The Inheritance Playbook with Chad Holmes

In this episode, Kelly sits down with Chad Holmes, a certified financial planner and certified public accountant, and author of "The Inheritance Playbook: Helping Your Parents Pass the Torch, Not the Tax." Join them as they delve into actionable steps to help aging family members avoid unnecessary taxes and make their legacies last longer.

Chad provides insights on minimizing taxes and probate, offering case studies to illustrate strategies for tax-efficient inheritance. He emphasizes the importance of open communication between generations and offers practical advice for planning for care to live well. Tune in to gain valuable insights into estate planning and the wealth management process in a multi-generational context.

In this episode they covered:

🔹 Actionable steps to help aging family members avoid unnecessary taxes and make their legacies last longer.

🔹 The need to examine family finances from a multi-generational perspective.

🔹 Contrast between individual-focused financial planning and multi-generational planning for prolonged family legacies.

🔹 The importance of asking family members specific questions to identify critical information related to their estate and finances.

🔹 Emphasis on the need to know assets, debts, ongoing payments, and the existence of essential documents.

🔹 Having a roadmap to access this critical information.

🔹 Practical tips such as keeping cell phones active to facilitate access to important account verification codes.

🔹 The significance of considering the tax bracket and source of income to optimize charitable giving and minimize taxes

Connect with Chad Holmes and for more information on "The Inheritance Playbook: Helping Your Parents Pass the Torch, Not the Tax." message Chad through LinkedIn (https://www.linkedin.com/in/chadholmesformulawealth) or visit: www.FormulaWealth.com
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➡️ Watch to this podcast: https://youtu.be/lOj6Boo0erU

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Come back next time for more helpful guidance!

Transcript

Kelly Augspurger [00:00:02]:
Hey everyone, welcome to Steadfast Care Planning where we plan for care to live well. I'm your guide, Kelly Augspurger. With me today is Chad Holmes, certified financial planner and certified public accountant and new author of the book, "The Inheritance Playbook: Helping Your Parents Pass the Torch, Not the Tax". Chad, thanks so much for being here today.

Chad Holmes [00:00:24]:
Good morning, Kelly.

Kelly Augspurger [00:00:25]:
All right, well, today we're going to be talking about actionable steps we can take to help our aging family members avoid unnecessary taxes and make their legacies last longer. Chad, can we jump right in?

Chad Holmes [00:00:37]:
Let's do it.

Kelly Augspurger [00:00:37]:
I'm really excited.

Chad Holmes [00:00:38]:
This book just came out here in December, and it jumped to bestseller status in a few categories pretty quickly, which is really exciting. I think it has started to slide off, but maybe this podcast can get us back up there.

Kelly Augspurger [00:00:50]:
Fantastic. Well, I was talking with Chad before we started, and I finished his book last night. Here it is, "The Inheritance Playbook". It's such an easy read, and I was telling him, I generally take a long time to get through books because I get sleepy when I read, and I just generally don't read a lot at one time. But I read this in probably three sittings. And so it's just a fantastic, practical book that has some humor and has case studies. And I think you do a really good job of packing a lot of really complex topics and issues into easy to understand ways. So I'm really excited about talking about it today.

Chad Holmes [00:01:27]:
Thank you. Yes. So I was really excited to get this book out there, not as a tax textbook for CPA's and financial advisors, but for your everyday family that isn't sure what they need to do. A lot of people don't have a financial advisor who's looking at their plans and their family from a multigenerational lens. In fact, a lot of times when you have a financial advisor, you're their client, they're focused on you, and they're trying to minimize your taxes. And while that is great for you, if we actually step back and look at it from a multigenerational total family lens, we see the family legacy can last longer if we actually maybe manipulate taxes here or there, maybe actually pay more in taxes in one generation so that overall, the family is paying less. So there's some unique ideas that I share in story format, and they're silly stories, but there's a point to them, and each case study has lessons learned and what they should have done and adds up the total value of the error of doing the unknown without any prior planning.

