The Great Wealth Transfer: Are the Next Generations Ready?

This faith in finance podcast is underwritten in part by Guidestone. Guidestone envisions a world transformed by Christian investing. Through screening, corporate engagement, and impact investing, our investment strategies allow investors to be more proactive with their investment dollars to make a meaningful difference in the world while preparing for their financial future. Learn more at guidestonefunds.com slash faith. The Puritan poet Ann Bradstreet once wrote, wisdom without an inheritance is better than an inheritance without wisdom.

I am Rob West. As the baby boomer generation ages, it's estimated that they'll leave a tidal wave of wealth to their heirs, perhaps $68 trillion by 2030. But is the next generation ready for that wealth? We'll talk about it today and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith in finance, biblical wisdom for your financial decisions. Well, you can tell that Ann Bradstreet read her Bible back in the 17th century. She was no doubt inspired by Ecclesiastes 7, 11, and 12, which reads, wisdom is good with an inheritance, an advantage to those who see the sun, for the protection of wisdom is like the protection of money.

And the advantage of knowledge is that wisdom preserves the life of him who has it. So while boomers make the greatest wealth transfer in history, research shows they're not preparing the next generation to manage that inheritance. The investment giant Edward Jones recently published a study on this issue. It found that half of all Americans, or 48%, plan to leave an inheritance. Half will leave money and property to their children only, and 36% will leave assets to their children and grandchildren.

That much is good, but the next set of numbers is troubling. The study also found that only 27% of Americans have talked about wealth transfer with their heirs to be, and another 35% actually said they don't plan to. That will leave millions of millennials and Gen Z-ers in the dark about the assets they'll inherit, many of them without the wisdom required to manage them. Experts say it's more important than ever for families to discuss wealth transfer and to seek professional guidance when necessary.

Other factors come into play as well. While generational wealth transfer as a whole will be the highest ever, some future heirs may not receive as much as they expect. That's mainly because people are living longer. Boomers may consume more of the assets they've saved up than previous generations.

That's due in large part to the ever-increasing cost of healthcare, which the elderly need more of. This is likely to affect how assets are passed along, and in fact, the same study found four different ways this may happen. The first is traditional living. That's when parents simply pass along their assets to children, including cash stocks and real estate. Children need to ensure their parents are utilizing a sufficient amount of their assets to ensure a healthy lifestyle. In contrast, parents must start talking to their adult kids about transferring those assets.

Another approach the study uncovered could be called giving while living. This is when the older generation helps the younger by paying for education, helping to purchase a home, and maybe even paying for vacations. The younger generation may wonder if there will be anything left to inherit and whether they'll have to support their parents financially in retirement.

Having an early conversation about assets can alleviate those concerns. Another form of wealth transfer you may see more of is the generational skip, which is exactly what it sounds like. Boomers may elect to give their assets directly to grandchildren to help with education to start a business or to set up investment accounts. Here at faith by we get many calls from folks wanting advice on how to help their grandchildren get started in the world. The Edward Jones study found that one out of four respondents believes their grandchildren will be better stewards than their children.

Here, it's critical to have a money conversation with the children who are skipped over to avoid damaged relationships. Finally, some Millennials and Gen Z-ers may find there's nothing left to inherit. Longer living spans may force the older generation to use up their assets, leaving little or nothing for the next generation. It's generally advised that retirees draw down only 4% a year to safeguard the principle of their investments, but for some that may not be possible.

So what's the solution? Well, boomers need to start talking to their adult children about wealth transfer. They must pass along the wisdom they've gained over the years that enabled them to acquire and keep wealth. Family conferences are great for this. You can even bring a financial advisor to emcee the discussion. We recommend getting one with the Certified Kingdom Advisor designation.

One conference probably won't be enough because things change over time. The goal is to prepare your kids to be faithful stewards of whatever is left to them. They need to understand that God owns everything, and they're expected to manage an inheritance wisely.

They're expected to provide for their families and cheerfully give back to God. If you need help with this, we recommend connecting with a Certified Kingdom Advisor, which you can do at faithfi.com. Just click Find a Professional. All right, your calls are next, 800-525-7000.

