Ep 49: Potential Inheritance: Include In Your Retirement Plan Or Not?

Ep 49: Potential Inheritance: Include In Your Retirement Plan Or Not?

Listen Now:

The Smart Take:

You live below your means and invest for your future … similar to your parents. Now your parents are getting older, and it seems fairly clear they’ll be leaving you an inheritance at some point. Meanwhile you’re still working. Should you include the potential inheritance in your retirement plan?

Banking on an expected inheritance for your retirement plan involves risk. Hear Kevin discuss real-life cases where it was appropriate and another where it was too risky.

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6:25 – Market Commentary: Encouraged But Not Out Of The Woods Yet

17:57 – Lean Towards The Conservative Side When Incorporating An Inheritance In Your Financial Plan

24:25 – 1st Client Case – Open Communication About Finances

30:03 – 2nd Client Case – Less Certainty About What The Future Holds

36:51 – 3rd Client Case – An Awkward Conversation Can Make A Great Impact On A Financial Plan


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The Host:

Kevin Kroskey – AboutContact

Intro:                                     Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.

Walter Storholt:                Hey there, and welcome to another edition of Retire Smarter with Kevin Kroskey. I’m Walter Storholt. Kevin is the President and Wealth Advisor at True Wealth Design, serving you throughout Northeast Ohio, and Southwest Florida. You can find us online by going to truewealthdesign.com. Kevin, great to talk with you once again this week as we near the end of May. We’re in the final week of May. Unbelievable, Kevin, that the year has flown by as fast as it has with all that’s going on. It hasn’t been a boring year with so much in the news and so much happening, and I think that’s helped this year just fly by even faster at this point.

Kevin Kroskey:                  No doubt. It’s been an interesting year, for sure. But I had something; actually, I had a customer complaint since we last recorded, and I thought I’d share it.

Walter Storholt:                You’re sure you want to bring that up?

Kevin Kroskey:                  Well, so full disclosure here, transparency is key in this sort of business. I was teaching my daughter how to play checkers. I’m going through and teaching her about, well, you don’t want to move there unless you have support. She really liked the idea of getting Kings and being able to move all around the board. I’m going through and teaching her how to move, and I’m playing against her. Once the board becomes more spacious, it gets a little bit more complicated. There’s just a lot more thinking and thinking ahead. We were going through that, and I said, “Well, maybe, you want to move here.” She did, and then I made the mistake of not thinking ahead far enough. Actually, the advice that I gave her turned out to be bad advice.

Kevin Kroskey:                  Literally, she looked at me just stunned, her eyes wide open, and just directly leaning into mine, and said, “Daddy, you gave me bad advice.” It wasn’t that she said, daddy, you told me a bad move or something, but she said bad advice. I’m like, “Oh no, I’m in the advice business. What are you saying?” Technically, it wasn’t a customer complaint; it was a child complaint, which I don’t have to file in my compliance folder or anything like that. But it was just funny how she said it, so I responded to her. I said, “Well, Aubrey, do you want me to teach you how to play, or do you just want to win?” She says, very deliberately, said, “Daddy, I just want to win.”

Walter Storholt:                She’s got the heart of a competitor.

Kevin Kroskey:                  Oh, for sure. I have no clue whatsoever where she gets that from. My wife just looks at me every time that there’s something of the sort that comes out like that. But it was just a really fun and funny moment for us. We’ve gotten into so many different things, family-oriented, like playing checkers. We haven’t moved on to chess yet. We’ve got to master checkers, playing Rummy, and all kinds of other card games, but that was just something that came out that I don’t think I’ll forget that. Yeah, my daughter accused me of giving bad advice. I have to go ahead and repent for that today and see if I can do a good job talking about ways to retire smarter.

Walter Storholt:                There was a moment in the office where something similar happens, and they go, life lesson, not every task is worth doing. That would be a good life lesson; not all advice is worth following. You taught her an important lesson that day. She’ll think twice before just randomly taking someone’s advice in the future. She’ll trust but verify.

Kevin Kroskey:                  Trust but verify in the future.

Walter Storholt:                That’s a great lesson. I remember learning lots of great lessons playing board games and card games growing up. My grandmother, who I think I’ve talked about her on the show before over the years who was the one that didn’t give us traditional birthday and Christmas and holiday type gifts growing up. She would give us stock as presents. Small amounts, but Disney stock, and Harley-Davidson and like Hershey’s. Cool stuff that kids would enjoy. It got us always thinking about finances and money and retirement. The cool grandma, nowadays, to look back on that, for sure. But she was the same way with games. When we played Rummy, that was her favorite game. In fact, whenever she comes down, Mother’s Day weekend, she goes to visit my parents, and I always tried to slide over there to visit.

