(Transcript edited for Clarity)
Enpo Tu: Good morning Michael this is Enpo speaking.
Michael Penney: Morning.
Enpo Tu: Morning to you as well. So thank you very much for taking my call today Michael. You are one of our Subject Matter Experts over at my financial coach and today we are online because our listeners would like to learn a little bit more around taxes. But, before I go ahead and introduce you why don’t you go ahead and introduce yourself? Tell me a little bit about your background and your story.
Michael Penney: Sure, I’ve been in the life insurance business for almost forty-two years. I went out on my own in the fall of nineteen eighty-nine after being on the carrier side and in the property and casualty world as a life producer and in the thirty years I’ve been doing this on my own I’ve been affiliated with two major organizations NFP from nineteen ninety-nine to two thousand and twelve and Lion’s Street from two thousand and twelve to the present. Primarily, we work in two areas. One, where people are trying to create assets and look at life insurance as a valuable tool and the second area is for those who have already created the assets, what’s the most tax efficient way to their beneficiaries.
Enpo: Excellent, so Michael let’s go ahead then and imagine that one of your clients,
about ten twenty years with you says: “Hey I work hard for my money I did not overspend when I was younger and I don’t plan to overspend now. I feel that if I died today all of the government will come for money I’ve worked hard for and I’m being punished for my savings. Frankly, I don’t want the government to take my money when I die. So your client is saying: “Hey I don’t want the government to take my money when I die” what would you say?
Michael Penney: I’d say first and foremost. If you do not do the planning when you are alive, the government already has a plan for you. So, the whole purpose of discussing this is for you to come up with a plan that gives you the final say in where you want your assets to go. Ultimately, there’s only three places they can go: They can go to your family, they can go to charity, or they can go to the IRS those are the only three places.
In properly designed planning, if you’re like most people, you’d like the government to get nothing. So, our job is to work in that concept that you have three beneficiaries and what’s the best way to create a plan that does not have an impact on your ability to live in the lifestyle that you’ve grown accustomed to.
Enpo: So Michael let me ask you one question then, I mean ever since the estate taxes have gone up to, if you are married, twenty-two million, what do you say the people that say: Well I’m not that wealthy. I mean I could probably get away with not owing to the IRS anything. What do you say about that?
Michael: I’d say estate taxes are like hurricanes. And right now, we are in a category one because we know what the rules are. Everything is based on you and your spouse having the ability to pass twenty-two million dollars on. But, what happens if the hurricane becomes a category three or four or five and that twenty-two million dollars drop to five million or lower and you haven’t planned for that? The whole purpose of your planning is not necessarily to pay estate taxes. It’s to make sure that your assets go where you want them to go. Some people, quite frankly, don’t care about the government getting some of their money. But yes usually they do. It’s not always true. It usually boils down to how can I do what I want to do without it affecting my life. I don’t know what estate taxes will be in the future. I think it is a pretty good bet that the lifetime exemption is not going to stay at twenty-two million dollars. So if all of a sudden drops to five million dollars per individual its a whole new ballgame. So don’t depend on the government being there to help you. They’re not going to be there to help you.
Enpo: Fair enough so Michael let me ask you then, going back to the original conversation. This person is very resistant. Just says: “Hey I don’t want to deal with all this extra stuff but if I have to, what would you recommend?”
Michael: Here is the best estate plan in the world. You decide how much you want those beneficiaries to get. And once you’ve made that decision, it’s pretty easy. So for example, I want each one of my children to get five million dollars at my death or my spouse’s death and I don’t want the government to get anything at all so the rest can go to charity. So what you’re really creating is a mechanism to make sure the kids get their five million dollars and the government gets nothing. So, on your deathbed either everything else goes to charity or you write your last check. That is the best estate plan in the world.
Enpo: Well, Michael let me tell you that sounds amazing and I want to thank you so much for sharing with us all of your knowledge and thank you so much for taking my call.
Michael: Right, have a great day and thank you.
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