“Off the Wall” Podcast
Our podcast is aimed at helping you answer the questions, “What is the purpose of my wealth and how can I make that vision a reality?” As Wealth Managers, we’re skilled at helping our clients think through these challenging, but important, questions. Let’s dive in!
Transferring Wealth Part 1 | 5 Ways to Prepare the Next Generation for Success
There are lot of questions, worry and anxiety surrounding leaving an inheritance. How do I prepare my kids to be good stewards of this wealth? How can I make sure the money doesn’t create entitled kids? Do I tell my kids how much I’m worth?
Dr. Richard Orlando, Founder of Legacy Capitals, joins the podcast to share his expertise on how to successfully pass on wealth to the next generation. In this Part 1 of our discussion, Rich focuses on five things you can do to jumpstart the conversation with your family about wealth, including defining the purpose of your family wealth, how to start and evolve the conversation about wealth with your kids, gifting, and how to raise happy children.
About Legacy Capitals: www.legacycapitals.com
Rich’s book is Legacy: The Hidden Keys to Optimizing Your Family Wealth Decisions
Learn more about Monument Wealth Management at: www.monumentwealthmanagement.com
Important Disclosures: https://monumentwealthmanagement.com/disclosures
“We refer to families as the business of being family. There are some analogies to businesses: What’s our purpose? What’s our vision? What are our values? How do we communicate? How do we make decisions? All of which contribute to successful companies. So, the purpose is ultimately getting at the why, what are we trying to do? And why are we doing what we’re doing? We need to consider the impact our assets will have on us, our children, grandchildren, or communities, wherever we are involved on boards, and the world at large.” ~ Richard Orlando
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Read the Full Transcript:
Jessica Gibbs (Co-Host): Welcome back to “Off the Wall”. I’m Jessica Gibbs.
David B. Armstrong (Co-Host): And I’m still Dave Armstrong.
Jessica Gibbs (Co-Host): So we are really excited about our episode today. I think there are a lot of questions, worries, and anxiety surrounding leaving an inheritance. It’s something we discuss with our clients all the time, something we hear concerns about all the time, like, I don’t know how to set up my trust and estate plan because I’m worried about my kids. Or I want to make sure that the wealth my heirs inherit won’t prevent them from having a work ethic or from being productive, contributing members of society. Or my kids have no idea how much I’m worth: should I tell them? That’s another great question we hear. So today’s guest is an expert on preparing the next generation to inherit wealth. His name is Rich Orlando, and he is the founder of Legacy Capitals, a firm whose coaching and consulting helps high net worth families plan for their intended legacy through a variety of in-person and virtual services. Legacy Capitals help families navigate challenges around transferring wealth, such as how to have productive family discussions and prepare heirs to inherit wealth.
David B. Armstrong (Co-Host): And on top of that, he’s a very accomplished author. He has two books. We will get the chance to talk about it, and here’s why I’m so excited to have Rich here today. Since most people are reluctant to talk about a topic, it can be quite challenging to ask them to read a book about it. So sometimes you can, and Rich, I don’t mean that in a negative way, but it’s okay, hey, read this book about something you aren’t even interested in. This is exciting to me because I think that what you have to say today will resonate so much with people that they’ll go out and buy the book and read it for a lot of the details that we couldn’t get in these two segments. So this is exciting for me. And you and I have known each other for a very long time. In fact, we have talked about these things many times just between you and me and Jessica, and with clients as well. And when you have the opportunity to interact with people face-to-face, it is so impactful that this was a natural choice to have you on the podcast. So thank you so much for taking the time to be with us.
Richard Orlando (Guest): Thank you, Jessica and David, and I would like to compliment your firm for focusing on this issue with your clients and potential clients. And I hope I can contribute in some way to what you’re doing, the value you add to the industry.