Walter Storholt:                They always have a big Rummy tournament, and she either takes the trophy back with her to New Jersey, or it stays at my folks’ house. I’ve never won the tournament, so I haven’t been there long enough to qualify to win the tournament. But she would teach me how to, just like math with Rummy. We were not allowed, growing up, to count it, is just like five, tens and fifteens for the aces. You had to count your winnings in Rummy through the actual card number. You had to add the two, and the seven, and the eight, and the five, and so on and so forth, to count up your score at the end of each round. It was a little bit of a pain, but it was always a good way to learn addition and subtraction. It’s good stuff.

Kevin Kroskey:                  Yeah, we’re doing the exact same thing. It sounds funny to me when you say graduated kindergarten. All graduations this year, I mean, I don’t know what the teachers did like, oh, what the hell, it’s COVID. You passed. I feel like a lot of that probably went on. She just finished kindergarten, whatever that means, this year, and she’ll be going into first grade in the fall. We’re doing a lot of math, and we’re definitely doing that with Rummy. You could say we are walking in your footsteps in that regard for you and your grandmother, Walter.

Walter Storholt:                It’s not a bad path to go down. Great to hear that you’re having a good time and learning lots of things. It sounds like navigating your way through all of the challenges that COVID has thrown in your direction, everyone’s had to try and adjust to become teachers and trying to fill those roles when … not able to do so remotely or in the traditional sense. Interesting times for everybody trying to figure out and navigate those waters, that’s for sure. Well, we’ve got a great show on the way today here on Retire Smarter, and we’re going to learn a little bit about talking about inheritances on today’s show, and banking on that as part of your retirement and financial equation. I think Kevin has got some interesting takeaways and stories lined up for us on that front, but one of the things I’ve noticed Kevin is, and I’m sure everybody has noticed this as we’ve reached the end of May.


Market Commentary

Walter Storholt:                Many areas across the country, people definitely, whatever your opinion on the subject is, from a COVID situation, seem to really be in large swaths taking the foot off the gas, and maybe taking the eye off the ball a little bit. We’re seeing a lot of places reopening in full force, not so much for that toe dipped into the water reopening, but some places at full force there, Memorial Day weekend. I feel like the same thing maybe is happening in the market a little bit too. That amazing, ridiculous drop that we had in the market almost ceases like it’s in the rearview mirror, and people have somewhat pushed it out of their memories a little bit. I don’t know. Just some of the takeaways I’m getting that people are ready to move on so fast. Are we doing it in maybe a little bit of a dangerous way?

Kevin Kroskey:                  We’ve had several meetings over the last few weeks, and a phrase fell out of my mouth. I liked it the way that it sounded. I said, “Things are certainly uncertain.” I think that’s true. We had the podcast episode a couple of weeks ago where we talked about risk and uncertainty, and I think the risks are becoming more known, but there’s still a lot of uncertainty about different paths that the whole situation can take from a health perspective, as well as an economic impact perspective. The market always tends to lead the economy, but there’s an unclear relationship, just given the situation that we’re in right now.

Kevin Kroskey:                  There’s an infinite amount of scenarios that can happen, and some are really bad. Some are good. I was certainly surprised with the pace with which the market sold off. It was historically unprecedented. It went down more than 35% in just about a month, but then when the FED came in and really started just supporting markets with a seemingly unlimited amount of money, and then we started getting the fiscal response from Congress as well. It looks like we’re due for another one [fiscal stimulus] here in the next week or two. Things rebounded more quickly than certainly what I was expecting, and I think than what most people were expecting. The rebound has certainly been welcomed.

Kevin Kroskey:                  We’ve talked in the past about having an investing process and described ours. We’ve talked about a dynamic allocation, and we related that your retirement income generation needs to be dynamic as well. Looking at past data, historical stock returns, relationships of assets and things like that is a good starting point. But then if you’re going to move beyond history and into a dynamic process — maybe you’re changing your allocation or your investment recipe and tweaking your ingredients or the underlying investments that you’re using — it’s going to come down to two things.

Kevin Kroskey:                  You’re either going to make changes under the auspices of timing or price, meaning that the price is lower or higher, so you’re going to make a change and overweight or underweight an asset class or group of stocks. Or you are going to do it based on timing, and the evidence on timing the market is very poor. We’ve done past episodes. Actually, just this year, when we looked at the evidence of market timers and how it was incredibly poor. And not only from a theoretical basis but how the actual evidence of mutual fund managers that have a tactical approach and fall within that category, the actual evidence has actually mirrored the theoretical evidence, almost exactly. When you look at this (market), I don’t know if stocks are fairly priced right now or not.