Kelly Augspurger [00:02:26]:
And I think that's what makes it so relatable is you do offer these case studies and you provide, "Okay, this is what they did, but this is like a better way of doing it." And so even the first way, the way that they've done it, I'm thinking just as a normal, typical, average person, like, "Oh, that makes sense of why they did that." And then you correct them and say, "But if they would have done it this way, this is a better way. And this is the savings that they would have had not just for themselves, but for their family, the multi generational." So that's what I really appreciated. So, Chad, let's jump right in, because I've got some questions that I'd love for you to answer for us today.

Chad Holmes [00:02:58]:
Let's go.

Kelly Augspurger [00:02:59]:
Yeah. So, in the book, in the beginning, you touch on really two problems at the end of life that you talk about in your book. What are these two problems, really?

Chad Holmes [00:03:08]:
It's taxes and probate, and these are things that are necessary evils, I guess I have to say. But with appropriate planning and organization, we can really minimize and or avoid some of these altogether. And I think a lot of people don't understand the true nature of probate and how long and expensive it is. If you're waiting to get your inheritance because a loved one has passed, you won't be able to touch that money until probate is settled, because we have to make sure that all the creditors have been paid, and we have to do a due diligence search of, "Hey, who all did my loved one owe money to?" And there has to be this open window where they can come find you. And all this takes place through probate, and you cannot distribute the estate to the ultimate heirs until probate is closed. And so there's this major delay. There's a lot of court costs, lawyer fees, sometimes accountant fees that can really make it very expensive, which just eats away at your inheritance. And with structuring the accounts appropriately is one chapter in the book.

Chad Holmes [00:04:07]:
If we do that, we can just have those assets completely avoid probate altogether, go directly to the beneficiaries without having to deal with courts, which you don't have to look at wills or anything else. We just added a beneficiary to an account like IRA's or 401K's usually have those, but your joint brokerage account or investment account, that's an after tax account, doesn't normally have beneficiaries on it, but you can add those for free. The whole book is coming up with ideas that you can do for free in implementing these things on your own, or sometimes you may have your advisor help you with it if you're not confident. But the reason I wanted to bring this all about is because we hear, at least in my world, I hear a lot about the beauties of trust. And trusts are great because you can do all these special things with trust. And just for so many people I talk to, they're like, "I don't want to do a trust, and it sounds too scary. And for whatever reason, it doesn't feel appropriate." I'm not saying it's not.

Chad Holmes [00:04:58]:
I love trusts, but there are other ways that are free maneuvers that you can just kind of pull on these different levers and really optimize the family wealth through multiple generations.

Kelly Augspurger [00:05:09]:
And you do give us those actionable steps of this is how you do it with the case studies so that people get an understanding. Now, this is not to say that Chad's not offering advice. This is what you should do, because he doesn't know your specific circumstance, but he gives you an idea based on different families, different situations. Here are some things that they could have done to really optimize the family's legacy and really, again, pass the torch and not the tax. Because that's what most parents want to do, right? They do want to leave a legacy for their family, typically, or maybe charitable if they're charitably inclined. And you talk about that, there's a chapter in the book about being...if they're charitable, if generosity is important to them, what you could do in that circumstance. So I think it's just really, really helpful. The Steadfast Care Planning podcast is sponsored by AMADA Senior Care.

Kelly Augspurger [00:05:55]:
Amada provides complimentary consultation with a senior care advisor to find the right care, from in home caregiving to community care, as well as long-term care insurance claim advocacy, and unique support partnerships for financial advisors to address family transitions and generational retention. To learn more, visit www.SteadfastWithAmada.com. What questions, Chad, should we ask our family members to identify critical pieces of information? I love that you gave us some specific questions that we can ask our parents, our family members, whoever it is that's in our life that we're concerned about with these taxes and legacy. What are some of these questions?

Chad Holmes [00:06:40]:
Right. So I think early on in the book, it's the first couple of chapters we go into estate documents and getting an inventory of what your parents actually have. The reason why it's so valuable to have these discussions early is because we don't know when our parents are going to someday become unable to communicate with us or just be gone altogether. And if they pass or become non responsive at a point where we don't know where all their things are, how to access them, what the passwords are, is there a safe deposit box that they opened forever ago and no one knows about it? These things don't just present themselves to you when they pass. No one knows that they passed. And so there has to be this structure of a search, and that's kind of what probate is. But without knowing where things are, how to access them, who else is on the account, things like that, we need to understand what they have, where it is, how to access it, and that's how we kind of create this list of inventory, knowing what they've got.