Jessica Gibbs (Co-Host): Let’s talk about figuring out how to successfully pass on wealth. This is such a difficult question that people often get analysis paralysis. Therefore, they don’t do anything; they just choose to do nothing because they don’t know what to do. So I want to help people take action. I want you to talk through five things that people can consider to help them move forward. To begin with, let’s talk about how we discuss with your family members about the purpose of your family wealth and why it’s so important to have this conversation. And where do you start?
Richard Orlando (Guest): As you set up this podcast, you nailed it, there are a series of questions that keep the parents, the wealth holders, and the wealth creators up at night. And that’s in addition to how to make sure our assets continue to grow and be preserved and protected. You eloquently addressed a couple of them, namely how and when we talk about our wealth and, if we do, how do we talk about it in an age-appropriate way? Another part of that question, or the ideas that keep us awake at night, is how do I make sure that the wealth we’ve created is actually an asset for our children and not a liability? That is, not robbing them unintentionally of their work ethic, denying their dreams, or ultimately, entitlement.
And I love the fact that you want to go after action so I will do my best. Now there’s no hard formula and recipe for every situation, but there are some really good guidelines and let me tell you a couple of them. So, you talked about purpose and that was one of your first questions. The purpose is really important. Several years ago, there was a video that went out by Simon Sinek. And he speaks on leadership and companies that have a lot of value in the marketplace. But in one of the videos I’m referring to, he talked about how important it was for companies to begin with their why, and then talk about their what, in their how, and we use that idea with families because we think of families in many ways. We refer to families as the business of being family. So there are some analogies to businesses: what’s our purpose? What’s our vision? What are our values? How do we communicate? How do we make decisions? All of which contribute to successful companies.
So, the purpose is ultimately getting at the why, what are we trying to do? And why are we doing what we’re doing? We need to consider the impact our assets will have on us, our children, grandchildren, or communities, wherever we are involved on boards, and the world at large. As a result, I think we put the cart before the horse and only discuss the actual family resources. I think it’s jumping too far ahead. It doesn’t put context around it. What do we plan, whether it’s with your firm, and what are the legal components to clear a family? It’s not that it’s easy, but it’s easier to get clear on their plans.
David, you were kind enough to mention my book, Legacy, I draw an analogy between one’s vision and values and the personal GPS we use to navigate the decisions we make. Considering our wealth, and our family, the purpose is one of the first places to start. You also asked about how, and when to talk about wealth. My wife and I are parents of three children. We’ve all communicated about our wealth, whether we verbally did it or not, and by that, I mean where we choose to live, how we choose to live, how generous we are, and how many luxury items we own. Or not? Some of our value decisions regarding money get communicated in more subtle ways through these.
My wife and I have conversations about children all the time because now they range from 13 to 22. But the younger ones will ask questions like, can we afford something? The younger ones will kind of ask in an innocent, but curious manner, but it is a natural set of questions that all children might ask. One of your options for a productive response would be to change the focus of the inquiry from one of pure possibility to one of actuality. In fact, there are some things for which we simply state, “No, we cannot.” But what matters most to my wife and me is what we value. We have therefore reframed it as to whether we can or cannot, whether we value that or not, and as a result, like your kid or daughter, when you must decide whether to spend your own money on buying those new sneakers for $200- or $500-dollars vs not, would you do so even if you had it. Therefore, some of those queries are relevant to the wealth-related conversation.
I would also add that I enjoy talking about things other than the fact that we have already interacted somewhat non-verbally. However, it’s time to ask, “Okay, what messages do you want to intentionally convey? What messages do you want to be a little bit more clear about?” And we begin with the idea of pursuing transparency. In other words, we don’t think the first move, second move, or third move should expose your family’s net wealth, whatever it may be, or indicate your family’s plans about inheritance. We believe that as long as you act in age-appropriate ways, you can be at any age. Discuss money-related issues, including personal financial and legal terminology such as “trust” and “trustee,” among other topics. There are always age-appropriate ways to do that.