Kevin Kroskey:                  Frankly, it’s too uncertain. But when you start looking at other asset classes, and everybody should have some bonds in their portfolio, some cash, probably some stocks of a different variety, domestic, international, what-have-you. But if you look at high-quality bonds, interest rates are very, very low for US government bonds, and they’re likely to stay that way for a while. Post-2008, the fed kept rates near zero for nearly an entire decade. We’re probably in a sort of repeat of that to a certain degree. I certainly don’t think there’s going to be any sort of rise in interest rates anytime soon. The fed doesn’t completely control interest rates either. It is a global monetary thing, and flows of money come in and come out, and the Fed’s not buying as many treasuries as they were in March, and rates are still pretty stable.

Kevin Kroskey:                  But when you buying say a 10-year government bond, and it’s yielding about 0.7% this last week in May of 2020. If you hold it for ten years, that’s what you’re going to get per year. Now, if stocks sell off a lot, that kind of asset is going to do quite well. But if rates do go up a little bit more than 0.7%, it is going to experience some negative price movement. If rates stay the same, you’re getting a low return. If rates go up, you’re getting a lower return, and if rates go lower, then you will get a positive return. But again, we’re already at a really low base.

Kevin Kroskey:                  If you go through the recipe of assets that you have, I feel fairly confident and comfortable saying that we can expect a pretty low return from those high-quality bonds. I’m not saying that you need to completely be out of them, but you may want to consider looking to some other assets that are having a little bit higher yield, but also, what I would say a margin of safety — the price has just come down and you’re getting compensated for risk.

Kevin Kroskey:                  If you look at the technology companies, which we talked about last week and large US growth companies more broadly, they’re positive on the year. They came into this year already highly-priced. You can’t predict the timing, but if you just extrapolate that over time, you can logically show that the really good past performance can’t be repeated. So what do you do? Do you go into other asset classes in stocks that have been beaten down … maybe still down 20 – 25% year to date? Maybe, but again, you’re making a timing decision when you’re doing that.

Kevin Kroskey:                  The thing I just want people to take away is that it’s certainly the right thing to do to stay disciplined through this. I don’t think this is over. There could be another big sell-off in the market. It seems unlikely that we would go down below the lows that we had in March, but it’s not all wind at our backs. There’s still no vaccine that has been identified as having high efficacy and going to be widely distributed. There are still a lot of companies that are going to go bankrupt through this. There are still a lot of people unemployed, and the extra unemployment (from the Federal government) is going around in July.

Kevin Kroskey:                  Again, it’s just an uncertain world. It’s been good that we have had this rebound. But continue to maintain discipline and continue to expect that this uncertainty can lead to another round or rounds of increased volatility. You can see stocks sell-off again. But if that happens, again, you have a financial and retirement plan in place. You have a process in place for your investment management. You have to work through the process. We talked about that a lot in March. Nothing had really changed, but just the speed with which we had to execute and then rethink and re-execute was very quick. I don’t think we’re going to have that sort of speed factor like we did in March, particularly now that the FED has come in as they have, but I certainly don’t think we’re completely out of the woods yet either.

Kevin Kroskey:                 We’re not out of the woods. Stay disciplined. You may want to start looking at particularly some of the high-quality bonds and saying, we know that there’s not going to be a high return there. We know we probably have to have some of them in our portfolio because if things do get really bad, that’s where we’re going to get a ballast from. They’re going to be the dry powder, and those assets are going to do really well. You don’t want to completely remove them from the portfolio, but maybe reconsidering the appropriate size of high-quality bonds in your portfolio.

Kevin Kroskey:                  Then, if you’re going to go ahead and decrease the size, well, where are we going to put the money? Stocks are more uncertain. Perhaps other higher-yielding, debt assets that may have a better margin of safety. In fact, that’s the process that we’re going through right now. We’ve identified something that we want to allocate to, and we’re just working through the sizing and working through our process before we put it into the client portfolios here in the next few weeks. For all of our clients that are listening this is coming, and we’ll get communication out about what’s changing and why it’s changing.

Kevin Kroskey:                  The equities can certainly see some continued volatility. Things have been quite nice here for several, several weeks now, and that’s been great. We’ve had such a strong rebound, particularly in these large US growth asset classes and in these technology and healthcare companies. But by no means are we out of the woods yet.

Walter Storholt:                Our listeners don’t know this Kevin, but you told me before the show today, you’re getting ready to go, after we record, out on for a little boating adventure this afternoon, and today. I think your mindset is already there talking about a ballast; you’re dropping boating words all of a sudden. I can tell the mindset is going that direction.

Kevin Kroskey:                  All right. I’m a rookie. I’m not even a rookie yet, so we’ll see how this goes. I just want to make sure that I come back safe. I’m getting training on learning how to go boating, so yes.

Walter Storholt:                There you go. I think a ballast is probably a term more associated with a large ship, and probably not the boat that you’ll be driving around and messing around on today. But anyway, just, it made me chuckle hearing that word on today’s show, given the fact that you’re going to be on the water a little bit later today. It’s interesting, though, Kevin, because you’re right. We have some good news about the market’s direction here and there, but yet we continue to get lots of bad news. In just the last couple of weeks, what? Pier 1 bankrupt going out of business. We were talking before the show about Hertz coming up next, based out of your backyard there. There are still going to be bad news to be had through this, even if the pandemic bounce back up as we reopen here. Bad things can still happen, and like you said, it’s still a lot of uncertainty.

