You've got More Than Money.

You've got Gene Dickison, your host, your personal financial adviser.

I'm happy to be with you For the next half an hour, I am at your service, and I offer you all of my 780 years, goodness gracious, of experience, so that we can, in some way, shape or form, hopefully move your financial picture a little bit more clear, a little bit more clarity, advance the ball down...

It is football season, after all, Super Bowl coming up, and all that kind of good stuff.

So hopefully we can be of service to you.

If you are a loyal viewer of More Than Money, first of all, we thank you.

Second of all, you know exactly how this works.

Our financial correspondent, Miss Megan, will give us your questions.

I'll answer them to the very best of my ability.

It's your questions, my answers, it makes a pretty darn good pairing for you to learn as much as you possibly can about the kinds of things that are challenging for your friends, your family, your neighbors, and perhaps, even you, yourself.

If you've got a question that you would like us to explore for you specifically, it might be about investments or retirement income taxes, 401K plans, estate planning, wills, and trust powers of attorney, it could be about business, how to start a business, run a business, liquidate a business.

It could be any or all of those things all mixed together.

Send us your emails, Gene@AskMTM.com.

Gene@AskMTM.com.

We promise you every single email we receive is answered specifically and directly back to you, giving you as much information as we can.

And, perhaps we can't answer all of them on air, of course, but perhaps on a future show, you'll get to hear your own question being explored and answered for the benefit of so many people out there that are watching, who might be able to benefit from that exact question and those exact answers.

So before we get started and we go to Megan, I just want to say thanks.

I don't do that often enough.

I am so grateful for our audience.

I'm so grateful for the amazing guests that we have had come through our studio, and we've been graced, we've been honored to interview some of the very best, and we promise you that as the seasons unfold, more and more of those same wonderful human beings, those great American stories that you so appreciate.

We're going to bring more of those back to you, as well.

But tonight, it's all about you.

It's all about answering your questions.

So let's get right to it.

Megan, what's our first question for the evening?

- Hi, Gene, always happy to be here, excited to get some questions answered.

This first one says... - Well, thank you very much for the question.

And yes, indeed, this has been a challenge.

We've been back and forth with this gentleman a number of times, but the answers are very, very simple, more simple than some might expect.

Yes, indeed, $30,000 in 2021 was the maximum gift allowance for a husband and wife to give to any individual.

Could be a family member, in this case, a daughter, or any other individual.

So for many folks who say, "Hey, I have a large estate, "I don't want Uncle Sam to get it," you can start adding up the number of people that you care about.

Multiply that times 30,000.

If you are married, start giving away hundreds of thousands, perhaps millions of dollars, and never have to file a single piece of paper because you stayed under the, watch this word, very important, annual limit.

That's what this gentleman is referencing.

They gave $30,000 to their daughter.

They were $17,000 over the annual limit.

In addition to the annual limit, the IRS code allows for what's known as a lifetime exemption, a lifetime waiver of gift tax, so to speak.

And in this particular time and place, that lifetime exemption for a married couple is, are you sitting down?

$23 million.

So in this gentleman's situation, the first $30,000 of their gifts fall under the annual exclusion.

The next 17,000 will be reported to the IRS.

It will be reported as a gift in excess of the annual exclusion, but it will then be offset by some, a small fraction of the $23 million that he and his wife can give away during their lifetime.

So, one extra piece of paper with his tax return will report the $17,000 gift.

It will also report that that is well below the 23 million lifetime exemption.

And so, as a result, there will be no gift tax.

This gentleman also sadly, sadly reading the IRS code.

Please don't do that, and certainly never work with heavy equipment while you're reading the IRS code.

Puts you right out, really dreadful.

Insomnia?

Yeah, the IRS code is the way to go.

Bottom line is, he read it and did not come to the proper conclusion.

There are 30,000-plus pages of the IRS tax code.

It's easy to miss all manner of accuracies, all manner of realities.

And in this case, he was under the impression his daughter might have to pay tax.

She won't.

The recipient of a gift never pays tax, never pays tax.

