in Atlanta.
00:59:51.660 | Go ahead and tell us about your firm, your book.
00:59:54.060 | Do you work with clients across the country?
00:59:55.700 | So if anyone's interested,
00:59:56.860 | go ahead and share how they can get in touch with you
00:59:58.740 | if they're interested in engaging with you.
01:00:01.540 | - Sure, I'm in Atlanta.
01:00:03.180 | It's Ren Wealth Management, R-E-N-N
01:00:06.580 | is the way you spell my last name.
01:00:08.900 | And there is a website, renwealth.com.
01:00:12.620 | Also, the book is entitled
01:00:14.620 | "Finding Your Money's Greater Purpose."
01:00:17.260 | And there is a website, Money's Greater Purpose.
01:00:21.100 | And if you visit that website,
01:00:23.540 | you'll see some information about the book, about me.
01:00:26.020 | You can download a free chapter.
01:00:28.460 | You can get in touch with me by email.
01:00:30.900 | You can join our mailing list
01:00:34.220 | and I'll periodically update you on items
01:00:38.980 | that I feel are important.
01:00:41.220 | But those are the two main methods,
01:00:44.140 | renwealth.com and moneysgreaterpurpose.com.
01:00:47.580 | - I hope that you can see the value
01:00:50.580 | that a good financial advisor can bring in a situation.
01:00:52.780 | I encourage you, if you are in a stage,
01:00:54.900 | I'm happy to help good guys.
01:00:56.660 | I can't personally endorse Patrick.
01:00:58.420 | All I know from him is,
01:00:59.700 | of him is what you heard on the interview.
01:01:01.860 | But he certainly sounds competent to me.
01:01:03.460 | If you're in the Atlanta area,
01:01:05.180 | that's where his practice is based,
01:01:06.660 | feel free to check with him.
01:01:07.900 | Or if you want a consultation,
01:01:09.300 | he might be a good guy who can help you
01:01:11.120 | with some of your charitable needs.
01:01:13.260 | My hope in profiling,
01:01:14.540 | I know many of you who listen to the show
01:01:15.980 | are younger financial advisors
01:01:17.740 | or who are people who aspire to be financial advisors.
01:01:21.900 | And my hope on profiling Patrick today
01:01:24.740 | is to encourage you to focus on the actual value
01:01:28.740 | that you bring to a client.
01:01:31.020 | It's not just a matter of selling a product.
01:01:33.340 | It's a matter of making a plan work.
01:01:35.500 | And when you do it,
01:01:36.340 | you build these lifetime relationships
01:01:38.800 | that can just dramatically transform,
01:01:41.480 | you can transform people's lives.
01:01:44.180 | And that's the cool side of the business.
01:01:45.780 | It's tough to build,
01:01:47.460 | but once you're there,
01:01:48.780 | it can be a lot of fun.
01:01:49.700 | Even as you hear Patrick's story,
01:01:52.580 | he's doing well and he's having fun.
01:01:55.900 | And he's 69 years old and he doesn't want to retire.
01:01:58.100 | And that to me is the dream life.
01:02:00.140 | And notice what we talked about with retirement.
01:02:01.700 | All those themes corroborated again.
01:02:03.620 | Never talked to Patrick before what you heard.
01:02:05.460 | About 30 seconds before the interview,
01:02:07.260 | told him a little bit about me,
01:02:08.380 | and then we hit start.
01:02:09.560 | I didn't even correspond with him.
01:02:10.740 | I corresponded with his publicist.
01:02:12.220 | But just notice the themes that we talk about
01:02:14.900 | on this show every day.
01:02:16.100 | Just jumping out from his vicarious experience
01:02:19.820 | with his clients.
01:02:21.060 | And figure out how to apply them to your life.
01:02:23.740 | Hope this interview has been useful to you.
01:02:25.420 | Hope you've enjoyed it.
01:02:27.140 | I intend if you were,
01:02:29.180 | if you got your mind lost
01:02:30.620 | by what is a charitable remainder trust,
01:02:32.060 | or what's a charitable lead trust,
01:02:33.260 | or what's a donor advised fund,
01:02:37.180 | I will, over the course of Radical Personal Finance,
01:02:39.340 | I will cover each of those topics in depth.
01:02:42.020 | And some of you have been frustrated
01:02:44.420 | with the paucity of in-depth financial planning
01:02:47.740 | discussions on the show.
01:02:48.620 | I understand that.
01:02:49.620 | I would like to have them back.
01:02:50.900 | I like doing them.
01:02:52.500 | I'm sorry, I'm doing the best I can.
01:02:55.140 | And I've got to solve,
01:02:56.300 | I got to solve some of the back end things first.
01:02:59.540 | Since I'm doing the best I can.
01:03:00.580 | Those shows are very time consuming.
01:03:02.220 | I'm doing everything I can to get to them.
01:03:03.500 | And I will get to them in the course of the show.
01:03:06.460 | I promise you that.
01:03:07.740 | If you want to support the show,
01:03:08.580 | radicalpersonalfinance.com/patron,
01:03:10.220 | and I am out of music.
01:03:12.060 | See you all soon.
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01:03:43.500 | It's more than just a ticket.