Kevin Kroskey:                  Absolutely. Certainly uncertain.


Potential Inheritance

Walter Storholt:                Well, you mentioned that we wanted to talk a little bit today as well, going over the concept and the idea of banking on, or including the possibility of an inheritance into the financial plan. This is something that obviously is an interesting subject, and something to talk about, because I know that my parents, for example, they don’t want to think about it, they don’t want to talk about it, they don’t even want to have it be a possibility. They don’t even want it to be a conversation had. They don’t want to count on it at all. It’s just something that they don’t want to even be engaged with, whereas others make it an essential part of their plan. Then you’ve got a lot of people that fall on the in-between part of that spectrum.

Walter Storholt:                Yet, I feel it’s a topic that doesn’t actually get talked a lot about in the financial space. I’m interested to get into that discussion with you today.

Kevin Kroskey:                  Yeah. I guess, let me ask you, Walter, I don’t know if this is something that you’ve discussed with other advisors in the past or anything of the sort, but what’s your gut feel about, under what conditions might you include an inheritance, or should you at all, for that matter, should you include it in your retirement plan? What do you think?

Walter Storholt:                I would say it all comes down to the communication and the relationship that you might have with the person that you’re supposed to get the inheritance from. Have they been clear and upfront with you that, this is coming to you, this is exactly what it looks like, they’ve included you in that process of discussion, and there are no question marks about it, then, might feel more comfortable in making that part of the plan? Any time we’re making assumptions about maybe what’s on the other side, that might be where it becomes a very dangerous game to play. I would just say it all comes down to the communication, but I’m no expert, so I’m interested in your thoughts.

Kevin Kroskey:                  I completely agree that communication is important, but it’s something that I think you have to certainly be on the more conservative side and lean towards not including it or heavily discounting it. If so, just because of some of the uncertainty. People are living longer, who knows how long mom or dad are going to live? To your point, I think most importantly, a lot of people, particularly the older generation, don’t talk about money, and the communication could certainly be nonexistent. I remember when I was growing up, really, the only way I remember my parents talking about money is like when their bedroom door was closed. They didn’t want the kids hearing them, even though the door was paper with them, and we could hear them anyway.

Kevin Kroskey:                  It’s just these little money scripts that you pick up as you’re growing up. If your parents didn’t talk about money, consciously or not, they taught you that, but that was, largely, would happen in the Kroskey household growing up. Money was certainly was tight, and I always would joke and say, we tiered between being lower middle class and upper poor, and it depended on how many jobs mom had and what-have-you. If the parents aren’t talking about it, it certainly can be an awkward conversation to have, if you think about going to your mom or dad and saying, hey, I was going through this retirement planning process. We were just wondering, what do you guys have and how much can we count on?

Kevin Kroskey:                  A lot of people would not feel comfortable doing something like that. Certainly, it goes down to the relationship and the communication and the money script that your parents have, and what you have, and all of that. But if we take a step back from that, and I’ll loop that communication aspect back in when I share a couple of stories here in a moment. With people living longer in general, who knows when somebody going to pass? Who knows if they are going to need an extended stay in a nursing home, and maybe spend more than $100,000 per year for their care? It’s not the average that somebody’s going to do that for an extended period of time, but it’s possible. Because it’s possible, even if it’s a low probability event, if somebody, if mom and dad have a million bucks and they have one of these low probability, many, many year events in a nursing home, they could certainly use that money up over their lifetime.

Kevin Kroskey:                  What you were banking on is something a lot less than that with a remarriage. Most of the older generation, when I’m thinking about people in their 80s, it’s quite common that you’ve, over the last 10, 20 years, you’ve had a lot of estate planning issues because these people have been married for their whole lives, they don’t necessarily want to be single when their spouse passes and here they are a widow, and so they get remarried. Maybe they don’t do proper estate planning, and mom gets remarried to, say a younger man, mom passes away, and they’re not thinking through the estate planning part. All of mom’s assets go to her surviving second husband, and now her kids are accidentally disinherited.

Kevin Kroskey:                  Whether they’re going to live long and use up the money, whether it’s for unforeseen nursing home or other health care costs, whether it’s poor estate planning, these are all very real risks that are out there, that we just don’t have perfect information for. When we’re working with a client, and literally in the last week, we’ve had three different client cases that had assumptions on inheritance and their plan. I’ll talk at least about to them, pro and con what the situation was. If the client’s still working and we’re banking on that inheritance as part of their plan to make sure that it’s going to be adequately funded, it’s not more of like an icing on the top of the cake where they’ve already fully met their own retirement needs.