However, as a general rule, with 95% of the families we work with, discussing your net worth or discussing inheritance doesn’t happen until you are perhaps in your 30s. It starts in the 40s, maybe. It now appears in ways such as okay, someone is getting married, will pay for the ceremony, will make a down payment on a house, or will buy a house and put it in the trust. The family’s wealth or potential is therefore hinted at, but if you’re listening to this, please remember that the objective is not for you to reveal tomorrow, the next day, or the next day what your objectives are with an inheritance or what your net worth is.
Jessica Gibbs (Co-Host): So, I do want to keep picking up on this topic about how to have conversations with your kids about wealth. But I just want to go back to one thing again because you talked about those conversations around the purpose of your wealth, “the why” I liked how you framed it that way, and why that’s so important to have. How do you start that conversation?
Richard Orlando (Guest): So, we have a program, “The Leading Gen Program”. Leading Gen Education Program was for parents to have them work this out specifically for them. One of the deliverables of the program is for them to write their legacy message, and to clarify your point, we help them begin to write out the purpose of their assets. Is it to write out the purpose of their assets in the class, the virtual class, and help them begin to verbalize it in the classroom? As part of the exercise, we have them literally use a tool to create their financial landscape, but you can’t see it right now, but it helps them first think of it as asset buckets. So we have our homes, real estate, investments, more traditional liquid investments, a few cars, and go up the wealth scale, and you’ll have a lot more financial landscape in your financial landscape. Then next to each of those buckets or your financial landscape, what are you hoping to accomplish with those assets? Are they there purely as an investment, and do you want them to grow to create wealth for generations? The answer might be No, we’d like our beach home to be a place where generations of families can create memories. Our goal is to set up that property in a way that will minimize the financial impact on future generations who will support it. However, we hope that the property can be a shared experience for families.
And I’m aware that we’ll talk about family meetings in part two. This is an abundance of wealth. After providing what most people would consider quite a bit to the next generation, they come to the conclusion that it almost pales in contrast to what is left. And given their situation, they intend to donate it via a foundation. And so, they are concentrating on how, what’s the purpose of our assets, through charity, through charitable giving, whether there is a foundation, whether it is a death, whether it is just time, talent, and treasure, sharing it as a family, and it really helps them think through, so in the end, that leads to a wonderful conversation for families about how well they do philanthropy together.
Regardless of how few or many, in this instance included his family. Additionally, it helps in thinking about the purpose. What are we attempting to change? And I believe having those kinds of conversations, depending on the age of the children, I would suggest assuming they are fairly competent and mature, we have it without 13 and 15-year-olds that not in the broadest sense that my wife and I are, but we say we share what we are valuing at the moment and therefore why we are supporting it. Inquiring initially, as the pair deliberates and agrees upon, “What are we and what’s the point of this?” Is it so that our kids have a safety net? Is it a safety net, and on top of that, are we going to set away money for the extended family’s future educational needs?
Although most people are too busy to stop and have these talks, which is why family meetings assist families to accomplish that (we’ll get to that part later), having these extremely practical dialogues still helps families. But they are some of the realistic approaches to just continuing with the effect, goal, and why.
David B. Armstrong (Co-Host): I love that. You stated something that I want to briefly emphasize so that anyone hearing may refer back to it. The topic of money is different from talking about money, you said, and I’m paraphrasing a little bit here, which is an intriguing way to phrase it. And I sincerely hope that this will resonate with the listeners in the same way that it did with me. After all, I believe that my experience with individuals talking about money is in terms of explaining money to the kids, that’s where a lot of the challenges arise in terms of moving forward with understanding the why and transmitting the purpose of the money. But if people can think about it differently and realize that you’re always trying to impart your values on anything to your kids or anybody that you’re mentoring, whether it’s behaving correctly, or whatever it is, your values are important.