Chad Holmes [00:07:34]:
And also it's good to know what their debts are, what are ongoing payments that are coming out of your account, because at some point, you'll probably need to turn those off. And without knowing all these things, it becomes a very inefficient way to settle their estate. But questions like even social media is something easily forgotten. My wife's grandmother is on Facebook, and she's into her eighties now, and it's wonderful that she's on there. But we need to understand what we can do with these accounts and what's the best way for us to gain access at some point.

Kelly Augspurger [00:08:01]:
Agree. So we want to know what they have and what they owe on what are those debts and what do they actually have? What are their assets, what are their investments? Where are these things, too? Not just what they have, but how do we gain access to them? Do they have a financial advisor? Do they have an attorney? We want to make sure that they have these documents in place, if they don't already. We want to encourage them to get these documents in place, an estate plan, and then find out who are the people that we need to contact to in order to access these, and where are these documents, the location of these documents, and have them write it down. Or you write it down, right. If you're having a conversation with them, make a note of it. I actually created a family roadmap that I give to my clients, and there's a lot of fillable space for them to be able to record these types of things that you're talking about, Chad. And it's editable, so it's just a PDF that people can change and update as the years pass by. But it's a great resource for your family.

Kelly Augspurger [00:08:53]:
So you don't have to have my roadmap, but you want to document it and make sure that you know where it is and how to access this information, because the time's going to come for all of us, right? When we're no longer here. And so for our loved ones, we want to make it easier on them. We want to relieve some of that burden. And so asking these questions upfront is so important. Chad, one of the things that I recall from your book that really stood out to me was don't turn their cell phone off right now, because they might be getting phone calls from a variety of different people and maybe they're even people they owe money to, or just reminders. Can you talk about that a little bit? I thought that was such a great point.

Chad Holmes [00:09:35]:
Yeah, that's often an overlooked idea is, hey, so and so, my loved one has passed. Let's cancel their cell phone bill, because that's not cheap when it adds up over time, especially if probate takes 6 to 36 months to close, we don't want that bill to keep running. But when it comes time to logging into certain accounts, a lot of times we have it set up where, oh, you get a six digit pin texted to you, oops, I turned their phone off and it's gone. And that's no longer an option. And now you've got this whole headache of a chore you have to do, because this cell phone's gone. And when they're gone and you're listed as the executor, the person in charge of settling their estate, or executrix, a female. I don't know why that's the word.

Kelly Augspurger [00:10:16]:
Yeah, that was brand new to me. You taught me something there. I'm like, "Oh, I've not even heard that term before."

Chad Holmes [00:10:21]:
Okay, executrix. It's a fun word.

Kelly Augspurger [00:10:23]:
Yes.

Chad Holmes [00:10:25]:
As that person, you are their estate's representative, and so you have the right to have that cell phone. And so it's not any sort of fraud or anything, it's just part of settling the estate. And to be able to gain access to their accounts, you need that text code verification, because we all know how fun it is losing a password or resetting and you have to call and it's just frustrating. It's not something you want to add to your list. So just keep those cell phones on for a while if you have to...

Kelly Augspurger [00:10:48]:
Go through probate, or whatever it is until the estate is settled. Yeah, great tip. Well, Chad, can we talk about some of the solutions that are available to minimize those taxes in probate? Maybe we go through a case study.

Chad Holmes [00:11:02]:
You know, one of my favorite case studies in the book is possibly two in the weeds. I try to keep everything really high and not get into the weeds and tax. But the charity one you mentioned earlier, that's a fun one. So there's a couple in their 80s, they've been giving to their church for many years, and they want to increase their contributions to their church because they're realizing that their portfolio is growing faster than they're spending, and they're not wanting to just leave a tremendous bucket of money to their children. So they want to start giving more to the church. And they don't know should we pull money from the IRA, or from the joint brokerage investment account. And so what they end up doing is kind of pulling a little bit from both. And in doing so, they're paying ordinary income on the IRA money, it's ordinary income taxes.