Kevin Kroskey:                  Really, whatever we get from mom and dad is really just going to be that icing on the cake. That’s a risk, and that’s a risk that should not be taken lightly. It’s uncertain, and again, who knows how long they’re going to live. If there’s going to be end of life care and nursing home, that could eat that up, some sort of remarriage. Who knows? Maybe you fall out of their good graces for some reason, and maybe there’s a rewrite of the will or something like that. You don’t know. If you’re going to cut the cord on that retirement date, and particularly on that paycheck and turn that off, and you’re banking on inheritance in your retirement plan, that’s a risk.

Kevin Kroskey:                  I’ll just talk through two cases here and highlight them certainly, in a confidential format, and just talk through some of these situations, one where we feel more comfortable, and one where I feel like there are more risks. But ultimately, we talked through those pros and cons, and those risks in the client decides. That’s our job, and that’s what we did. In case one, I’ll call him Steve. Steve is single, and mom is now 89. We’ve been working with Steve for about ten years or so, maybe a little bit longer. We actually started working with Steve’s mom about six years ago after Steve’s dad had passed away. So, we worked both with Steve and with mom. So we handle their planning, their investing, their taxes year in and year out.

Kevin Kroskey:                  Mom is in a facility, in a very nice facility that has a life care component to it. She is in a place where, regardless of the amount of long-term care that she needs, it basically, it’s prepaid for. So, she’s in a continuing care retirement community. She’s still in the independent living. She is quite vibrant, 89 years old, very active, at least up until this whole COVID situation. Now, the CCRC or for short is on lockdown mode, as you could imagine. While they’re still active on grounds, they’re not going out by any means. Mom has had a pretty vibrant life, dating other men and what-have-you. She’s happy. Mom has about a million and a half dollars between an IRA and between the trust account. Steve and his two siblings are planning on inheriting that money.

Kevin Kroskey:                  It’s a third each across the board. In fact, when we first started doing planning for mom, we showed her that not only are you going to be fine, you and your husband did a great job, earning money and living below your means for all those years. But if you really wanted to help and benefit Steve and the other two siblings now, or even the grandkids, you can make gifts to do that. Mom actually did some of that in the last few years, making gifts to her kids, and mom still has plenty of money for her lifetime. Again, importantly, has prepaid life care component in the CCRC. Even if she has some sort of needs around the clock, monitoring, nursing home level care in the CCRC, it’s paid for.

Kevin Kroskey:                  That risk has really been taken off of her and something that we don’t have to worry about. Additionally, the remarriage risk, while mom is dating, and I think a mom has a serious boyfriend. Not only is there no intent stated by mom to get remarried, they’ve been together, they’re just dating, but I don’t think there’s an intent to get married, and they’re getting the benefits of … they’re not even cohabitating, but they’re in the CCRC together. It’s like being in the college dorm, right? But just on the other end of the age spectrum. They get to go down the hall and see one another or go out on dates and what have you, and they’re good, but because we’re working closely with mom as well, we’re doing all the work for …

Kevin Kroskey:                  Just, we feel more comfortable that there’s not going to be some accidental sort of remarriage and disinheriting, that happening. If you just do a simple Google search about gray divorce or accidental an inheritance or something like that, along those lines, you’re going to see all kinds of different cases and horror stories. It happens. It definitely happens, but because we have the relationship because there’s open communication with Steve and mom, Steve is the power of attorney for mom. Steve is the financial power of attorney, what-have-you. His close relationship, all three of us are on the same page. Mom’s wishes are very clear, already made gifts to Steve and the two siblings. We have included the inheritance in Steve’s financial plan.

Kevin Kroskey:                  Now, we don’t know what it’s going to be. Of course, we don’t know how long mom’s going to live and what-have-you, but we can make some estimates, and then we just want to be a little bit on the conservative side, because Steve is banking on this for his own retirement plan. Steve has, in fact, retired in advance of fully funding his own retirement plan, banking on, at least part of the inheritance that he’s getting from mom. That’s one way to look at it. Again, we’ve been working with Steve for about ten years or so. Mom, for five or six, know them very well. Communication is very open. Steve handles the finances for mom. We’ve had communication with the other siblings as well. Your point about the communication, Walter, was very important.

Kevin Kroskey:                  This situation, I think, does a really great job epitomizing that, not only between the family but also with the advisor.

Walter Storholt:                I think it’s interesting to follow those threads and those different lines of the way people think and approach this situation. It’s interesting. You started off telling the story about mom and dad behind the closed door whispering about the finances and what you kids then learned from that. This conversation about inheritances really starts and begins all the way back at the beginning like that. It’s a lifetime of communication and relationship between the different parties that leads to how this whole thing evolves over time and then works itself out in the end. It’s interesting; this is a financial decision that’s really a lifetime in the making in some way.

