Ep 016 - What Happens After You Die?

Summary:

• What Happens After You Die (Financially-Wise) [0:02:50]
• What Is An Estate? [0:06:07]
• Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]
• What Is SECURE ACT? [0:11:16]
• Bitcoin As An Early Inheritance [0:16:17]
• There’s Something Called A Step-up In Basis [0:19:18]
• Gift Tax – What Is This? [0:23:17]
• How Do I Dictate What Happens After I Die? [0:27:07]
• Who Should Have A Trust? [0:30:15]
• Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]
• It Pays To Invest On Life Insurance [0:36:33]

 

 

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

 

Jon: Hey everyone! Welcome to the eighth episode of the Financial MD Show. Hope you’ve been having a good time listening through all the episodes and learning stuff. Today, we’ve got a fan favorite. This is a highly requested topic both through emails and correspondence, and after getting requests on podcast topics as well as just getting straight up questions in the webinars and lectures and things that we do. Disability insurance is what we’re talking about today, which is great, because I’m knowledgeable on it, Trevor is knowledgeable on it, and we’ve had some good and bad experiences, but there’s a lot of mixed information out there and we hoped to straighten some of that out today. We’ll give you some tips on how to buy it, how to shop for, what to look for, what not to do, and ultimately how do you feel you’ve done well and just protect your finances. Without further ado, here’s today’s show.

 

Trevor: Need to go back a little further.

 

Jon: Okay, let me think a topic today. Your thoughts on topics today?

 

Trevor: What have I been thinking about lately? I’m thinking about life or death. We could not talk about that.

 

Jon: I don’t know.

 

Trevor: I think it’s bad up there. This is good. What have you been talking about with clients? We can talk about bitcoins. It’s almost at an all-time high if you want.

 

Jon: Yup. What have I been talking about lately? Well, a lot of wondering if Biden’s going to make any big tax changes.

 

Trevor: Certainly. Do you get calls about that stuff right now?

 

Jon: Yeah. I mean mainly emails, text, whatever. Clients just like, hey, should I be doing anything, or what should we do or etcetera. And, you know, the answer is still at this point like it’s too early to tell, really and so that run maybe we can do yet so anything else would be preemptive until we have a better idea what’s going to be passed and all that stuff.

 

Trevor: Yeah, that’s a little premature.

 

Jon: Yeah. I mean I can kind of run that. We can chat about it.

 

Trevor: We chatted about that last time.

 

Jon: I think we did.

 

Trevor: That was the last topic we did.

 

Jon: I’m kind of curious about...

 

Trevor: What about…yeah, go ahead.

 

Jon: Well, let’s talk about…let’s have a show called, “What happens after you die?”, but let’s talk about it more specifically with financially like what does happen to my stuff after I die? How do I…do I know? How can I know? When should I be thinking about that or making moves on that? I think that’s probably a good question we haven’t really addressed.

 

Trevor: Yeah, sure, like wills, estates.

 

Jon: Estate planning, basically, yeah.

 

Trevor: Well, I will be honest. This would be mostly you. I know almost nothing about that. That’s something I’m going to start looking into.

 

Jon: Well, that’ll be a good…you’ll be a good person to talk to because that’s what most of the doctors we have are like I’m not – anything about that.

 

Trevor: Okay, yeah. Sure, let’s do it. That’s great. I can ask you questions. Yeah, please, go for it.

 

What Happens After You Die (Financially-Wise) [0:02:50]

 

Jon: So what happens after you die is the question that we’re addressing today and we’re going to try to keep it nearly in the scope of financially. Spiritually, that’s probably out of the podcast, we can recommend for that, but on Financial MD, we’re going to talk about what happens after you die and the answer to that is our typical legal approach of, well, that depends. So on our show, of course, we have Dr. Trevor Smith giving us as always the valuable yet slightly more informed physician opinion and experience and then myself, Jon Solitro. We’re going to talk about this. So we’re in a unique situation where Trevor may be in the position that many other physicians are in from a knowledge standpoint of estate planning. So he’s going to approach it as though he is an estate planning dummy and ask some questions and we’ll try to do kind of an estate planning for dummy show and try to keep it very simple because it can get very complicated. You know, people get entire degrees in this thing. Alright, so first question that pops into your mind, Trevor, when it comes to what happens to your money after you die? Or your stuff?