And if you steer clear of the discussion about the worth of money that you started with the example of the pricey sneakers, you may start to encourage kids to consider something’s value rather than just whether they can buy it. You can just discuss the “subject of money”; I’m using air quotes for the listeners’ benefit. You are not required to bring up the subject of money. And that, in my opinion, is a fantastic opportunity to return to your original point, which was what the purpose of our assets was, as you can always talk to children about the purpose of the assets in contexts other than financial ones. It’s a great way to think about it.
Richard Orlando (Guest): You nailed it, David. And Jessica, you mentioned at the beginning that what we typically observe is this analytical paralysis. It’s not that we’re attempting to hide anything; rather, we’re either unsure of how to accomplish it or worried about the unintended effects if a youngster or even an adult learned about the wealth that we had to build and are building as parents. You are correct, it is about the march toward transparency, which is a pretty wonderful guiding principle. So there’s no rush to get to the net worth number.
And there’s so much conversation that’s left on the table because what happens is that silence. The next thing that tends to speak is the will or the estate plan when someone passes or someone reaches a date where they’re 30 or 35 years old, and some amount of assets become available to them. And we believe there is a significant gap between those two points where the transparency curtain could be moved, the lighting could be increased slightly, and first the conversation about purpose, values, intent, and impact might happen. There are simply plenty of wonderful conversations to have there before we ever get to the punch lines.
David B. Armstrong (Co-Host): Right. And when Jessica started the episode, she mentioned that we’re going to talk through five things that people can consider to help them move forward. That makes me want to ask about the next one because it’s such a common thing that we hear all the time when we’re either in a meeting with a new client who’s going through our monument blueprint process or we’re revisiting plans with existing clients. Here’s something we hear all the time. I’m not sure I want my kids to know how much money we have because it may result in, as Jessica said, fill-in-the-blank. Right? So how and when do you start the conversation with your kids about “the money”? Because at some point, you’ve got to talk about the money.
Richard Orlando (Guest): Yeah. So this is an informed perspective. It’s not the only viewpoint, though, as there have been a small number of families—I’m not talking about more than a few—that we have had to work with over the past 20 years who have made it a point from the start to be as transparent as possible for whatever reasons but 98% of the time, don’t. In response to your question, I would say that as a general rule, when it’s time to bring up the subject of money, presuming we’ve already discussed the purpose, values, and everything else, I think a great time to start that is moving in the direction of transparency, perhaps when they enter in college. This means they have a chance where maybe they work as a teenager and earn some money.
College is an opportunity to figure out: Are you going to pay for it? Are they going to pay for it? I know one family said, “We will pay for all the A’s you get, or a B, A, or B.”. But if it’s not an A or B, we will give you a loan and you’ll pay for that. They want to teach other things, going back to what David was saying about other things around money, like responsibility, performance, and achievement so you can customize that. But the other part is done you give them a credit card or debit card that you keep filling in as needed. And I think it’s a great time to talk about budgeting and what happens after college. So I think you start to get glimpses into talking about the money about what’s possible.
And then I think after that, I think I see a lot of opportunity when the next generation is thinking about going into a business. Does the family want to be an investor in that business? Is there in essence, a family bank, sometimes it’s very formal, and sometimes it’s just the idea that there could be money there that if one of the adult children wants to apply for it, they have to fill out a business plan and submit it. And so there’s a lot of formalities but that could be another window, David.