Kevin Kroskey:                  Absolutely. I’ll contrast Steve and his mom’s situation with another client or two briefly.

Walter Storholt:                Good. A contrasting story.

Kevin Kroskey:                  You got it. In this case, we’re working with Jane, who is married. Jane’s parents have a large amount of money, somewhere between like $3 and $4 million. They’ve done quite well. We’ve been working with Jane and now for just a couple of years. We’ve never met Jane’s parents either, and the parents are only in their mid-70s. Where Steve’s mom is now 89, Jane’s parents were only in their mid-70s. Who knows? They could be living for another 20, 30 years. It’s possible. Jane doesn’t know either, but Jane is working. She’s not exactly happy in her role.

Kevin Kroskey:                  She’s making good money, but she feels like she’s just ready to move on. Maybe she does some work after maybe some consulting work or something, but there’s just a lot of uncertainty in her work life. But she’s just, which she feels pretty confident about, is that she’s just ready to make a change. The part about the inheritance came up in her planning and banking on it. Knowing that her parents were only in their mid-70s, I was immediately much more skeptical about including it in her plan. Obviously, there’s a lot of money that’s there, $3 to $4 million, but I have no idea how much her parents live on. We talked about it a little bit, and Jane had spoken with her parents about it on a high level, but it’s not like Jane was the financial power of attorney for her parents in handling her affairs like Steve was for his mom.

Kevin Kroskey:                  The other one, talking through a little bit more, Jane’s parents … it was actually a second marriage. They’ve been married for a long time, 30, 40 years, but Jane had some siblings were, I guess you would say genetically, same parents, and then some stepbrothers and sisters as well. The stated intent for estate planning for the parents was the kids were just going to get an equally, and that’s great, but who knows what’s going on here? If there’s something where mid-seventies for both of them, if you have one spouse that predeceases the other, and then the surviving spouse lives for a long period of time, certainly there’s that potential for remarriage, disinheritance.

Kevin Kroskey:                  I don’t know what their estate plan looks like. It’s not uncommon in a situation when you have a second marriage that maybe there will be an outright bequest at the first marriage, excuse me, at the first death, going to the kids. Sometimes money will be kept in trust. At least some money will go back to the bloodline. It’s quite possible that you have a situation there where there is some sort of trust language around that. I don’t know. I raised these issues with Jane, and she was dismissive of them, but oh, we’re just all going to split everything equally. There’s three kids or three or four kids, and we’re all just going to split everything equally. It’s what our parents said. I get that, and that certainly may be the intent, but in this case, even though they have a sizable amount of money, again, who knows about how long they’re going to live, who knows about spending money on like a nursing home or something … they certainly seem to have enough money to go ahead and pay for that.

Kevin Kroskey:                  But it’s possible that a lot of that money could be spent down, and so maybe what Jane is expecting is something going to be considerably less. I think, even more of a riskier is, what if there is some sort of again, it’s a second marriage, so what does the estate plan say? Is there some sort of money that’s kept in trust and going to revert back to the bloodline, where to be concrete, say Jane’s mom survives her husband and Jane’s mom is her biological mom and is all that money going to go to Jane’s mom, and she can do with it whatever she wants? Where, if her husband says, “Okay, I trust you, we’ve been married 30, 40 years. I trust that you’re going to go ahead and fall on my wishes and just distribute it equally to our kids when you pass.”

Kevin Kroskey:                  Well, maybe that’s true. Certainly being married for 30 or 40 years, I would not be surprised if that sort of trust has been built, but we just had a client pass away earlier this year, second marriage, 30 plus years, and the trust was in place, and that wasn’t the case. It’s not like he didn’t trust his wife to go ahead and make those decisions and take care of his kids from a prior marriage, that had really become her own kids over the last 30 or so years. But that’s not what the trust said. You just don’t know is my point, and if you don’t know, and if you’re banking on stopping work before your retirement plan is fully funded, there is a big risk in doing that. We talk through that in a great deal, and we continue to talk about it each time that we have a plan update.

Kevin Kroskey:                  But if you look at the summary that we put at the top of the, we call it a meeting agenda in summary of each client’s financial plan, so we just try to distill it down into the key points, but that assumption about her retiring when she wants to retire is stated that it really hinges on receiving a pretty sizable inheritance. We tell what the assumption is in the plan for Jane, and she’s comfortable with that, but we’re not completely comfortable with it. We keep talking about it and making sure that, as time goes by and she gets closer to actually stopping work and moving on to maybe retirement, maybe consulting that, we’re just going to show her like, hey, if something changes here, here’s really what portion of your plan is funded with your own income, retirement income, and assets.

