This podcast might not be a one-size-fits-all, but it is worth a listen in terms of understanding estates and how good financial planning can help ensure that beneficiaries suffer the fewest tax consequences.

Matt and I discuss how parents trying to lower estate taxes can take advantage of the rules and start giving money to their adult children and even grandchildren. The benefit of doling out some inheritance before death is two-fold: lower tax responsibility and the ability to watch your loved ones use the money to better their lives.

In this podcast, we cover the following:

1. Gifting Rules: DId you know that every person can gift $17k to another person with no tax ramifications? So, if both your parents are living and are so inclined, each could give $17k to every member in YOUR family. For a family of five, that could be $170k per year in tax-free gifts.
2. Education and Medical Expenses: Your parents can also pay your family’s education and medical bills directly to the institutions, tax-free. 

Not everyone is fortunate enough to have parents with millions looking for ways to pay the least in Federal and State Estate taxes but it is also something to think about with regard to your own portfolio as you get closer to retirement age. Even if your parents can’t do it for you, you might be able to take care of the next generations while you are still alive to enjoy watching the money being spent.

Learn more about Mike and my services at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Are you ready to create your ideal lifestyle?  Let’s Connect.

Welcome to Financial life planning I'm Matt Robison, your host with our guest, owner of the podcast of important financial advice, Mike Morton. Mike, how are you?

Good man. Hey, what happened with starting with the catchy title? Remember, we need to get it above the 85 you start these things off with a catchy title.

Can't my parents pay for that? There it is. I love it. I just didn't want to mislead people up top. Because you would think that this is something that most of our listeners as parents would be here. But you're saying, no, this is something you shouldn't have saved. I love it. This is great. Someone else should pay for all my stuff. Go on Mike. Really?

Yeah. Um, I'm hoping my parents aren't listening to this podcast episode.

You know, your parents are lovely people. And I'm actually now feeling guilty. I'm feeling really bad about this. Like, will they forgive me? Guys, this is not my fault.

Yeah, this is, so this is a legit thing man that I want to dive into. And of course, we'll get some good laughs along the way, based on our experience, you know, having both healthy parents and also young children or kind of being like, right in the middle of being parents ourselves. But this is a legit question where I do have multiple clients whose parents are trying to lower their estate, okay, so they have some, they have done a great job, and they're trying to lower their estate. So trying to give away some money and in all the ways that they want to do that. And also in conjunction, you know, we're getting to this point, realizing, hey, let's not, you know, let's not die with the most money and then leave it to charity, or to our kids or whatever, you know, let's give it away and see it put to use during our lifetimes. So that's kind of been a big movement as well in the elder generation, giving away money while they're still alive, seeing it used. And so this is a legit strategy that I've talked to a few different clients about. And so I figured it was worth throwing it out there in case it triggers anything for listeners like, oh, yeah, you know, we're kind of in this situation. Some of these things might make sense.

Yeah. So like, if you're James Murdoch, son of Rupert Murdoch, you're definitely your ears just pricked up. It's like, yeah, I'd like my dad to spend all his money on me right now because I know, you're saying that this applies to a much broader swath of people. So a bunch of questions about what you just said, first of all, well, let's start with my little joke there. This doesn't just apply to the wealthiest people there could be people in the course of estate planning who are much closer to like middle-class status, who are thinking about, you know, I could start to give away some of what would eventually be my estate right now.

That's right. And it runs the gamut. Yes, it's going to be pretty well-off people where the estate taxes are going to hit you. And that's why you might want to take advantage of this strategy. But also, lets you know, there are other situations, oh, you know, my child has a medical emergency that's costing me tens of thousands of dollars this year. And that's a really big strain on my family. My parents, you know, might be able, that might be an opportunity to I can say, well, geez, we're gonna kind of leave you maybe it's a couple hundred thousand. Maybe it's not like crazy amounts. But we could spend some of that now to help out your family. Now, if you have one of these emergencies so yes, it can apply in a variety of situations and so that's why I think it's worth just exploring the topic in case again, something resonates with you.

So it's just, walk me through again, we've talked about this before the estate tax situation, yeah. When would you be thinking in terms of like, Ooh, I'm about to go over some limits?