It could be a marriage or maybe getting married. Is it going to be fully paid for? How nice the wedding will be if you start getting glimpses into it? I’ve seen some very wealthy families buy their next generation a home that they could have never afforded. The rising generation is in their 20s, and they live in a $3 million home. In one family I remember, the parents said, we did too much, too fast, but I think it makes more sense to start opening up transparency in the 30s, 40s, and 50s because trust and will usually align a bit. This is especially important when the next generation, our adult children, get married and have children. Now that they are planning their future, should they save for their children’s education? Is that going to be funded by the nanny and grandpa? Things like that. The transparency gets a little bit more transparent in the 40s 50s David. But, I’d like to say David, people become more transparent in their 40s and 50s
Jessica Gibbs (Co-Host): Yeah, thinking about my experience, in my 30s, my parents decided to name me as a successor executor or successor trustee in our trust. If something happens to them, my parents will entrust their daughter to fulfill this role. And obviously, that involves sharing that knowledge with me and then sharing the documents. So I got some insight into what my parents’ estate plan said. In addition, it is important to understand how big their estate is, how complex it is, and what that looks like. The things you mentioned kind of went hand in hand with, okay, I am at a point in my life where I would be capable of taking on this role if necessary, as you said. And then that opened the door to then talking more transparently about numbers, the wealth, as we’ve been talking about. So that was my experience. That’s how I was brought into it.
David B. Armstrong (Co-Host): It’s funny, this has made me reflect on my youth and ask myself, when did I become aware of anything going on with my parents? And just in the past couple of minutes, I’ve been rewinding my life. Because I’ve lived in houses for so long, I also knew that my parents’ house was increasing in value. Part of it was the value of money as opposed to the money itself. It is distinctly clear to me that my parents paid for things that they considered important, like education, or being on a sports team, or things like that, and there were also things I asked for money for, as any teenager does. And I was flat-out told no and was told to get a job to start earning my own money. And I grew up in New Jersey, which is one of the only two states in the nation that doesn’t have self-serve gas. So pumping gas at a gas station was a popular job. And that’s what I did throughout high school.
And I believe my parents saw a change in how I viewed the worth of money when I eventually went to them and said, “I want to open a bank account.” And I think my parents were like what, so, you’ve got enough money to open up a bank account? And I’m not sure, but I believed I had about $300. And all I saw was them nurturing it by working hard to obtain the money needed to buy the things they want. But it was also sort of subsidizing what they believed to be important. I believe that’s when I started to understand it.
Richard Orlando (Guest): The practice of having your children work, and not necessarily knowing what the resources are behind that might be available, is what I’d recommend, David, because they’d be better prepared for when more assets become available to them if that’s the family’s plan. This is true regardless of the level of wealth of the family, or the parents. I believe the advice I give to parents occasionally is to attempt to break the connection between your money account and what you consider to be significant.
And I know it’s hard to do that when you have a lot of resources in the bank. But what’s best for your child now? What will empower them? What will make them more competent? What will make them less dependent? Try to use those three questions or guidelines in your decision-making. Well, we could do that and ease their burden. If they just go completely open and make it accessible so that children will never have to work again, some families can afford to do that. I would use an exclamation mark to emphasize how much I appreciate that, David, just having them functioning. And regardless of the family’s wealth, not shielding them from conflict is a very good policy.
David B. Armstrong (Co-Host): Yeah. And just to be clear, I had to work for free sometimes because whenever I got in trouble in school, my dad would order a quart of wood and would order me to split that wood. So, I split the wood when I got in trouble. So sometimes I worked and didn’t get paid. Anyway, some value there too, but nonfinancial. Jessica, you had something you wanted to say.
Jessica Gibbs (Co-Host): Yeah, Rich, I want to pick up on what you were just saying. Because, as you may recall, in item two, we discussed how to initiate a wealth-related topic with your children as well as how to initiate a wealth-related chat with others. Knowing that your children will eventually inherit potentially significant wealth, I believe that this is a connected but significantly separate topic from how to raise your children to be excellent stewards of the wealth they inherit. How can you make sure that they will be good stewards? And tying back to what we were talking about before: How do you make sure that the money doesn’t create entitled kids? Because if you know one day you will inherit $10 million that may change your behavior.