 

Trevor: Big picture – I’d like to know in terms of…I think the main thing is a question of when you see a lot of this in the news right now, we were just talking about taxes and potential buying tax. Changes that are coming up the pipeline, we don’t if they’ll occur so there’s not really much to do. Maybe get to read about. Maybe click bait – probably a lot of articles are click bait on this kind of stuff – but what gets taxed after I die. I mean that’s the question I’m in. If you’re going to leave your money to somebody else whether it’s a charity or individual, children, spouse, partner – whatever it is – not everything gets taxed, even if you have a lot of money as far as I understand. But I’m early enough in my career and I don’t have dependents so it’s not something I spent a lot of time thinking about but, you know, right now for me as a single adult it’s, you know, filing a single…it’s pretty simple, you know. Just like the accounts I have are going to go to somebody else and a lot of the banks and whatnot, you just write a beneficiary down – brother, sister, parent, whatever. For any, you could just pick friends. You could pick whatever you want. You can give things away to people, and you barely even as far as I understand need a will but I know there’s frozen accounts of having one for specific items. So I would like to know first what is taxed and then I would like to know what is an estate and then after, it’s right into that.

 

What Is An Estate? [0:06:07]

 

Jon: Yup. So what if tax…maybe I’ll start with the second question. What is an estate? So most things when you die will be in your estate. Estate means anything that really needs to get settled or given to somebody or dealt with after you die. Now there are some things that are inherently out of your estate specifically the 529 plan if you started one for your kids or somebody else, that will be out of your estate as soon as you die and doesn’t get counted in terms of... When you say out of estate, that’s typically…what that means to an attorney or even who’s dealing with this is what counts towards estate planning – or not estate planning – estate taxes, we’re in an environment right now where it doesn’t get talked about that much because currently the threshold of your net worth above which you would have to pay estate taxes and estate taxes are typically about 40% is 11 million and some change for a single individual or basically 22 million/23 million for a couple. So if your net worth is more than that when you die then, yeah, you have to think about estate taxes and what’s in your estate and that’s everything – house, land, bank accounts, IRAs, life insurance – any kind of assets that you own or have any ownership in whatever your worth. More specifically, if you’re a business owner, this really comes into play because if you don’t have a lot of stuff, right, just got a house and some money, you know, I got 5 million bucks in savings and house and all those things, okay, that’s not that uncommon in this world, but then so what do you do for a living. Well, I own a company that’s probably if I had to value it is worth 50 million, but, you know. Well, that is part of your estate. That’s part of what you own. So that’s a big deal. So a lot of estate planning when it comes to business owners is how do I get this business out of my name before I die essentially or just be prepared to pay the estate taxes because whoever inherits it is going to have to pay. I mean we’ve got stories and you can see horror stories of…Michael Jackson’s estate to what other estates were terribly managed? Oh one interesting example who I think did it well – do you remember Aaron Spelling? TV producer – Melrose Place, Beverly Hills 90210 – that kind of stuff?

 

Trevor: Oh, nice.

 

Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]

 