Yeah, it's gonna be multi-millions. All right. Now here in the state of MA so federal, you're gonna get taxed right now, it's above 12 million per person. So if you pass away, and you have more than 12 million, you're gonna start owing federal taxes. So that's a lot of money, you know, so you might not be in that situation but remember that two points, one, they compound. So if you're still like, Oh, I'm, um, my parents are healthy, they're going to live for another 20 years, even if they had one or 2 million that could pretty easily grow to six, 7 million, you know, over 10 or 20 years. The other thing is that 12 million I just mentioned, is set to get cut in half in a couple of years, it goes back to 5 million. All right. So 5 million. So if you're going to be above 5 million, when you pass away, you're going to start owing federal taxes. The other thing is certain states have state taxes. We live in the state of Massachusetts Matt. And here if you die with more than 1 million, you start getting hit with state taxes.

Alright, so here in the state of Massachusetts, if you have loose change and lint in your pocket, the state owns a portion of that too.

That's true, but I did just get back a whole bunch of state taxes, which is so bizarre.

Fantastic. I mean, I've been looking forward to that. In the meantime, every time I get a haircut like someone from the state tax assessor's office shows up, it's like, I need this pile over here. It would sound on the surface like, a bunch of people would be saying like, I'm not really in the situation where my parents are going to be in the $12 million category, or even the $5 million category, thank you very much. But just to read back to what you're saying is, well, you don't have to necessarily be 12 million, you could be looking at, you have a million saved up, that's not that unusual these days, you have a few million saved up. And if you're looking at a long enough timeframe, we could be within a window where first of all, the limit descends to 5 million, where you start to post some taxes. And second of all, where compound interest kicks in, and all of a sudden, that is what you could be looking at over time. And then I thought I heard a sneaky third thing that makes this relevant to a much broader swath of people, which is what's really relevant here is, if you have enough for your retirement, with all of your forward projections, even if you're not worried from the estate tax angle, you might want to start to say, hey, you know what, I want to see my kids enjoy some of the fruits of my savings, now they can make better use of it than I can and in my retirement, so you might be in more of that, like, $2-3 million estate range, and still be thinking about like, Are there good ways for me to benefit my kids without tax consequences right now?

That's exactly where you got it. You know, and we're talking about our parents. So there, they will be thinking my kids and my grandkids you know, helping out their children's families now while they're still alive. And it's the same thing I was saying earlier, where you've given away more money to charities or organizations during their lifetime giving away you know, it's a fan to supporting family during their lifetime rather than leaving it when they're not around and seeing you know, the fruits being implemented. That's correct.

Now I'm not trying it I know it sounds to your parents, like I'm trying to crab walk us into like, so really, you should start giving Mike Morton some money. I'm not doing that. I'm not doing that. That that's all please, please, please forgive me, senior Morton's. Okay. So what are we talking about in terms of the mechanism here? So like, you know, we've nailed the idea of this could apply to you. What are you talking about actually doing?

Yeah. So a couple of different things that you can do. And let me also go back to before I tell you that the other thing that you mentioned, is that growing, though, if you had one or 2 million saved, which look, a lot of parents do, you know, very frugal, saved for many, many years worked hard, you know, have some good retirement savings, even if you have one or 2 million, if you expect at a 10% interest that will double every seven years. So if you have 15 more years, and yeah, $2 million, that goes two to four to eight. So it goes pretty quick. I mean, a double is pretty quick compounding a quick 15 years, it seems like a long time.

Yeah. Can I just pause you, like that makes me think so much I want to applaud you for finding the most depressing freaking topic you could, you combined death and taxes together, Mike. I mean, you're some kind of you're just a cup of sunshine on this topic.

I like to test I like to talk about sure things, death and taxes.

It's a phenomenal bill. We'll hit worldwide diseases next. This is great. No, it's luck. It's a practicality of life. All right. So so what can we do? So what can we do?

Yeah, so the easiest thing there is, if you stay under the annual gift limits, anybody can give anybody up to $17,000. This is in 2023 without having to file any paperwork or owe any taxes or anything else. So I can, Matt I could give you $17,000 for no, no work that you do. You know, this is not work-related. I could just give you $17,000. And you know, no, no one who cares?

Yeah. If you started if you gave me that, that would be the ultimate irony since I get nothing out of the work of actually hosting your podcast, Dick. All right. Yeah, so you can give me $17,000. But more to the point your parents could give you and your spouse now. So if you have two living parents not to get super complicated here, but like you've got a mom and a dad, and let's say you've got a spouse, could each parent give $17,000 to you? And could each parent also give $17,000 a year to your spouse?

Yeah, and that's why that's what I put in the terms that any person can give any other person doesn't have to be related, you know $17,000 And so you got it exactly right two parents could give a child and a spouse $17,000. So you added up a few years to $68,000 so you could transfer as much as $68,000 from your parents if they're both alive to your family $68,000 every year with no pay for no taxes, you know, that kind of thing. So that's a that's a significant chunk that could be used for anything, you know.