Kevin Kroskey:                  Here’s really, if things don’t go well for the inheritance, for whatever reason that may be, intentional or not, here’s really what’s at risk and some of the ramifications of that. In general, I think you have to lean towards being conservative, as, in most things, the basic rule of financial planning is your money has to last at least a little bit longer than you do. That’s certainly a moving target on many regards, but banking on the inheritance, particularly as part of your own retirement plan and funding yet, before some of these things, like in the case of Steve that is much more certain, everybody’s on the same page, Steve’s the power of attorney. Mom’s a lot older. Mom actually has a life care component, so she’s reduced and completely eliminated the nursing home cost risk.

Kevin Kroskey:                  Its a much more certain situation to go ahead and plan on the inheritance, versus if somebody is in their 70s, just because mom and dad have a lot of money, much riskier to go ahead and bank in that case.

Walter Storholt:                So interesting to see the two contrasting situations there between the various folks. I imagine there’s a little bit of an airplane analogy here of the, put your own mask on first before helping those next to you. It works both ways for the parents, in one of these cases, as an example, put your own mask, take care of your own retirement, make sure that you’re okay first before worrying so much about the inheritance that you’re going to pass on. Then in the same token, as those who may receive an inheritance, well, try to take care of your own business and your own household first before someone else is trying to give you the mask. Grab your own mask first, and then we can swap and compare mask, or upgrade masks, if you will, at some point later on down the road. Maybe not the cleanest analogy of all, but maybe a good mentality to have at least on both sides of the equation.

Kevin Kroskey:                  Sure. I should say, Jane, she’s very financially responsible. It’s not like she’s just looking to her folks to bail her out, but she’s not exactly happy in her job. I think it’s good to have the conversation. Again, it could be awkward to have the conversation with your folks about this, but I think it’s good. We had another client that his dad had retired in his late 50s. He did pretty well. He was an engineer; again, he lived below his means, saved, and invested. His parents were kids of the depression, so that was the MO for their generation. They have a few million dollars. Well, a client was in a situation where his kids were somewhere else, and the grandkids were starting to come around, and he was really tied to his job in a place where he didn’t necessarily want to be.

Kevin Kroskey:                  He was aware of what his parents had. His dad talked to him about, “Hey, son, I want you to be executor. Here are some things that I think you need to know,” what-have-you. I nudged him. I said you should really talk to dad about … go a little bit deeper and see if it’s something that maybe what’s a realistic number, or what are their intentions, and then we can figure out what a realistic number is as far as an inheritance, and we can have at least this intelligent conversation about whether or not to include it, because in this case, literally, it was more of a life planning decision for our client. He shared a story about how dad was able to retire in his late 50s.

Kevin Kroskey:                  He and mom were really engaged with their kids growing up, and it was just a wonderful family experience that they all had. My client, who’s also in his late 50s at this time in a good job, but as a family, they were in a place where they didn’t want to be, their kids were down by you, in the Carolina’s, Walter, grandkids were coming around. He and his wife just didn’t feel like they could really be as involved with her family as much as they wanted to be, and just like his dad and mom were with her kids. I nudged him. I said, “I know it’s going to be uncomfortable to have this conversation, but dad opened the door, talked to you about, hey, he’s going to count on you to handle their affairs when the time comes. He somewhat knew round numbers.”

Kevin Kroskey:                  There’s a lot of uncertainty there, and it required some further conversation. I said, “If you have this conversation, your dad frankly has the opportunity, not to just give you money, but really to change your life, your kids’ lives, your grandkids’ lives.” They went through that, and they had that firsthand and experience and had that joy of being highly involved with your kids. Now, he can really, by having this conversation, and a little thoughtful planning, can really give that gift on down the line to you, and now to your grandkids.

Kevin Kroskey:                  When I said it that way, I think it really resonated with him and his wife. I think collectively, we nudged him enough to have that conversation. What came out of that was, he came back. It was definitely awkward, but he said, “I’m definitely glad that I had the conversation,” and it completely changed their financial planning.

Walter Storholt:                That’s awesome. That’s great to hear that. I’m sure, in your role, helping facilitate these conversations, isn’t easy, but in a similar fashion, very rewarding to be able to see families get on the same page and avoid potential problems in the future by making these big mistakes, assuming maybe in one direction or the other what’s going to happen. It’s a unique role for you to play in the middle of the facilitator.

Kevin Kroskey:                  Yeah. Well, that last situation I talked about …

Walter Storholt:                Or the nudger.

Kevin Kroskey:                  Yeah, that was easy. Sometimes, and I’m sure everybody can relate to this. Sometimes it’s easy to give advice, but it’s maybe more difficult to follow it. That last situation was, I would say easy. It’s what we get paid to do to be thoughtful, and what’s important to the client, and then what resources were there, and how can we help them design their, align their resources to make sure that they can live the life that they want? When he shared that story about his dad and being involved with the kids, to me, it was clear as day, so I was able to give that advice, but he had to do the hard work in having the conversation with dad. It was fairly easy. It was in my domain; it was fairly easy to do.