Chad Holmes [00:11:48]:
And on the joint brokerage account, they're paying capital gains taxes, which is, as you can imagine, decreasing the total estate by 15% every year, assuming some sort of average rate around that. But what they could have done is gifted directly from the IRA to the church. And in doing so, they satisfy the RMD, which is the required minimum distribution, which when people hit a certain age in their 70s, depending on when they were born, it's an amount every year they have to pull out of their IRA, regardless if they need the money. By giving directly to the church, you satisfy that required minimum distribution and you don't pay taxes on it. So it's kind of a double win for this family. As opposed to double tax hit that the couple in the book is doing and actually saving taxes and letting those other accounts grow unhindered by capital gains taxes. So simple, powerful way, doesn't cost you anything to do ideas like this. It's, oh, let's think about where the source is.

Chad Holmes [00:12:42]:
And you think about it. The church, they're receiving money either way, so they don't care. And you, you're just creating a strategy of the source of the money, and you don't pay fees for this. It's just a simple thing to set up for free and ultimately saves you a tremendous amount of money if you're charitably inclined.

Kelly Augspurger [00:13:00]:
Yeah. I love this case study. I'm a church goer, and so I know we have a good amount of very generous people in our church as well. And I'm sure that they are working with their professionals in their life to maximize that, to make sure that the church does get or whatever organization that you want to give to that they're getting the maximum amount of money available to be given. And so, yeah, I love this approach, but you got to know this information. And so I think your book really will probably open a lot of eyes to there's a lot of different ways that we can really maximize that legacy and minimize these taxes. But we have to know this information.

Kelly Augspurger [00:13:35]:
We have to ask the right questions and even talk to the right people, too. So this is taxes, estate planning. It's complex, right? I think it's best to work with a professional that knows the ins and outs of the system. Certainly your book gives us some tactical ways of, okay, we can do this, a portion of this, on our own, but I would highly recommend that people do seek out professionals to assist them in the process. To make sure that you really are dotting those "i"'s crossing those "t"'s and you're not missing anything at all.

Chad Holmes [00:14:07]:
Biased I may be, but I also agree that working with a professional in many cases is that it's worth the time and energy spent up front and the resources to do so. Because that time and money savings on the back end is invaluable.

Kelly Augspurger [00:14:22]:
The Steadfast Care Planning podcast is sponsored by the Certification for Long-Term Care CLTC, an in depth training program that gives financial advisors the education and tools they need to discuss extended care planning with their clients. Look for the CLTC designation when choosing an advisor. If you're looking to become a CLTC, enroll in their masterclass and enter "Kelly" in the coupon code field for $200 off.

Chad Holmes [00:14:49]:
This book came about because my parents are in their sixties and their parents are in their eighties and both my parents are CPA's. They're very smart people, very good with money, and I'm blessed that both generations trust me to manage the wealth. And my parents are trying to be proactive with their estate planning of their parents, and I'm bringing them ideas that they've never considered or thought of. Because in the CPA's mindset it's, hey, every single person, we minimize their taxes and then we're stepping back and thinking long-term, okay, hey, what's really best for the whole family? Maybe we do want to increase the taxes of the older generation. My grandmother, we made her pay, and I do have permission to say all this, we made her distribute her IRA over the last five years because we wanted to have her pay taxes at her rate instead of my parents inheriting that IRA. And all of a sudden they're paying taxes at their rate and they're still working. So it's a much higher tax bracket. And so now my grandmother's IRA is completely gone.

Chad Holmes [00:15:44]:
And on the other side of the family, we're continuing to distribute that IRA because we're wanting to make the after tax inheritance the most it can be. In fact, what I wanted to call the book in the beginning was, "Tax Efficient Inheritance". And my wife, who's in the medical world, said, "I hate that. I don't know what that means. That's a terrible title." And so I have to get out of my own accountant and financial advisor mind sometimes. And remember it's not common sense stuff. And so that's why I tried to introduce so much humor and light stories in this book with simple lessons.

Chad Holmes [00:16:16]:
I really don't get into the weeds too much and just try to bring about ideas for general education. They're concepts you can Google if you know what to Google. But problem out there is people don't know that they should be Googling anything.