We'll be right back. We're grateful for support from Guidestone, whose diversified suite of investment solutions align with Christian values to create positive change in the world. More information is available at guidestonefunds.com slash faith. Investing involves risk, including potential loss of principal. Carefully consider the investment objectives, risks, charges, and expenses of Guidestone Funds before investing. They're distributed by Four Side Funds Distributors, LLC, which is not an advisory affiliate, a registered investment advisor, nor do they provide investment advice.

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This institution is not federally insured. Thanks for joining us today on Faith and Finance. I'm Rob West. Well, in just a moment, we're going to begin taking your calls and questions today on anything financial. So now's a great time for you to go ahead and call, get in the queue, and we'd love to hear your question today. Again, that number 800-525-7000. Lines are open. You can call right now. Let's begin in Idaho today. Maureen, you'll be first up.

How can I help? Hi, Rob. First of all, thank you for your ministry over the years. We have learned so, so much from you.

It's been just wonderful. Anyway, we have a friend whose son is in a lot of trouble. They are leaders in their church. Years ago, he got a young girl pregnant and he thought the right thing to do was to marry her, which she did. Over the years, she has been just really very, very sick. She just died two weeks ago and he is left with a mountain of medical pills. Anyway, just overwhelmed and he's moved into depression at this point. He doesn't know what he can possibly do, possibly bankruptcy, but if there's any other better solutions or any wisdom from you that you could guide us or guide me to a certain answer for this. Well, my heart breaks, Maureen, for this situation.

I know this is really challenging. I'm so thankful that you all are walking alongside him. The good news is with regard to medical bills specifically, those can of course be negotiated down. Medical providers are very willing to work on payment plans and perhaps even forgive a portion of it. I think secondly, just based on the new rules and regulations as of 2023, it's much less likely that these, even if they go into a collection status, are going to end up on a credit report. There's been some recent changes that have removed and are preventing medical collections from ending up on credit reports, just because often there's so much discrepancy around, you know, somebody is thinking that insurance is supposed to pay and the insurance company thinks that the person receiving the care is supposed to pay and all of that has been damaging credit reports and in some cases inadvertently or unnecessarily and causing harm to folks trying to seek a loan or something like that.

So there is some good news there. And I think clearly, you know, if he can get on a plan and know that he's working towards something and making progress, hopefully that'll take some of this weight off that is causing other issues. And I can certainly understand why, because he's got a lot on him right now. What is his status with regard to his ability to pay? I mean, does he have a steady income? Oh, yes, he does.

But it's nothing to put up on the flagpole. It's just an average income. And he's a manager of a restaurant. But every penny, every nickel is going into thousands of dollars per month, paying off medical bills. Yeah.

And has he engaged in a process to try to negotiate them down and, and work with them? No, no, she just passed about three weeks ago. And I was talking to his mother, and I'm going to be calling him and talking to him directly. And I thought, geez, sure, be nice to have your guidance. And just see if there's anything because he's just gone into a major depression, wondering how on earth he's going to dig himself out of this hole.

Yeah, yeah. Well, I think that's the key is to lean into this. And, you know, as he calls the billing department, you know, and really is pretty transparent with him about what he's gone through, you know, the fact that he can't afford the full amount right now, is there a way to lower the balance? I think anything he can do to research, you know, fair prices, there are tools out there like fair health consumer and healthcare blue book where you can look up average costs, it could be that some of these were charged beyond that price. And then that would give him an immediate amount to ask for those bills to be knocked down to, if he has the ability to settle for a lower amount, you know, that's great. If not, I think being able to get on a repayment plan, you know, would be something that could help make progress. And a lot of times they're willing to work interest free, and they'd be even willing to spread it out as far as a year. Would it be helpful to have one of our Christian financial counselors work with him to try to get all this organized and on a plan?

Very possibly. Okay, let's do this Maureen, I'm going to have you hold the line, we'll get your information, get the certified Christian financial counselor in touch with you. And then you can kind of act as the go between and make sure that it it is something he'd want and take advantage of. And if so, you can make that handoff. If not, at least they can give you some advice on how to walk alongside him personally.

So stay on the line, we'll get your information and be praying for him as well. Thanks for calling to Safford, Arizona, Arnold, go ahead. Yes, Rob, I'm concerned about taking from a traditional RA 575,000, putting into a Roth, and being able to pay the taxes, you know, doing it in five splits for five years. And then after those five years, am I correct that I would not pay any money if I got interest on that money made from a traditional to a Roth?