Jon: Yeah. So he died recently and his estate was structured in such a way his daughter, Tori Spelling, was kind of a mess growing up and he had set aside a trust that was very specific as it was multimillions of dollars, but all she could get was a certain salary every year out of that. She couldn’t just pull a million bucks out and do something with it, but she could pull a million bucks out to donate it or start a business or do stuff like that. So he had very clear trust and estate planning documentation set up. Now, not a lot of us have to go to that extent but you could have any kind of jackass in your family that if you got a hundred thousand dollars that goes to him and you know they’re going to blow it. So back to the original question, what’s in an estate? Anything you have ownership in, frankly. There’s a couple of things that are specifically at this estate and then kind of more specifically, what is a probate asset and what’s out of probate. If something clearly has a beneficiary on it – life insurance, IRAs, 401ks, stuff like that – that is stays out of probate. But if you don’t have a will or trust and you have stuff that does not have a beneficiary on it – house, bank accounts, cars, that stuff – that’ll go into probate and a probate judge will decide who gets what and how much and that kind of thing plus you typically will pay 3 percent of what goes into probate as a probate tax and stuff. So people want to try to avoid that, but a lot of…you know, so when it comes to what’s taxable in a worst-case scenario, there’s probate tax but then in a scenario where you own a bunch of stuff – business things, whatever – totaling over 11 million, there’s estate tax. But what most people are going to deal with is things are going to get transferred fairly without tax unless it has never been taxed. So we have two scenarios there. So a qualified account of 401k and IRA – things like that basically or retirement investment account – those have usually never been taxed, right? We’ve talked about before. Money goes in pre-tax. Then you die – your son, daughter gets it.

 

What Is SECURE ACT? [0:11:16]

 

What changed in 2019/2020 was the SECURE Act which changed it so that as soon as you inherit something, you get 10 years to get it out of there and pay taxes on it. So 401ks, IRAs – things like that specifically. Life insurance death benefit is not income taxable when you get it. Now if it’s over 11 million then yes, there’s a portion that would estate-taxed.

 

Trevor: Interesting.

 

Jon: Yeah, the whole beauty of life insurance is the tax-free nature of it for the vast majority of people.

 

Trevor: Okay. I didn’t realize that.

 

Jon: Yup. So it’s kind of...and some people look at it, a lot of middle America will have a lot of money in 401(k)s and IRAs at the end of their life and that they say, here, son or daughter, you can have this after I die and also here’s a little life insurance policy that cover the taxes on this. That’s kind of a strategy sometimes.

 

Trevor: Interesting. So I thought that retirement accounts were not taxed actually.

 

Jon: They are, you know, when you pull them out and it used to be you’d get what’s called an inherited IRA or an inherited 401k which would then have a or rightly called a stretched IRA which means you could stretch it to your life expectancy and the IRS has this formulas and tables to say, here’s how long we think you’re going to live based on how old you are and we’re going to give you a formula so that if you make it to your estimated life expectancy, you will have completely liquidated that account and paid taxes on all of it.

 

Trevor: Got it.

 

Jon: So for example, typical 65-year-old has what’s… well, a typical 72-year-old, we’ll say, because that’s the age when you have to start taking money out of your IRA or your 401(k). That’s called a required minimum distribution but at that age, 25.6 is the typical multiple, I guess, or divisor, but you basically take if you have a hundred thousand dollars in your IRA, you divide it by 25.6 and that’s how much you have to take out this year and then each year that amount goes up a little bit. It comes to about 2.7 to 3% the first year and then bumps up a little bit every year after that. The point is you got to take that out and then pay taxes on it, that’s why. So IRA is taxable, 401k is right. ROTH IRAs – different story. That’s all tax-free.

 

Trevor:  Inherited, is that free too?

 

Jon: If you inherit a ROTH, you still got to take it out but you don’t have to pay taxes on it because the government can find…

 

Trevor: Okay, so it can’t keep growing tax-free.

 

Jon: Exactly.

 

Trevor: You can take it out immediately all at once?

 

Jon: No, it’s still with 10-year window, I believe.

 

Trevor: Okay, got it. So the new SECURE Act made everything a 10-year window?

 

Jon: Correct, for almost everybody.

 

Trevor: Okay.

 

Jon: There are what’s called eligible designated beneficiaries which are disabled beneficiaries, spouses, and any beneficiary that’s less than 10 years younger than you. In that case, they keep the spread provision that says, here, you have to take some out every year but you can stretch it out over your lifetime.

 

Trevor: Okay, that’s make sense. I’ll give you a specific context, just to add a little flavor here. I like to jump in the clubhouse. I think my handle is the same there – trevorsmithmd@trevorsmithmd.