Kevin Kroskey:                  However, I’ve offered, and I’ve tried to take the leadership roles in having family meetings where maybe there’s a second marriage, maybe the kids, there’s some strife, and maybe it’s not … everybody’s on the same page. Those are a lot more work. I have done that with varying degrees of success in the past, but you have to have willing participants, but it’s difficult when you have a third party, and it’s why people go to counselors or what-have-you. You get that objective voice. You get somebody with knowledge, and hopefully, some wisdom, and can listen and think critically, and hopefully give good advice to try to improve the situation. But it’s up to people what they do with it. That’s part and parcel of the job from day to day basis.

Walter Storholt:                Well, Kevin, give us an update on where things stand with True Wealth Design. If somebody wants to talk to you guys a little bit about this situation, maybe in their own financial life, when it comes to putting together their financial plan, is the conversation like this, about inheritances, and where that fits into the equation and the puzzle? Part of those conversations that people have on a regular basis with you and your team, and given where things stand here as we approach the end of May at the time of this recording, what’s the status of True Wealth Design? Are you guys meeting with clients in the office, are remote meetings happening? Give us a quick overview of what operations are like for you for those who might be curious.

Kevin Kroskey:                  Yeah, no great question, and thanks for asking, Walter. No, things are good. We are, I don’t know the number off the top of my head, but we’re somewhere around ten new families that we’ve brought on to help so far this year. It’s fairly consistent with what we’ve done in the last few years. While COVID certainly has impacted everybody in the markets, as we’ve talked about, from a new client, new family perspective, things seem to keep chugging along. Certainly times like this, people that maybe were not as motivated to get professional help. We did see what seem to be a pretty big surge in March and April for people reaching out to have those conversations. So, things look good in that regard, a lot of Zoom meetings, for sure.

Kevin Kroskey:                  We’ve been running remote meetings for years, as people have, maybe moved away from us, different retirement communities, things like that. That’s not new for us. We’ve been doing that successfully for years. Some clients are still coming in. If anybody does want to come into the office, we did go out and were able to purchase a good amount of N95 masks. The type of mask that not only protect other people from you, having droplets, cough and sneeze and what-have-you on them but also protect you in return, so the great medical kind. If somebody does want to come in, we do have those available and are happy to share those with people when they come in. But for the most part, it’s business as usual.

Kevin Kroskey:                  The three core things we do each year, planning, investing, and taxes, and all this other stuff is … it really takes, I think, a good listener and asking good questions and being able to pull the information together, whether it’s an inheritance, whether it’s a business, whatever opportunity or threat a client may have, but it’s our job to really understand the client, their situation, and then align everything as best as we can, and then make sure that we stay on track over time.

Walter Storholt:                Well, it’s fantastic that you guys have been able to make your way through the certain uncertainty that we’ve been going through over these last couple of months, and still able to help people figure out their financial futures and retirement futures. If that’s you, if you’re in that category of maybe a little bit hesitant to make a decision or to get in gear when it comes to planning and making these choices going forward, I know a lot of people have felt a little paralyzed, maybe through this whole ordeal, but if you know that planning and making a choice is something that needs to happen, try not to delay anymore. It’s never too late to start planning, but it’s always better if you do it earlier rather than later. If you want to get in touch with Kevin to talk a little bit about that, there are a couple of different ways that you can do it.

Walter Storholt:                If you like the old fashioned way, you can pick up the phone and give a call to the True Wealth team at 855-TWD-PLAN, that’s (855) 893-7526, and you can also go online to truewealthdesign.com. That’s truewealthdesign.com, and click on the “Are We Right For You” button to schedule your 15-minute call with an experienced financial advisor on the True Wealth team. That’s truewealthdesign.com. We’ll put the contact information in the description in the show notes of today’s episode, so it’s easy for you to find, no matter where you’re listening to the podcast.

Walter Storholt:                We also want to say a big thank you, Kevin, to a recent podcast listener and reviewer. Sage had some very kind words for your clear and concise, although I’m not sure where she got the concise part, Kevin, on most of our episodes, but the clear and concise information that you present here on the show on Retire Smarter, and appreciated the guidance and perspective that you bring. We thank Sage for dropping a note about the podcast in the podcast reviews. If you’d like to review the show, we’d love to hear from you. So, go to Apple Podcasts, and leave a review of the program if you have the opportunity to do so. It’d be great to hear some more feedback from folks.

Walter Storholt:                We appreciate the help, Kevin, as always here on the program, and have a great rest of your week, and we’ll talk again here real soon.

Kevin Kroskey:                  All right. Thank you very much, Walter.

Walter Storholt:                That’s Kevin Kroskey. I’m Walter Storholt. We’ll talk to you soon right back here on Retire Smarter.

Disclaimer:                          Information provided is informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical, and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.