Richard Orlando (Guest): You know, I’m thinking about one of the families we’ve helped for a long time, and one of their guiding principles is that you can never be really ready for anything. But if you didn’t, it would imply that the experience of the person or persons who go out and produce the wealth will always be quite different from that of someone who will be in charge of directing, stewarding, and expanding that wealth. Every generation considers itself to be the first generation, and they are both necessary. This is something we talk about with families because such an attitude is incorrect. So, if I were the child and my family were to leave a big fortune for me, my first thought would be, “How am I going to live off of it?”
Okay, so maybe it wasn’t the most useful or constructive response, but it does give me the chance to ask: What is the family’s desired legacy? What’s the point? Whatever our goals were, how can I take that and make the most of the opportunity for the entire family? Therefore, the query you posed must be significant. And even if I just admitted that, to some extent, the experience of the next generation would vary until their wealth producers, it’s one of those extremely crucial problems that keep parents up at night: how do we prepare them for this?
In my book, this is covered in one of the chapters, so I’ll simply briefly mention it here. Here are what we refer to as Life IQ and Financial IQ. Therefore, we believe it is important that each family member has at least a basic degree of financial knowledge. I can think of a few examples of the families we’ve helped in the past two months, and it’s extremely typical to hear family members say things like, “I don’t like numbers,” “I don’t get it,” or “It’s not my thing.” I’m not really passionate about it. And we get it. Not all family members are expected to be the same personality.
However, we do recommend that there be at minimum a basic understanding of topics like personal finance, investment, and estate planning. Because if they’re going to act as stewards or in other leadership capacities, they must be able to communicate with a company like yours in terms they can understand. For example, how can I effectively interact with and maximize all the benefits that Monument can provide for my family? I’m now playing the position of steward. So, in our opinion, it’s crucial. In fact, a member of the family recently told us that they just wanted their kids to be conversant, not fluent. And I believed it was a fantastic method of capturing.
Therefore, there is financial IQ, which I believe to be significant but not the most significant factor. The most crucial question is whether or not the topics we’ve discussed are helping people live lives that have meaning. I am aware that one of the topics we will cover in this episode is how to raise happy kids and happy adults and the research around happiness. “I just want my kids to be happy, I just want us to be happy,” which is one of the reasons I included a whole chapter on happiness in my book Legacy.
Then I thought about whether there was any science behind it. In some ways, there is a lot of study being done about what contributes to a meaningful life in many of the top schools. And this directly addresses the question you asked. Thus, it is similar to an accomplishment. Positive relationships and successful careers are examples of such things. When you work, you figure out what’s important to you, achieve success, or even learn how to handle disappointment. Thus, there are such values as being appreciative, giving back, and sharing. And anything else that comes to mind via charitable endeavors with others can help you live a fulfilling life.
And so when they talk about happiness research, it isn’t necessarily making me giggly. Why do I smile so much all the time? Do I know what I’m supposed to be doing as a member of this broader family more and more clearly when my life becomes more focused and purposeful? Therefore, that aspect of IQ life is taken for granted. We believe it is both, but there is also a lot of emphasis on the financial IQ side. As parents and families, we actually have to do this, especially as the next generation starts to mature and especially as young people begin to enter into conversations in age-appropriate ways.
And we encourage and coach the parents to have these conversations literally. So for example, my children are now 13, 15, and 22. We’ve been doing what we call family meetings on the couch in our living room, once a month on a Sunday evening. We have been doing this since the kids were 5 years old, and we just had conversations around school goals, money topics, giving back, and sharing assets without revealing much of anything. We just let them say whatever they were thinking or asking at their ages. So just think of that concept and bring it up to where your family is today. Is it around the dining room table? Is it around breakfast? The two of you are on vacation together and you have some purposeful conversations, but it helps to be clearer about what you are trying to accomplish. When children are arising, young adults and adults, what we call the rising generation, become older and become co-creators of the process.