A gift tax, that's what we're discussing here, is imposed on the giver, the donor, not the person receiving the gift.

So his daughter's completely off the hook.

Her modest financial resources won't be negatively impacted.

Mom and dad are completely off the hook.

And, even if they were to continue to make substantial gifts for years to come, they certainly most likely will not approach the $23 million limit.

So hopefully this gentleman finds some relief in that, some comfort in that and again, file one extra piece of paper, the gift tax return, with your tax return when you file that, hopefully you have a professional tax preparer doing that for you, and you will be safe and sound from the interest of the IRS.

Megan, that was a good one.

How about number two?

- Our next question comes from a loyal viewer of the show.

They say... - Well, isn't that kind?

Such very, very kind words, we thank you very much, and we thank you for your viewership.

Fantastic.

You've got a couple different challenges here.

I think you're going to be pleased with the answer with at least most of your question.

Let's jump right into the Social Security question.

You were married longer than ten years.

That's one of the requirements.

It does not sound, from your email, as if you're remarried, but once you turn 60, that issue kind of drops off at any rate.

So a survivor benefit, yes, is available at age 60, and that would be based on, excuse me, your ex-husband's earnings record, salary record, Social Security record, and you would be able to get a benefit based on his record, and not affect your own.

So you're concerned about, will you be able to start with what will likely be a fairly modest survivor benefit at age 60, and then later allow your Social Security benefit to continue to cook, and later transfer that, or exchange that, or morph over into your own benefit?

And the answer is absolutely, yes.

Absolutely, yes.

As a matter of fact, with careful planning, you might be able to extend taking your personal Social Security benefit, rather than at 67-and-a-half, taking it at 70.

If you go from 67-and-a-half to 70, your benefit will be the maximum that you can collect from Social Security, and substantially more.

Roughly 20% more than you would have if you had taken it at 67-and-a-half.

So assume 67-and-a-half, your benefit is 3,000 a month.

If you wait till 70, it's going to be approximately 20% more, or about 3,600 another $6-7,200 a year.

That's a lot of money.

So if you can, with all this preplanning, if you can use those Social Security survivor benefits to your best benefit, maybe salt them away, salt them away so that when you turn 67-and-a-half, you can then consume that, give yourself a little extra time and gain the maximum Social Security benefit.

That sounds like a pretty good plan.

I want to make a comment about one small reference in your question about executing the estate and how it's challenging.

There are lots of folks out there who think it is an honor to be named the executor, or executrix of an estate.

On some level, it absolutely is.

It recognizes that the person who has passed away thought of you as an honorable person, a responsible person, someone who's capable and could carry out this service to them.

But the actual process of probating an estate and getting it from point A to point B complete and final, it is not fun.

Very few of you will ever do more than one.

So for almost everyone, it's always a new experience, a challenging experience, and one that, for the most part, isn't much...there's very little pleasure in it.

And I strongly urge you, even in this case, it wasn't the question asked, but it should have been.

Make sure you're working with a good team, a good estate planning attorney to help you settle the estate.

A good tax professional to make sure that all the documentation from a final income tax return and the estate tax returns are filed properly.

Make sure you don't try to go it alone.

It's a challenging effort, no matter what.

Make it as easy on yourself as you possibly, possibly can.

Megan, that was a really good one.

Lots of interesting detail there.

What's next up for us?

- I just read the questions, but they are very good.

This one says... - Interesting, interesting, interesting.

I'm most struck by two things.

The fact that she references her tax professional as the person who fills out the forms.

I'm not clear what that might suggest.

It might suggest that she has her tax return prepared by a volunteer, somebody who literally fills in the forms.

It may mean that over the years, she has not received much in the way of tax reduction guidance from her tax professional and, as a result, really does... Is kind of being passive aggressive in stating that they're not really very valuable.

They just fill out the forms.

I'm not 100% sure about that.

I'm going to circle back to that here in a moment, that was kind of a head-scratcher.