 

Jon: Yup, I’ve been there some times.

 

Trevor: Occasionally, I’ll hop on stage and chat with big-pointer people about stuff and we were talking about ways to pass on your bitcoin and the bitcoiners are not afraid to get creative and there’s like a small contingent of bitcoin folks that are basically willing to break the law. We don’t like the tip, okay, so that’s a bad luck for a great asset. It’s like avoiding taxes is not part of the ethos of bitcoins. Must be a good store value. You could buy more later with it than you can buy today. I mean that’s a simple kind of…that’s like where good money would be regardless if it’s bitcoin or not. So we we’re talking about how do you give it to your kids, right, especially once it’s going to be worth more later down the line, let’s say, 30 years from now, what’s it’s going to be worth. So one of the things we talked about was gift taxes so you can give up to 15,000 dollars per year to anybody in your immediate family.

 

Jon: Correct.

 

Bitcoin As An Early Inheritance [0:16:17]

 

Trevor: And we’re just kind of saying like 15,000 dollars of bitcoin if it keeps going up in an exponential or parabolic manner, it’s almost like you can give substantial pieces of wealth to your children just by giving them whatever amount 15,000 is at the time of the gift. So like earlier this year, bitcoin is like 30,000 so you could give half of bitcoin to your kids and nobody would have to pay any taxes on it.

 

Jon: Yup.

 

Trevor: It’s kind of like a workaround, almost like an early inheritance and the context was, okay, what would make that make sense. But you have to have a great relationship with your kids, you with your parents or your parents with you to do that and then you also want to…like the idea there is that’s inherited so like don’t spend it. But if you have the context where your kids are responsible they’re not going to spend it, bitcoin is unique too because you can gift it to somebody and then somebody else can custody it as well. So you can almost do like trust level gifts where it’s controlled, pay no taxes, and then actually not really physically handed off to them and then withdraw until later. That was a little more advanced than I intended it to be, but just in general, I think of it in U.S. dollar terms, just giving cash. You can give 15,000 a year and they don’t pay taxes on it and you can kind of just… If you have 30 million dollars, that’s not going to move the needle for you, right, to limit your taxes that you pay after death. But if you got like 5 million and you think you’re going to double again in 10 years and you might be flirting with that level of 10 million/11 million and then they’re going to gouge 40 percent, you know, 4 million roughly out of 10, then like certainly give some early tax-free with gift tax. We’re just talking about that. I’d be curious what your thoughts are, and do people do that often or do they just kind of not mess with it and just do like trusts? How do you transfer wealth to your kids?

 

Jon: Is it kind of capitalize that to where if you buy and sell, it’s a capital gains tax or income tax?

 

Trevor: Absolutely. It’s treated just like real estate long-term and short term gains. The other thing is you can spend the bitcoin? That’s the same thing as a sale so like anytime you transfer it to somebody else, it’s a taxable event, it’s a capital gains event. It just depends on how long you’ve held that whether it’s long term or short term and then you get a higher or lower tax bracket based on that. Those are googleable on the IRS website and currently there are like if it’s short term, less than a year, you pay your income tax rate generally if you’re making good money like a doctor, and then if it’s long-term after a year, then you’re paying either 15 or 20 percent. The more you make then you’re on the 20 percent category. Usually long-term gains 20 percent.

 

There’s Something Called A Step-up In Basis [0:19:18]

 

Jon: Correct. So it depends on the type of assets. So most capital assets like that – stocks, real estate, bitcoin. As of today, October 20, 2021, there’s something called a step-up in basis, which is one of the most advisable things is to not gift stuff before you die because when you gift something, your basis becomes their basis which means, okay, great, you didn’t gift it to them to sell, but if they do, they’re going to pay taxes on the growth that you had. So you bought it, you know, you bought bitcoin at 40,000 and they sell it at 60, they’ve got 20,000 in gains, that’s taxable gains. That’s a recognized gain that they have to pay taxes on. But if you wait till you die and bitcoins at 60,000, their new basis is 60,000 and if they sell it that day when it’s 60,000 then no taxes for them. Same thing with the house, same thing with stocks in a brokerage account.