That's correct. Because once it's in the Roth, and now it's growing tax free, and you don't have any required minimum, so you wouldn't have to take anything out. I guess the only question would just be, are there other ways to get that money out without ever paying any tax, because you're going to have a pretty steep tax bill, you know, adding $100,000 a year for the next five years, that would now be subject to federal and state income tax. So for instance, with the current giving that you're doing, what about you know, if you're doing some some charitable giving to your church or other ministries out of after tax accounts, like from checking or savings, what if you replace that with money from your IRA through a qualified charitable distribution, and then, you know, you'd get that money out without ever paying tax on it. So that might be a way to take a portion of it to kind of earmark for your your giving. And that way, you're not, you know, putting as much through, you know, your federal tax return and state and having to pay tax on it. Does that make sense?

Yeah, I already looked into that quality charitable thing. It's I think it's 95,000. But that's not my question was, after the five years that I left the money in there from a switching an order from an IRA to a Roth, there would not be no more future taxes on that money. Is that correct? That's correct. Yeah, because you would have already paid it, you've accommodated for the five year rule. So that's important.

You can't take it out. But as long as it's in there for five years, and you've paid the tax, now that money is growing. And whatever you invested in, whether it's earning interest in a brokered CD, or it's in stocks and bonds or mutual funds or gold, whatever it is, yeah, there's no tax to be paid on the gains from that point forward.

Okay, that will be answered my question, because as long as I stay under $206,000 for the year, making that split, my Medicare don't go up either. Ah, I see. Yeah, in the future now would while you're recognizing that income, but you mean beyond the five years?

Right beyond the five years. Yeah. Yeah. Right now, very good.

I know I gotta stay I gotta stay under 206. Total. Okay. All right. Well, you listen, you're on it. It sounds like you've done a great job.

I would confirm all this with your CPA. You just don't ever want to have any surprises here. But I sound like you're on the right track. So great question today. 800-525-7000 is the number to call, we'd love to encourage you from God's Word help you lean into that role that you have of being a wise and faithful steward, but do it with confidence. Because, you know, as we think about our financial lives, there is just an seemingly unending number of decisions that we have to make every day. And we have limited resources.

I don't have to tell you that you're reminded of that every month, whether it's, you know, in some cases, more month than money and expenses are up across the board. And I understand you just want to be found faithful, honor the Lord and what He's entrusted to you. And our goal each day on this program is just to come alongside you and say you got this and point you back to Scripture where we find wise counsel. It starts with the idea that God needs to be our ultimate treasure, not our things, maintain an eternal perspective, not be fixated on the here and now, the temporal, the circumstances of the day, trust God as our provider, lean into our role as stewards and realize we have a high calling, but there's help God's Word and this program to join with you in that. Back with you more questions after this.

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Find more information at kingdomadvisors.com slash get certified. Hey, great to have you with us today on faith and finance. We're taking your calls and questions today. The number to call 800-525-7000. That's 800-525-7000.

You can call right now. In the news today, if you receive a strange text from an unknown number offering an investment opportunity, delete it immediately. The latest cryptocurrency fraud report released by the FBI actually shows a massive increase in these particular scams based on the latest data, which only covers up through 2023. Listen to this crypto scam complaints totaled almost 70,000 that year with five and a half billion dollars in losses.

That's a 45% increase from the year before. These scams often begin with seemingly harmless messages that lure you into clicking a link or sharing sensitive information. Once you're hooked, they can steal your money through fraudulent cryptocurrency investment offers and get you to reveal personal financial information which they then use to steal your identity. If this sounds familiar, it's true. These types of scams always seem to present themselves the same way through a link in an email. They're asking you to click through a phone call. Somebody's asking you to reveal personal information.

It just has a different wrapper on it, if you will. This latest one is around crypto investments. So to avoid falling victim to this particular type of scam, regardless of how it's masked, always verify the source of a text or an email.

Better yet, if you didn't initiate the conversation, just delete the email or text. Never click on a link. It's true that some people have made a lot of money investing in crypto, but others have lost a ton. So on a second note, separate from this fraud alert is just this idea and a reminder, especially with as much press as it's getting with Bitcoin kind of through the roof at the moment. Just be really careful when it comes to crypto investing. The technology behind cryptocurrency blockchain is not going anywhere. There's a wide range of uses for it.