The second that jumped right out at me was the reference that it was her understanding that only a spouse can inherit an IRA without negative tax consequence.

That's not true.

Even a spouse inheriting an IRA must pay income tax on that IRA as they withdraw it.

There is no, in essence, avoidance of the tax to be paid on an IRA.

Certainly, there's no evasion.

That's not good.

You don't want to do that.

IRS, they will find... That's not a good thing at all.

Avoidance in the sense of paying the tax?

No, you can't avoid paying the tax.

How much tax is paid is a very different question.

So let's paint this scenario, under the current rules, this young lady passes, her granddaughter is 14, will receive this IRA into an inherited IRA under a custodian, likely one of her parents.

So where does that leave this 14-year-old?

Well, interestingly enough, depending on the amount of money in the IRA, she says it's substantial.

Let's say it's $200,000, that's a lot of money.

Under the current laws, this young lady needs to take out some piece of that IRA so that it is completely empty at the end of ten years.

Now, if this were to happen currently, that might not be the worst idea because in all likelihood, a 14-year-old is in a very low tax bracket, perhaps even a 0% tax bracket.

So over the next ten years, where she's in high school, perhaps college, perhaps grad school, she might be taking this money out at an incredibly low tax rate, so that she may, in essence not avoid paying the tax in the sense that she's not claiming the income, but avoid paying the tax in the sense that she has a very low tax bracket, as opposed to perhaps her parents, who might be in the 35-40% bracket.

She might be in the 0, 5, 7% bracket, which would be lovely.

One alternative, something for this young lady to think about, and this kind of circles me back to the person who fills in her tax forms.

If they're not much beyond a form completer, then they likely won't be able to help.

But if they are indeed a tax professional, they can do what's known as a pro forma for the grandmother.

Why would we want to do that?

Because the grandmother, if she's above age 72, has to take some money out anyway, RMDs, required minimum distributions, and depending on her tax bracket, she may be in a low tax bracket.

She may be in the 10-15% bracket which, in all likelihood, in the future will be considered very, very low.

She might want to start taking enough out that she pays a very low tax, 10-12%, 15%, and now that money is out of the IRA.

Now that money can go to her granddaughter directly, either now or at her passing, and there's no restrictions, there's no urgency, there's no requirement that the granddaughter take it out at any given point in time.

So this is actually a fascinating question because it involves taxes, of course, estate planning, of course, understanding how investments might work in both an IRA and outside an IRA, there's a lot of moving parts here.

So I would strongly encourage this young lady to sit with a financial adviser that has the capacity to give her counsel both on the complete picture, estate, investments, income taxes.

And when I say has the capacity, not all advisers can do that.

Many financial advisers are employed by companies that specifically prohibit them from discussing income taxes in any way, shape or form.

Now, we're very fortunate in our More Than Money world headquarters, we have a complete income tax in the state tax division.

So not only can we discuss it, but we can bring in tax professionals immediately.

We can bring in estate planning, trusted, experienced estate planning attorneys immediately.

So all of these pieces can be addressed in one spot.

Not all financial advisors are that fortunate, so you don't have one currently.

Make sure that as you're interviewing financial advisers, prospective advisers, that you are confirming that either they can meet all of your needs, or perhaps not.

Excellent question.

Megan, what's next up?

- Our next question says... - Well, yes, this is a pretty interesting investment platform that we have discussed in the past, both on our PBS show here an dour radio show More Than Money.

It is an opportunity to invest in the S&P 500 Index.

Index.

You don't invest in specific stocks.

You invest in the broad market.

The largest 500 companies in the country.

A perfectly reasonable investment to make.

The platform that this gentleman is questioning is one that has certain parameters to it.

They employ the use of options.

and options can be employed to provide a couple different effects, one, to protect if the investments should go down, and second, to give some opportunity to gain a profit, should the investments go up.

So measuring the investment by the S&P 500 announced basically every single day on the financial news, if the investment in the S&P 500 goes down dramatically, yes, the losses are limited to 5%.

In 2008, the last major kind of meltdown in the market, the S&P 500 dropped about 34%.