 

Trevor: That is critical information. That’s very helpful because that shifts... You could kind of do a bit of both. I mean I’m one of those guys I think bitcoin is going to…each one is going to be worth a million dollars plus; somewhere between a million and 5 million each at some point in the future. It could be, you know, in the range of 12 years from now is kind of what I picture just based on the supply and demand curve but it could be well down the road. But hitting some office good but like having a step-up in basis, that’s massive. That is incredibly massive if you’re going to sell it at some point.

 

Jon: Well, and that’s why… that’s been a very longstanding law and the Biden administration has discussed eliminating step-up in basis, so that’s a big deal.

 

Trevor: Wow. Huge deal.

 

Jon: And that’s a thing that wouldn’t just affect high net worth people. That affects anybody. I mean if you inherit your parent’s house and, you know, everybody does that, then there’s a step-up in basis issue there. So that’s why it’s typically better to inherit or bequeath something rather than gift it because if you give something before you die, they take on your basis which means more taxes for them. I have had clients ask me all the time about, hey, should I just put my house in my kid’s name? Would that be easier when I die? Well, if you do that, you effectively gifted it to them and now they have your basis. No step-up in basis and you’re going to hold the government more than you should so step-up in basis becomes a huge question.

 

Trevor: Okay, so just to like hammer it home, make sure I understand, so if one of my parents passed away and they had shares of Tesla and let’s say they had one share there and it was 200 dollars and they bought it 10 years ago and then now it’s worth a thousand. If they gifted it to me before they passed away, I would have the basis of 200 dollars?

 

Jon: Exactly.

 

Trevor: Okay.

 

Jon: Now that’s outside of an IRA or qualified plan. That’s like a broker’s, just Robinhood or whatever.

 

Trevor: Taxable account.

 

Jon: Taxable account.

 

Trevor: Yeah, well, they’re technically all the taxable accounts but you might just call it like a regular, non-retirement account.

 

Jon: Yeah, kind of taxes-you-go account you could say where you have to taxes every year.

 

Trevor: Taxes you go, that’s actually a very helpful common sense term. Okay, cool. That’s helpful. Were the other…? Go ahead.

 

Gift Tax – What Is This? [0:23:17]

 

Jon: Well, the gift tax…your gift tax point is another one. Gift tax is not a thing until 11 million dollars either so you got an 11 million dollars of stock you can gift. The reason the 15,000 is there, if you keep it under 15,000 a year, you don’t have to report it. But if you gift something that’s worth more than 15,000 dollars, you have to fill out a gift tax return schedule on your tax returns that year and the IRS keeps track and if you get to the point where you gift more than 11 million dollars’ worth of stuff then you got to pay taxes on that.

 

Trevor: Oh, so you can give more. Do you have to pay taxes on it though if you give more?

 

Jon: If you give more than what? 15?

 

Trevor: Yeah. I thought you had to pay taxes on it.

 

Jon: Nope. I thought so too, but you just have to report it.

 

Trevor: Just have to report it and that’s maximum of 11 million.

 

Jon: And it starts counting towards what they call a gift tax exclusion or exemption.

 

Trevor: Interesting.

 

Jon: Yeah, pretty sure. Disclosure – I’m not a tax professional. I’m just deep in the weeds of the CIP right now and I hope that’s true because that’s how I may answer on the CIP exam next month. But that’s what’s had been. That’s what I understood in the tax planning course that I’ve been going through. You know, I don’t see issues like that that often that’s why. So when I try to keep clients under that 15,000 and it comes up like I had a woman that wanted to gift 15,000 into her granddaughter’s 529 plan that’s a gift. She wanted to just…so she was 72/73. She had to take a required minimum distribution from her IRA and she said instead of taking this, can I put it in my granddaughter’s 529 plan? Yeah, you can. You still have to count as income so it’s not like you just bypassed you, but it still comes to you and you can put it on a 529 plan but her RMD was like 18,000 dollars or something which was going to be over which meant we were going to have file a gift tax return. So what we did was we had, the investment company, withhold the taxes on that like 20 percent for taxes. So it came out to like 14,000 or something was the actual check that she got, which is great, because now it’s in the 15,000 and she can kind of standard rate with that. So that’s how that works. There’s a gift tax exemption amount as well as an estate tax exemption amount and they’re both kind of around that 11 million. In fact, we can kind of confirm this with the ultimate tax planner Google.