Jessica Gibbs (Co-Host): So this kind of leads into item number four, one way that we talk about with our clients a lot, how to give kids experience managing wealth is through gifting. I mean, wouldn’t you prefer your kid to make a mistake with money when you’ve only gifted them with the $16,000 annual exclusion gift rather than when they inherit, potentially, millions of dollars in the future? So how do you prepare younger kids for gifts? And then also, how do you prevent these gifts from undermining them?
Richard Orlando (Guest): Another important question here. And it’s related to a lot of what I’ve been saying. But I’ll give you a real-life example. Two years ago, my parents wanted to give all their grandchildren the exclusion gift, which was probably 15 or 16 grand, or whatever the numbers are today. And my wife and I talked with my parents and said, What is the purpose? With the gift you’re giving to those 11 or 13-year-olds, I forgot exactly what their ages were, what are you hoping to accomplish? And they said, “we want to help them with their education”, whether they needed that help or not, that was what they had hoped.
I asked them to share that as part of giving it to them because they wanted us to convey it, and I said, “No, no, you sit with my kids and share it”. My children now know that they have that money. And they have more because they’ve been collecting in other ways like a few part-time jobs and holidays and things like that. But they know they have that money. Then my wife and I use that in our messaging to decide whether or not we can pay for their college, which we, fortunately, can, or whether we can buy their first car, which we fortunately can. We use it as a chance to tell them that when they graduate high school, they can use that money for their first car. Or maybe that money can be used for college because we want them to have that value of money. And appreciate that they’ll have to make decisions on how to use that. So that would be an example.
Secondly, there are examples, as you’re hinting at, where parents can sometimes get tax benefits from moving money to the next generation. Moving money to the next generation will have tax advantages, whether it’s a private firm or part of estate planning. And if that’s the case, we do urge them to plan a conversation, think it through, and assume that they will be informed of the transfer or given the information if we are at the age when that is the case. How can we get them ready for that discussion? Assisting people to clarify their goals is therefore a necessary step in the process. What do they have in mind? And what information regarding the function of those assets do they want him to know? So, a few weeks ago, we had a meeting.
At this point, the parents thought it was appropriate to transfer meaningful assets because their oldest child was in their early 30s and married. The entire idea is that, as I’ll explain, they decided to be extremely upfront by moving $5 million into an investment account so they could begin working with the advisers on the $5 million. They, therefore, have their oldest kid as well as a young person in their early 30s and they needed to learn and take greater responsibility. But they accomplished it in collaboration with a firm similar to yours. They then instructed their kids to cooperate with the 5 million that will be transferred into this account.
In addition, they’ll learn firsthand and experientially what it takes to invest and manage this portion of your money, and they’ll be prepared by getting clear on their values and being close to them. But they thought in their 30s was the best way to do it. So there’s a spectrum of gifting. As we discussed on one end, a gift could be an annual exclusion gift of $5 million set aside in an investment account. In any case, it is important that you won’t be surprised and that you prepare the family so as not to let the tax benefits wag the dog. If there is a downside, whatever the reason is, maybe there is another way to accomplish what might be a tax benefit. Therefore, measure your gift’s impact on the loved ones you plan to give it.
Jessica Gibbs (Co-Host): Right, as I discussed it with clients: you understand there is a trust component here. It’s as though you gave your child that gift. They own the money. There is nothing you can do at that point; they may go and use it for anything other than what you intended. Therefore, I agree with you that it is important to do it for more than simply tax benefits because I want to begin educating my kids about how to be good stewards of this money. You know, the car and education were two additional purposes you mentioned for the gift.
Another reason we’ve observed is that I want to help my children begin to develop the financial fluency and financial IQ you mentioned, such as understanding what an investing account is. Describe a stock. What exactly is this tax form I received? How does capital gain work? What are these things, you know, that it’s the investment, gaining the financial IQ, that’s the purpose of their gifts? There are many various ways to look at it. I guess I sort of like that concept.
