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I don't remember the year, but it was less than 5 years ago. Ben Stein was speaking at a GAMA meeting and made a statement to the effect that people who live in trailer parks listen to Dave Ramsey, people who live or aspire to live on the 8th fairway in golf community list to their financial advisor.
Thats a great statement!
I had an encounter this week with a Suze Orman fan. It was a middle aged couple that had done fairly well for themselves so far in life (very diligent savers)
The husband was on board with most of my recommendations. But the wife definitely was not in agreement...
They both had sizable 401Ks for their age and they both just changed jobs.
When I recommended an annuity the first words out of her mouth where "I dont think so."
I ask why and she tells me that Suze says they are not a good thing to invest in...
I say "OK. Well, why dont we review all of our options for investments and then both of you can decide from there. I dont want you in an investment that you dont feel comfortable with.."
Of course she says alright..
I went through my presentation and explained the pros and cons of the different investment options for an IRA. The husbands first words where "I think its pretty clear that the annuity is going to do what we want.."
The wife still was not convinced and said "But Suze does not recommend them to people, she says they very rarely make sense..."
I said:
"Heres the thing. I dont really care which investment product you choose, I can provide you with any of them and I get paid no matter which one you choose..."
"Its my job to explain your choices and help you make the wisest decision possible, this is why I gave you non biased info on your choices"
"And the only thing I will say about Suze Orman is that there are three major differences between the advice that I give and the advice that she gives:
1. Her job is to give generalized adviced. Mine is to give specific advice about an individuals specific situation.
2. Her other job is to sell books and get t.v. ratings, I have no other job. My only job is to make my clients happy and financially secure.
3. At the begining and end of her shows and books, there is a disclaimer that says "the advice she gives is generalized and for entertainment purposes only, always consult your financial advisor to see if this advice is suitable for your situation" .... I have no disclaimer on my advice, I stand by it.
And just out of curiosity, if I had given you a written disclaimer like that when we sat down would we even still be speaking right now???
After a moment of reflection she said "wow, I had never thought of that.." "and NO! we wouldnt still be talking if you had given me that.."
Needless to say they acted on all of my recommendations..
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Ummm, yeah - that's why I have a mill in coverage - so my wife doesn't have to work at Walmart if I die. Doubtful she'll have to work at Walmart after I'm 70.
And I love my son too - which is why I'm gonna teach him to work his ass off instead of waiting for me to die so he can "be rich."
Unfortunately I've seen what inheritance has done in the case of three very close friends and one in-law. In all 4 cases it has destroyed the family.
OK. I can understand not wanting to leave a huge inheritance for your kids. But PI is not just about that. (and no, im not talking about the CV in this post..lol)
PI is one of the most effective tools to utilize in estate planning. And estate planning is not just about avoiding the estate tax and setting up trusts; its about minimizing the effect of taxes upon inheritance.
So you plan to spend down all of your assets. Great, I dont blame you, im sure they where hard earned.
But I assume you are speaking of your liquid assets and not all of your assets...
When you die you might have exhausted your liquid assets, but what about the rest of your estate? All of this will pass to your kids eventually and it will be taxed (possibly double if over estate tax limits). In your planned scenario, it will most likely be just a home, cars, maybe a boat or property somewhere, maybe a vacation home... who knows...
So you have just transferred an estate that has absolutely no liquid assets in it to your son who will have to pay taxes on it that year. What happens if he cant liquidate the illiquid assets of your estate in time to pay taxes???
He will then have to come out of pocket to pay the taxes, or he will have to liquidate at a discount and not receive full value.
If you die near the end of the year and logistically there just isnt enough time to liquidate; not only will he have to come out of pocket, but he might have already started the discounted liquidation process; thus receiving two adverse consequences from the illiquid estate.
Now for the 3rd adverse consequence and the worst:
The illiquid estate pushes him into a higher tax bracket for that year.
Not having the liquid funds available, it will be a direct hit to his income during a year that he might already be tapping savings to pay income tax on the inherited estate, and possibly selling illiquid assets at discounted rates....
And all of this is happening without even mentioning the estate tax... and who the hell knows where it will be by the time any of us die... lol
All of this can be avoided with PI. A good GUL or DB oriented traditional UL are two great estate planning products. Also SPUL/WL. Survivorship policies are extremely effective too.
Honestly it doesnt take millions to hedge that inheritance tax burden. Chances are if you get an increasing DB policy you could get by with $100K-$200K.
And im sure you have some convertible term, so this is often a good thing to utilize.
Just some food for thought....
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