 

Trevor: Yeah, 11,580,000.

 

Jon: There you go.

 

Trevor: It’s the limit.

 

Jon: They’re similar because people, you know, would try to gift stuff to get it out of their estate. Just like well, here’s how we fix that.

 

Trevor: Oh, interesting. No incentive.

 

Jon: Yup.

 

Trevor: Yeah, that’s wild.

 

How Do I Dictate What Happens After I Die? [0:27:07]

 

Jon: So, in general, for most people with estate planning, the question becomes then, how do I dictate what happens after I die with my stuff? A will is the most basic way to do that, that just gives directions to an executor, but if you’ve got young dependents or you got some other specific plans or things like that, you can establish a trust and when you die, a trust creates a separate entity with its own social security number where all of your assets if they’re properly named and titled and beneficiary and everything, go into that trust, so now this trust pulled that this trust has to file on tax return. It has a trustee whom you’ve given specific instructions on what to do with this and when and how, and you know, it would bypass all the probate stuff potentially because there’s some things that just have to go through probate unless you set up a trust. So that is something you want to…I recommend typically just getting a trust done. It can be 2 to 3 to 4,000 dollars but when people are at that point in life where you got a spouse or dependents or enough stuff that they want to, you know, make sure some very specific directives are done when they die then that’s where a trust makes sense and I recommend using an estate planning attorney rather than just a random attorney, you know, just helps to make sure they are specialists and a lot of experience in what this is.

 

Trevor: How much money do you have to have to make it worth having a trust?

 

Jon: You got to think of life insurance face amount in there as well, a death benefit. So let’s take, for example, if you’re a resident and I’m talking to you, most of my residents especially if they’re married, even if they don’t have kids like they’re going to have a million bucks or 2 million bucks in life insurance and assets and everything altogether. So at that point, yeah. Gosh, what’s the dollar amount?

 

Trevor: Because there’s been a couple grand for it, that’s the context I’m thinking in, you know, like if I have… yeah, I don’t know.

 

Jon: I would say it’s not so much dollar amount but complexity of your estate and your assets and your whole make up of what you have. You know if it’s just house and car or you’re renting, you just got a car, then yeah. But as you start to accumulate assets, you know, that’s a different story. So, I don’t…I don’t know. That’s a tough question. I just say, probably, I don’t know. I guess I can’t answer that.

 

Who Should Have A Trust? [0:30:15]

 

Trevor: Let me ask you differently. How do you determine who of your clients should have a trust?

 

Jon: For sure, if you got minor children.

 

Trevor: And what’s the reason behind that? If I don’t get the money like immediately or something just knocks on them.

 

Jon: Yeah. The other option is if you don’t then the court’s going to establish a guardian or custodian that’s going to have more freedom and flexibility around whatever assets that you set or that you have left over.

 

Trevor: Got it.

 

Jon: It’s just safer for the trustee. It’s safer for the kids, if you just put it in a trust, that’s very kind of regimented and controlled, and has specific language. Because then with a trust, you can say, okay, I want my kids to get this much at 18, this much at 25, this much at 30, like you can dictate directions like that.

 

Trevor: Got it. You can probably even do like percentages or absolute amounts, things like that like if it grow super fast, then you’re like, oh, I didn’t know this account was going to be 30 million dollars. I mean that’s a great problem to have, but you probably don’t want an 18-year-old getting a third of that like upfront or something.