Now, let's say you really want to bleed the elder generation dry. And let's say you have multiple kids, you have like three kids. Could you, for example, add that $34,000 bucks to each of those kids as well every year?

That's right. Yeah, you definitely can. Oh, yeah. That's, it's a reason to have more kids.

Fantastic. So what you're saying is, if you have a spouse, and you have three kids, and you have two parents, you could suck out $160,000 A year from them tax-free?

Yes. But it would belong to your kids Matt, What are they going to spend it on?

College baby.

I'm sure that's what they're gonna spend it on. So that's, you know, that's an easy one, right. And a lot of people could do that. But this also applies, you know, this topic has come up again, with families that have a little bit more than, the parents do have plenty. They've got pensions, they've got Social Security, they're living off that, and they've got, you know, they've saved and they had some real estate investments or other things. So they have a few million. And so they're thinking, What can I do now to help out my family? And so you could just do that straight up, gifting, no problem. But there are a couple other things that you can do that also where you won't run into any gift, taxing or taxing rules. And they're around both education, and medical expenses. And that's why the top of the show I mentioned, if your family is having some kind of an emergency this year, maybe there's like, geez, I gotta go to a special school you know, with my kids, it's gonna be the right placement for them, or it's a medical thing, something came up and gosh, it's just, you know, a lot of treatment or whatever, anybody can pay. Again, this is anybody so it's not family specific. But you can pay directly to the medical institution with an education institution. And that is all, you know, tax free, no taxes, no paperwork, etc.

Oh, that's, that's useful. So there's like a carve-out here, basically. And so it depends a little bit kind of I know your quipping a moment ago, but it sounds a little bit on what you're using the money for?

Yeah, that's exactly right. So those two, but remember, you have to pay it directly to the institution. So it's not like Hey, I had medical bills of 20 grand, can you help me out? If I've already paid them, then No. It's got to be like someone else has to pay them directly like my parents. We have to pay them directly. Pay the bill directly. Are you ready to create your ideal lifestyle? Let's discover what's most important to you and design a plan to have more of that in your life? Go to meet Mike morton.com. All one word meet Mike morton.com.

And what about the lifetime gift? I seem to remember from that documentary, The Shawshank Redemption, that Andy Dufrense nearly got thrown off a roof over lifetime gift rules.

Yeah, there's Matt, what was that reference? I didn't get that one at all other than the docket. The Shawshank Redemption, of course.

You don't you don't remember Andy Dufrense nearly getting thrown off the roof for suggesting, like, do you trust your wife? Do you think she'll go around your back, try to try to backstab you like, oh, this guy is about to have himself an accident? And he nearly gets thrown off the roof for suggesting that... you don't remember this? Oh, my God rewatch that documentary? You're spending too much time on your clients, man.

Yeah, well researching for this podcast, man, I had to make some notes for this thing.

Do your documentary viewing? That's all.

So yeah, I mentioned earlier, there's federal estate taxes once you get above that limit, $12 million. So it's, it's kind of interesting that combined all these rules that you can give away that amount, either when you die, or during your lifetime, it's the same 12 million. So if you wanted to give away the 12 million during your lifetime, you can do that and you file some paperwork and say I've used up the 12 million I'm allowed to give away without paying any estate taxes. But then if you pass away, whatever's left, you're gonna start paying taxes right away, because you've used up the 12 million. So think of it that way, you have, you can use 12,000,000 during your entire life either during or at the very end.

That is different that is actually different than what they're referring to in the movie, which is like a one-off, which is probably a tax rule that may have existed at the time, it doesn't anymore, that you get this like one-time special exemption in your life to give away more than the annual cap so not something to worry about here. So, yeah,

So, yeah, and let me also just say on that too. This is where estate planning is very relevant because these are individual limits. Alright, so actually that 12 million is per person. Okay, but if usually a married couple If you don't have estate planning documents in place, then when one person dies, the other spouse has all the money, okay, and then when they die, then all the money is just the one person. So you didn't get to use up each person's individual 12 million. And this is very common in our state Matt and other states have much lower limits. So again, we have 1 million, so it affects a lot more people than 12 million. And if you don't have the right estate planning documents in place, you're gonna lose that 1 million individual exemption. All right and so it's very important if you're a young family, and you know how to do that.