Kelly Augspurger [00:16:28]:
Oh, for sure.

Chad Holmes [00:16:29]:
In fact, one of the problems with writing a book on this topic is the default do nothing approach, is that's what everybody does and no one says, "Oh, you could have saved this." They just pay the taxes and do go through probate and aren't even aware that they could have Googled something, or read this book and found ways to minimize or eliminate so much of that.

Kelly Augspurger [00:16:48]:
I really appreciate the multigenerational approach, too. I'm not accountant. I am not a financial advisor. I help people plan for extended care. I work with financial advisors, so I do have some knowledge there. But I think you bring about so many great stories and points of, if the point is to share this legacy amongst different generations, then sometimes it makes a whole lot of sense to have that older adult take those RMD's, pay the taxes at their tax bracket because it's likely much lower than the generations behind them because they're still working and maybe they are in their fifties or sixties and they're making the most they've ever made in their life. So they're at a higher tax bracket. And so for me, I was like, "Oh, absolutely, I get that.

Kelly Augspurger [00:17:30]:
That makes complete sense." But that wasn't my first thought. So I can only imagine someone that is not immersed in any kind of financial planning world at all. These are going to be eye-opening ideas that you're bringing to the table that I think are going to be just really valuable.

Chad Holmes [00:17:48]:
People want their investment returns to bring in 15% - 20% and no advisor can guarantee that. But tax planning strategies can do that. Because if your parents are paying taxes at 10% or 12% and you're in the 32nd % tax bracket. Guess what? Having them pay those taxes instead of you is a 20% delta on that money. And so there's your 20% rate of return right there. That's not like I'm projecting. "Oh, if we change this thing right here, then in 30 years your account is going to be, hypothetically, a million dollars bigger." It's no today we save that much money because that is a guaranteed tax savings that's immediately in effect.

Kelly Augspurger [00:18:27]:
Yeah. Fantastic. Well, Chad, any final advice on how people can plan for care to live well?

Chad Holmes [00:18:32]:
I think open communication with both generations is just so powerful. It's a very private topic in our culture. But if we can show the value of the good that can be done with this proactive planning and open communication, then we can stop leaving this tip for the government and we can start keeping our money that our families have worked so hard for. And like the book discusses, let that torch shine brighter. That legacy last longer because we kept more of it in the family. If people go to www.TheInheritancePlaybook.com, they'll see all the resources and videos and checklists and things that I include in there, including an inventory list similar to yours that kind of says, hey, let's write all this stuff down and let's keep it editable because passwords are going to change, locations are going to change, we're going to add and move things in it. But I think there's also a link to buy the book there if anybody...and it's on audio, kindle, hard and paper.

Kelly Augspurger [00:19:22]:
Fantastic. I really do appreciate how you have the QR codes in the book too, so you can just scan it and you can go to those certain links. I was doing that as I was reading through the book and great resources, not just the book, but even the QR codes within the book. You've got extra resources as well. So Chad, I really appreciate it. So where can people find more information about you, your book, and how you help people?

Chad Holmes [00:19:44]:
Well, the beautiful thing about the book's website is it's also tied to my company's website. In fact, www.TheInheritancePlaybook.com takes you to www.FormulaWealth.com/playbook, which is just a subset of my company's website Formula Wealth. I do flat fee fiduciary comprehensive planning for families, particularly those with a multi-generational focus. So if someone has power of attorney over their aging parent, then I just household those into one flat fee and manage assets and we do a lot of fun planning stuff and investment returns and all that stuff, too. But I really enjoy the unique lens of looking at things with two generations because retirement planning software doesn't solve for that. There's too many variables. It's something that I kind of created and really get to use. And it's a lot of fun for me. And people see the changes and like, "Wow, this I never knew."

Chad Holmes [00:20:32]:
But www.FormulaWealth.com is the company's website. Schedule a consultation for free on there on Zoom.

Kelly Augspurger [00:20:39]:
Wonderful. Well, Chad, thanks so much for your time today. Have a great day.

Chad Holmes [00:20:44]:
You, too, Kelly, thank you so much.