 

Jon: I mean even a hundred grand to an 18-year-old.

 

Trevor: Yeah, so true.

 

Jon: Right?

 

Trevor: Just a massive amount of money. I mean, can you imagine? It won’t last very long.

 

Jon: Nah, I know and it’s been so many times.

 

Trevor: I bet. It’s kind of the default, right?

 

Jon: Yeah. I mean it is the default if you don’t set up any other rules.

 

Trevor: Yeah, that’s important to remember – the defaults. The defaults on how money is treated is pretty horrendous.

 

Jon: You can’t just kind of let it go and be like, well, I’m sure the government’s set up different defaults that’ll make sure this gets handled a different way.

 

Trevor: They haven’t.

 

Jon: The government will say that’s on you buddy like we just want to get our taxes.

 

Trevor: Yeah, it is important to remember the IRS isn’t there to…There is no benefit really to individual. They just collect taxes.

 

Jon: Their job is to generate revenue for the Unites States government.

 

Trevor: For the government. Yeah, that’s the way to say it. Yeah, that’s absolutely right. That is their job.

 

Jon: For-profit arm of the Federal Government.

 

Trevor: Huh! I’ve never thought of it like that either. Those are both really good.

 

Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]

 

Jon: Well, that was like, yeah. When I’ve had dealings with regulatory bodies like the FINRA, the SEC or something like that like take FINRA for example. FINRA is the Financial Industry Regulatory Authority. Every advisor or at least broker is regulated by them to where they can levy fines and penalties on you for different stuffs and sometimes dumb stuff, and I don’t mind saying that, but I was talking to an attorney about it one time and I was like, you know, what’s the likelihood… You know how do they typically look at this attitude-wise? And he said, well, you got to look at it this way. FINRA is what’s called a… it’s actually a private organization, so to speak. It’s a self-regulatory organization that doesn’t necessarily get funded by tax reg. It gets funded by fines and penalties so you can imagine that there are little one…you know they’re not going to be just like, ah, sure. We’ll let that go without a fine or penalty, you know. It’s like that’s how they make money so is that a conflict of interest? Probably, like yeah. So if it’s an easy opportunity for them to collect the penalty or fine, then probably will.

 

Trevor: You think the SEC is similar. Like the SEC – Securities and Exchange Commission – the positive optimistic view is that they’re trying to protect investors from malinvestment.

 

Jon: Correct.

 

Trevor: A common example I hear is like you can’t…Burger King can’t claim that the Whopper cures cancer. So because of that, people can trust a lot of marketing in the United States. There’s like make a false sense of security that like if somebody says something is true, you can trust that it’s true and that’s not always the case but they’re one of the ones that enforce that type of thing and then they also determine like you can’t sell snake oil, and I’m saying that in the sense of like people selling shirts of a company like you can’t fleece people. You can’t say, oh, buy into my company. We’re going to do this and then just disappear. They determine that you selling parts of a company is a security and so they’re trying to protect American investors from being ripped off. So there’s some good… I’d say the SEC is not all bad but there are certainly because there’s rules and there’s a lot of money to be made, it gets gamified a bit so there ends up being certain ways to play the system and have winners and losers in terms of companies going public and being tradeable and all that kind of stuff.

 

Jon: Oh yeah, the whole conversation on us back is where allowed companies to go public without really going to the whole IPO filing process and then filing their S and filing just all that kind of stuff that’s a way to kind of get around that sort off. They kind of would go public in a bundle sort of, you know, when they get around some of those – what do they call these – the name of the disclosures that they would have to have file when they go public.

 

Trevor: That’s right, yeah. They don’t really have much.

 

Jon: Yeah.

 

Trevor: It’s cheaper, it’s faster is the main thing, I think.

 

Jon: Faster, right. All right, well I think we are probably out of time, but yeah. That had been a really beneficial conversation. It’s amazing.