You're not going to see it go away anytime soon. In fact, I think it's going to become a bigger and bigger part of our economy. But investing in crypto is highly speculative and extremely volatile. I would say you'd want to stay probably with Bitcoin only at this point. And it's really only for sophisticated investors.

And even at that, I would say it's in the most speculative portion of your portfolio, probably that maybe 10% you would allocate to speculative types of investments, and only a portion of that. So just be really careful there. Don't get lured into a get-rich-quick philosophy. Remember the Bible's approach to investing? Sure and steady. It's what the Bible calls steady plotting.

I think that's a much better approach when it comes to investing. So hopefully that's a good reminder for you today. All right, back to the phones.

Minneapolis is where we're headed next. Hi, Bob. Go ahead.

Yeah, hi. My wife is now in a memory care and so forth. I have a documentation from a neurologist. She had an MRI about a year ago or so. Are there any chance of getting any medical deductions on taxes when you have a documentation from a neurologist? Yeah, it's a good question.

And I think it's possible, but probably won't be easy. First off, the care given to your wife would have to be medical in nature. To be considered medical instead of personal, the services would have to be required by a chronically ill individual and then provided according to a plan of care prescribed by a licensed healthcare practitioner. And then the expenses would have to be at least, I believe it's seven and a half percent of your adjusted gross income, and you would have to be able to itemize your deductions in order to be able to recognize that. So the total amount of the deductions would have to be greater than the standard deduction. So I would say with something like this, Bob, it's important that you check with a tax professional just to see if there is anything specific to your situation that could be claimed.

But it's not going to be easy. It is going to have to meet those criteria I mentioned and it's going to have to be significant enough that it gets above the standard deduction. I'll show the documentation to the tax person. One more question. Forty acres of the farm was sold to help pay for the health care and the broken health care system we have.

You probably know that. Yes. There's probably going to be a farm tax on that in Minnesota. They're going to hit that sale for about $297,000. So there's going to be tax on that in December.

Yes. And you're wondering what that tax would be? Yeah, I don't know what it would be. Yeah, you know, again, that's where a CPA anytime you have something significant that's outstanding like this, that's unusual, certainly the time to get professional tax advice. You know, if the farm had been a long term holding more than a year, the sale would generally result in capital gains, which would be, you know, either 0, 15 or 20%, depending on your income. And then, you know, there is, if it was used for business, so used for farming, the sale, you know, might fit under a different qualification. And so you'd need to understand that because any losses could be deductible against ordinary income. And then, you know, it gets pretty complicated beyond that, because you may have to, if you claim depreciation on farm assets, the IRS would require you to recapture those.

So I think, you know, getting with your CPA on both items would be a great next step. Yeah, that land has been in the trust for many years. So I don't know what that, the cost of the acres, the selling cost was 7,500.

So I don't know, that land goes way back in a trust for its other sisters. Yeah, so you're going to need to establish that cost basis. And, you know, acknowledge that, I mean, any improvements or selling costs will increase that cost basis, but it's likely going to be resulting in a capital gain. And that is just the beginning, there could be other taxes involved as well.

So I think this is that year to get that tax professional involved on both of these issues and make sure you take advantage of every possible advantage or deduction and certainly pay what is owed so you don't get caught with any penalties or late charges, interest down the road. Bob, I wish I had more specifics for you, sir. But we appreciate you calling today. God bless you. Well, as we round out the broadcast today, let me remind you, if you're looking for a certified kingdom advisor, you can do that on our website at faithfi.com.

Just click find a professional. Now, if you're unfamiliar with that term, CKA, this is the only financial services industry designation for biblically wise financial advice. That's right. CKAs have met high standards and character and competence. They've had a pastor and client reference. They've had a regulatory review.

They've met significant experience requirements as well. And you can have confidence when you choose a CKA that you're choosing a financial professional that shares your values as a Christ follower. If you'd like to find a certified kingdom advisor in your area, just head to our website. Again, that's faithfi.com and click find a professional.

You'll find CKAs in five disciplines, financial planning, investments, taxes, insurance, and estate planning attorneys. Faithfi.com. Just click find a professional. Well, that's going to do it for us today. A big thanks to my team, Taylor Stanrich, Amy Rios, and Tahira Haynes. For the entire team, I'm Rob West, and we'll see you next time here on Faith and Finance. God bless you. Faith and Finance is provided by Faithfi and listeners like you.