Well, this is our fourth installment of our financial legacy series for parents and grandparents trying to fit in those children and work it into your financial plan. Today, it's all about the legacy, how to leave money to your kids, but how to do so with taxes in mind and leave them as much as possible.
We'll talk about how to do that coming up next. Well, glad to have you back on the channel. I'm Ben George with John Stillman at Rosewood Wealth Management. Today, John, we finish up our four-part series on financial legacy and talking about different ways to help your kids and grandkids and how to work that into your overall plan. Today, it's all about legacy. For you and your clients, John, how important is financial legacy typically?
You know, for a lot of people, it's really important. That's one of their main goals is we really want to leave money behind to our kids or our grandkids or both. For others, it's more, Yeah, we'd like to leave something behind, but that's not a goal. We want to live our lives, and we don't want to be a burden on the kids.
But if there's something left, that'd be great, but it's not a necessity. And then there are other people who say, Hey, I never got anything from my parents. I never inherited anything from anybody. My kids have do good things. My kids have do good jobs.
They're doing great for themselves. I don't really care to leave them anything. I mean, it wouldn't be the end of the world if there was something left, but I don't really want them inheriting anything from me just because that's not how we've done it in our family.
So as with most things, it's kind of a spectrum, and you want to know where you fall on that continuum. Well, no matter where you fall, you want to leave as much as possible, right? You want that money going to your kids, grandkids, rather than to the government. So today, we want to talk about some different ways that you can make sure you are leaving them money that they don't have to pay a ton of taxes on. Make it structured in a way to where they're being able to keep as much of that as possible.
So John, that question we want to explore today is how do you do this? What do you need to start doing now to be able to pass that money along without them having to pay a whole lot of tax on it? Well, the first thing I would do is refer you to an episode that we did previously.
Within the last two or three months, I would say, somebody had reached out with questions about an inheritance that they just received. And we talked about all the different components of that inheritance, and just exactly how each thing was going to be taxed. I would start with that episode, because that will kind of give you an idea of how different types of assets passed down to beneficiaries. So maybe Mark or Dan or somebody will bail me out by providing a link to that old episode.
We'll drop in the show notes for them. Yeah, so that should be in there. You can watch that first if you'd like to get a clearer picture of how this stuff is taxed. For most people, the majority of their savings is going to be in some kind of tax deferred account, an IRA, a 401k, accounts where you have not yet paid the taxes on it. So when that money is withdrawn, you're going to be taxed at that point. And when that money passes on to a non-spouse beneficiary, that non-spouse beneficiary is going to have 10 years to take it all out and pay all the taxes on it. So if you say, all right, well, most of the money that I'm going to be passing on is in this type of account, that's a pretty big tax time bomb for your beneficiaries. Now, what would be better for them? To inherit a million dollars that they're going to have to pay taxes on as they withdraw it, or to inherit no money at all?
Well, obviously, a taxable million is better than nothing, clearly. But let's think about ways that you might be able to make that a little more tax efficient for them. So it could be that if you're still working and still saving, maybe we're rethinking where you're saving money. Maybe saving into those tax deferred accounts is not the best place for your money. Maybe you should be saving it in other types of accounts that are going to pass on tax free or more tax efficiently than the tax deferred account.
That's a possibility. It could be that you're already retired. And maybe this legacy plan is going to dictate how we're creating your income. Maybe we're going to focus on drawing down all of these taxable tax deferred assets in your lifetime. Drawing down as much as we can, letting you pay the taxes on them yourself during your lifetime, reinvesting that money elsewhere, so that they're inheriting a more tax efficient picture from you. You know, it could be that you're in a much higher tax bracket than your kids. And it actually makes sense for them to pay the taxes instead of you.
If you're a high income earner and you're in a higher tax bracket, well, we don't necessarily want to take all that money out and pay the taxes on it in your lifetime when they could withdraw it and pay a lower percentage in taxes because their income is lower. So another case of needing to understand your family, the dynamics in your family, and let's figure out what's going to be best on that front. Is the legacy conversation one you should be having up front, Jon, or is it more so you get your financial affairs in order, get set for retirement, then see where you stand and then, okay, here's what we have to look towards a legacy and providing that?