 

It Pays To Invest On Life Insurance [0:36:33]

 

Trevor: Yeah. It seems as if there’s a lot to think about and just the basic big picture stuff that you shared on retirement, accounts, and life insurance not being taxable, I mean. Again, you know, I say this all the time I’m like not a normal person in the sense that I think insurance is amazing and really interesting. It’s such a good product like for the things that we buy, like we buy a car and it’s so worthless so quickly or you buy a computer and it’s out of date in 2 years like you can spend money on insurance year after year and man, nothing’s going to pay you out like for what you’re paying, you get a lot out of it and yeah, the industry, the people at the top of those companies, they make a crap ton of money. They could charge less, sure, but like man…I mean you get a lot out of a contract with an insurance, the really reliable long-term insurance company, and the fact that it’s not taxable for life insurance is just a pretty remarkable product. We’re fortunate to be a country where you know it’d be enforceable. Your family would get paid. It’s sweet. That’s a level of assurance you can have that a very large portion of the world does not get to know that your family will have the money that they need to survive.

 

Jon: As long as you made the right choices along the way, right.

 

Trevor: And it’s not even that expensive. Some already get approved. It’s like… that’s a sweet product.

 

Jon: Yeah. Now I mean it’s just a general advice that I’m giving like life insurance for sure is a no-brainer. Term insurance – a 20-year term policy – for a 30-year-old male, let’s say, is probably 60/50 bucks a month for 2 million dollars of 20-year term like it’s so cheap and these days, there’s a couple of companies out there that will get it. Sometimes you can get approved in 10 minutes if you’re healthy and boom, you got a policy. Like that’s all over the world now so there’s no excuse. If you die without life insurance, it’s like that’s…It’s so easy and cheap to make sure that your family is taken care of. Or a charity or a ministry or mission or any of these kind of things like I grew up always believing in life insurance because my dad was in a life insurance business and just always felt like, boy, that’s a cheap way to make sure that, you know, things you care about, people you care about are set. And I still feel that way. So I wished it was a mandatory thing. There will be a lot less people dependent on the government, I think, on just different programs because what if every parent had life insurance for their kids and, you know. I’ve just heard so many stories where, yeah, my Dad died when I was young and my mom had to work 3 jobs and he didn’t have life insurance and I was raising my brothers and sisters and you know it’s…oh yeah, all the time.

 

Trevor: Yeah.

 

Jon: All right, well, thanks for joining me, Trevor. Love the conversation as always.

 

Trevor: Thank you.

 

Jon: For those of you out there listening, hope this helps. Be sure to get the financialmd.com for more info. Join us for our weekly didactic minute videos. Those can be found on YouTube and Facebook and then we’ve got some upright versions on TikTok and Instagram to get just here, your weekly 2 minutes of good financial info. Join the Financial MD community on Facebook where the conversation is happening. We’re sharing articles and resources that will be helpful to you as physicians and then subscribe to this podcast and please share this stuff if you think the information’s good. Get it out there. All right, so have a great week. We’ll see you next time. Trevor, stay healthy and get back in shape.

 

Trevor: Thanks Jon. See you.

 

Jon: All right, see you later.

 

Trevor: Bye.

 

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

 

The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.

 

 

Resources and Links:

• What is Probate? –

https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/the_probate_process/

• What is the SECURE ACT? – https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
• What is an inherited IRA? – https://www.investopedia.com/terms/i/inherited_ira.asp
• What is an inherited 401(k)? – https://smartasset.com/retirement/inherited-401k
• Internal Revenue Service (IRS) website – https://www.irs.gov/
• What is Step-up in Basis? – https://www.thebalance.com/how-the-stepped-up-basis-loophole-works-357485
• FINRA website – https://www.finra.org/about
• SEC website – https://www.sec.gov/
• Financial MD Website – https://www.financialmd.co/
• Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
• Financial MD Facebook community – https://www.facebook.com/FinancialMD/
• Financial MD TikTok – https://www.tiktok.com/@financialmd
• Financial MD Instagram – https://www.instagram.com/financial.md/
• Financial MD Twitter – https://twitter.com/financialmd2
• Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
• Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
• Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586