Right, so there are 50 different states worth of tax loss. And so you've got, you've kind of got to know it, you don't have to know but you, you need to have a conversation with your tax preparer, slash estate planner, slash financial advisor, this is something you do need to, you know, as you enter kind of this process.

It's a no-brainer when it comes to estate planning because you're gonna save tens of thousands in taxes, I mean, easily, you know, so if you're in a state that does have a lower estate tax, you know, just be aware of that, and know where you are outside, outside today's podcasts and conversation. But, yeah, it's important to know where you're going to get hit with taxes, and where your family is going to get hit with taxes because taxes are a way bigger deal than we give them credit for. It's a lot, I know, your lifetime.

Yeah, and I mean, if you've worked your whole life to accrue these assets, it does seem like you know, you would like them, ideally, to go to your children and grandchildren. And I know together a moment ago, the idea of your tax preparer, your estate planner, and your financial planner, as if they're like a three-headed monster, like the Knights Who Say Me. But I do want to draw a little bit of a distinction there because your tax preparer is probably not the same person, as your financial planner, or your estate planner, your tax preparer who is probably most worried about your annual tax returns. And this is something we've kind of jokingly alluded to on the show before, but this, this does kind of lead me to an important angle of all of this, which is the estate planning angle, because I could see, you know, a group of listeners and viewers saying, you know what, I'm not fortunate enough to have this problem, none of these things are going to apply to me. And it's very clear that my bottom line priority is I just got to have enough for retirement. So I'm not, I'm not, thank you, but this does not apply and then there's a group of people who say, well, this applies because I'm so rich, that I know that this is a good idea. But I think most people are going to fall into the middle of that bell curve. And there, it seems to me that it really falls into your wheelhouse, which is the financial planning aspect of it, and trying to figure out that delicate question of how much is enough. How do you go about that part of this, like, if you had a client sitting down with you saying, Mike, I listened to your show sounds like a great idea. But what I'm worried about is if I start giving away some of my assets to my kids, what if I'm frickin destitute in old age? What about that genius? How do you walk them through that.

Hopefully, they'll give some of it back to you. We don't want to ever be in that situation. That is what financial planning is all about. So I don't think we're gonna break it down in the last few minutes of this show. But that's what financial planning is, predicting potential futures. And then coming up with scenarios and making sure you have what you need. And this is false. Today's show falls in the camp of like, Hey, these are tools and tips and tricks that you might be in this situation, and emergency or something happens with your family or getting some help from your parents. They do have enough, you know, they feel they're working with a financial planner, so they know they have enough and they're able to help you out, then here's a couple of ideas that that I think are very, very valuable, you know, and so that was today's topic to try to, you know, just highlight that. But you're right in terms of general estate planning, and financial planning, and I will get back to your thinking about the tax preparer. So they're all of these different specialties. Look, we use lawyers all the time the estate planning is going to be estate lawyers, your financial planner should really kind of sit in the middle of all that and do the potential futures and work with you and your situation. But then also kind of quarterbacking and say, Hey, we need to pull in a lawyer here. We need a state lawyer here. Of course, we need the tax preparer to fill out the forms, you know, to do your taxes from last year, but tax preparers generally 99% of time are not doing any tax planning for you. How are you going to save taxes this year, next year and five years from now? They're just filing returns and so it's good you know if you as you go through life and kind Grow, you want to grow your team, you know, the team around you that's helping you navigate some of these specialties.

I see. So that's interesting.The tax preparer is like a specialist. The lawyer is like a specialist who genarlizes financial advice like a family doctor, or the kind of person who might refer people. But you're kind of you're like, to the rug in The Big Lebowski, you sort of tie the whole room together.

That's exactly right. The rug, I love it. People, people walk on me all day. It's awesome.

You too. I mean, that's, that could be in your future. All right. I think that about covers the topic. Do you want to just have any kind of final thoughts on this for people to take home?

No, I think that was good. I really think we hit on a lot of the stuff. So what I wanted to get across again, was just these different points where people can give money, you know, under gifting rules, where you can spend money, where your families might be able to help out if you find that you're in one of these situations. So this is really good content. I think just to keep in your mind, it's definitely going to, I know there'll be some listeners and viewers out there that they'll be like, oh yeah, this you know, I couldn't use this last year, but still get to know now.

Right, right. All right. Well, I think that does about wrap us up. You've got some heavy movie viewing to do man like, yeah, how to get on it. Go watch Shawshank and you know, as a chaser watch some Big Lebowski. All right. Mike Morton's financial advice. Thanks so much.

Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning pod@gmail.com. Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.