Yeah. Good question. And a lot of people, it would be nice if everybody had the legacy conversation up front, but a lot of people can't really fully open their mind to that conversation until they know that they're going to be fine themselves. And so for a lot of people, I can look at their situation and say, hey, you've got $1.5 million here, we really only need $600,000 or $700,000 of it to generate the income that you need for the rest of your life, which means the rest of it is essentially going to be legacy money. How do we want to invest that? Well, until they retire and they see the plan in action, me saying that is often not enough reassurance for them to be able to say, all right, yeah, I'm willing to mentally part with half of my money and realize that that's legacy money.
Most people can't get there that quickly. So for a lot of clients, they're two, three, four years into retirement, they're seeing the plan working, they're seeing their paychecks coming in, and they're realizing, oh, wow, yeah, we have a lot more money than we really need to make life work for us. And once you hit that point, once you hit that realization, then you're usually able to open yourself up to the legacy conversation a little bit more because you have this higher level of confidence that you yourself are going to be fine, and you're not going to need all of your assets for your lifetime.
Even if you are in that situation where you're not really ready to part with that money yet, even when you're investing, you can still tap into it if you need it for retirement. It's not like we're setting that aside. It's no longer yours. It's your kids no matter what. Yeah. Now, if we really got aggressive and we said, okay, well, this is legacy money, let's put it all into a life insurance policy that's going to pass to the kids, okay, now maybe we've shot ourselves in the foot a little bit.
But yeah, you're right. For the most part, we're not doing anything official where we're saying, all right, this is legacy money. We might have it in a different account so that we can kind of mentally separate what's the money that is for your lifetime and what's the money that's legacy money. But just because we've put it into that account doesn't mean that we've taken it off the table for you to use yourself.
We just put it in this different account for our own organizational purposes. Now, again, it's completely different if we're talking about you put it into some kind of trust or something like that. Maybe that is a little harder to get out for your lifetime. But what I'm talking about is just mentally and emotionally segmenting different pieces of your money to say some of this is for me, some of this is for the kids. And yeah, maybe it's this pot over here is our long-term care bucket slash legacy bucket, meaning if we don't need it for the nursing home, well, then it's automatically money that goes to the kids because we're not going to need it in our lifetime. But if we do have a nursing home or assisted living expense, we're going to cover it from this bucket. So in some sense, it's still legacy money in that it's not forcing the kids to have to take care of us. We know we're not going to be a burden on them, but maybe they're not going to inherit as much in that case. So yeah, there are situations where we put it aside and we say this is our long-term care slash legacy bucket. And hopefully we don't need it for long-term care, but statistics tell us some people are going to need it for that. Well, if you have questions for John 800-545-2991, out of all the things we talked about, John, I would imagine this is probably the one that you need more help with from a professional, right? It's hard to kind of structure your legacy in a very tactically efficient way without help. Right. It's one of those things that's not very intuitive to most people.
There's a lot of rules to understand, a lot of strategy involved. And just generally speaking, thinking generationally about wealth is not something that comes natural for most people. Most people are so focused on, I want to be sure that I'm okay and that I can pay my bills for the rest of my life. For most people, it's kind of unnatural to think about how can I use my money to make a difference for the generations that come after me? And how could my money still be making an impact a hundred years from now? Those are really fun conversations to have, but most people aren't naturally wired that way.
So yes, it's usually going to take a little bit of a push from somebody who's done this before. Very good. Well, we hope you enjoyed this four-part series on financial legacy and really as a parent or grandparent, how you can help your kids out, give them the best support financially without really hurting your retirement.
That's a big part of us. You want to work this in your overall financial plan. If you need help doing that again, Rosewood Wealth Management can do that for you. Set up a meeting with John anytime by going to meetwithjohn.com. You'll find a calendar, find a time that works for you.
Just add that to your schedule and you'll be off and running. But hopefully this content has been helpful for you. If you have any additional questions, any scenarios that you want to work through on your own as a parent or grandparent, please reach out to John. We appreciate your support by hitting subscribe on YouTube as well. John, enjoy this series. We'll have to do another one soon. Appreciate it. Thank you, Ben.
Always good to see you, buddy. Carolina Wealth Stewards doing business as Rosewood Wealth Management is a registered investment advisor in the state of North Carolina. The material presented is intended to be general information and should not be construed by any consumer as the rendering of personalized investment advice.