Richard Orlando (Guest): Just to emphasize what you stated before, there are also advantages to giving your children this option since you can assess their level of preparation for academic study without risking anything. And it allows you to possibly get them ready for the moment that you anticipate them becoming aware of $500,000 or $1 million but whatever the numbers are, it would be more than they already knew, and you could put mentors in their lives, the advisor team in their lives, and it can allow you to see whether they’re going to be good with it, take to it, or whether it’s going to be difficult for them.
How can we implement a development strategy when it is still early on to better prepare them for the upcoming round? Therefore, there must be a pretty good upside or excellent reasons to do it, in my opinion. And I discuss this in my book Legacy. There is a case to be made for sharing your assets to some extent or transferring, making, or gifting assets at some point before you pass away because you do not get to see the impact on your children’s lives as adults. Regardless of who your loved ones are, there is a genuine opportunity to see that your labor of love and what you have worked for can be seen in the lives you care about.
Jessica Gibbs (Co-Host): So let’s wrap up with the fifth item. And you mentioned this before, but I want to talk more about it. How do you raise happy kids?
Richard Orlando (Guest): Let me get a little technical: I think the happiness research would say as you can’t impact 100% of a person’s personality or their makeup or temperament to a full degree of happiness. However, I did begin to discuss the fact that if we include some of these principles, practices, and what I mean by mentality, it might mean anything from how crucial it is, as David discovered whether or not his parents mentioned it. David, however, discovered the value of earning a living. Perhaps without understanding why, and I’m sure it has molded what is important to you today, David, to some extent, thankfulness would be an attitude as well as a practice for what I mean by practice in that you might ask your loved ones at the dinner table, “What are we all grateful for?”
Having those practices is a parallel process to preparing ourselves, as I state in my chapter on educating the next generation. Are we maximizing our happiness, in other words? As some people may say, virtues are caught, not taught. Are we being storytellers that put things in perspective? Are we individuals that share with others by demonstrating and modeling what it means to live a meaningful and purposeful life? As a result, simply mimicking the types of behaviors that parents or grandparents exhibit will in some ways contribute to preparing the next generation to be happy, as you indicated.
So let me give you the other side of the story: the constant pursuit of money as an end in itself, or luxury purchases, buying one nice item or toy after another, would not lead to a fulfilled and meaningful life because it creates the so-called hedonic treadmill, where the more of that you have, the more of that you need to, quote, be happy to get that rush to get that feeling. That won’t make for a healthy individual or a healthy, content family. Therefore, it’s truly about the other factors, such as understanding the wealth’s purpose and ensuring that it serves as a tool for the family.
So, one way I prefer to explain it is by making a comparison between the Sun and the planets. . Are the family members revolving around the sun meaning the family’s assets, or are the family’s assets revolving around the family which is the sun? If the money is there to serve the family and not the other way around, I believe there is a lot higher possibility of boosting happiness in the lives of your children or other loved ones. Those are the practical pieces we discussed: happiness, charity, generosity, setting goals, achieving them, resilience, knowing the purpose of your life, not just the money, knowing to the best of your ability which may evolve, and knowing to the best of your ability. These practices and those mindsets are what will increase the odds that you will have a fulfilling and meaningful life.
Jessica Gibbs (Co-Host): Well, this is awesome. There’s so much more to talk about. So, this is just going to be part one of our conversation with Rich. We will release a second episode with Rich where we will dive more into some of the things that we talked about on this episode, specifically talking more about family meetings, gifting, and the benefits of doing legacy planning. So, thank you so much, Rich. Looking forward to having you back for part two.
David B. Armstrong (Co-Host): Yeah, this was great. Thanks a lot. I really enjoyed this and looking forward to our next episode because we’re going to jump into more details about how to have a family meeting. We will talk more about gifting to kids and get into some of the details on that. And you know, also what the benefit of doing the legacy planning in conjunction with a wealth manager that’s all in the next episode, so go check that out next, if you’ve made it this far, and we will see you on the next episode. Thanks so much, Rich, really appreciate it.