So if you had been invested in this platform and in 2008, it did not exist then, it's been around 4-5 years, if you had been invested in that platform, you would not have lost 34%.

You would have lost 5%.

And felt wonderful.

Losing is never fun, but if everyone else is losing 34, or 40, or 50 and you're down five?

Pretty much makes you a genius.

The upside is limited.

It is what's referred to as capped.

Meaning that if the stock market goes up, the S&P 500 goes up 5%, you'll get 5%, If it goes up seven, you'll get seven.

If it goes up nine, you'll get nine.

But that's your limit.

Above 9%, you won't gain anything in the market.

In 20 21, the S&P was up about 20%.

You would have gotten nine.

Not a bad deal, not a bad return.

The question is, does it fit you?

Now one of the reasons we don't talk about specific investments on air is that, number one, we are not in the business of endorsing a particular company or a particular investment.

Not our job, not what we wish to do.

We maintain our fierce independence.

We will only use what's best at that moment, and moments change.

You might be watching this broadcast that was originally fresh out of the box six months from now, or a year from now, and that recommendation might have changed rather dramatically.

So we don't discuss individual stocks, individual ETFs, individual mutual funds for exactly that reason.

It's very, very important that things be appropriate, and specifically appropriate to you.

So we recommend, of course, that you do your own homework.

If you need a financial adviser to assist, that's easily done.

Of course, there's lots of great financial advisers out there, but make sure that you understand exactly what you're investing in before you part with even a dollar.

It might work out very well for you, or not.

What else is back there that we can take a look at?

- This question comes from a listener of the radio show.

They said they heard you talking about DAFs.

They say they want to know... - So DAFs, Daughters of the American... No, it's not.

I was teasing.

DAF, donor advised fund.

Donor advised fund.

These have been around quite a long time, and I am continuously surprised at how very little the general public knows about donor advised funds.

Donor advised funds are a charitable organization.

They are typically sponsored by a major financial institution.

In the More Than Money world, we typically use Charles Schwab as the custodian of our donor advised funds, but Fidelity has them available, I believe Vanguard has them available, so you will be working with a major financial institution, one that will be responsible for the custody of the investments, the management of the investments, and the management of the charitable contributions you will make from your donor advised fund.

Now, let's talk about mechanics.

If you have a DAF, a donor advised fund, you can typically put all of your charitable contributions for a year or more in at one time.

So, let's say that you give to your church, over the course of a year, $12,000.

You can put that in on December 31 of the previous year, get a tax deduction for the entire 12,000, and then parcel it out over the course of the following year.

That's one easy way to use the donor advised fund.

For some folks, they like the recordkeeping aspect of it.

They can put 12,000 in.

They can send some of that to their church, some to Folds of Honor, some to Laughing At My Nightmare.

There are lots of great quality charities that you might choose and the donor advised fund does that for them and keeps good track record, very track of the records of those contributions, so you don't have to worry.

Once the fund contribution has been received by the donor advised fund, it is tax deductible to you.

Now is it part of the standard deduction?

In all likelihood, yes.

In all likelihood, it will not give you much additional tax deduction unless, of course, you're filing Schedule A itemized deductions.

So from the standpoint of reducing your taxes in the current tax year, there is a small $3-600 above and beyond standard deduction that you can claim for making charitable deductions, and a donor advised fund would fall into that category.

But let's be honest, in the grand scheme of things, very small item.

For those who have larger, maybe longer-term objectives in terms of their generosity, their philanthropy, the donor advised fund can be fantastic.

If you are in your prime earning years and you want to contribute 20-40,000 a year during the time that you're making your best money, and then in your retirement, parcel that out, be able to give some of the profits from those investments over many, many years.

That would work well, indeed.

Sound interesting?

Make sure that you sent us an email, Gene@AskMTM.com, and we'll give you as much more information as we possibly can.

Megan, thank you so much.

We've covered a lot of ground this evening.

I hope that you've learned a great deal.

These are the questions that your friends and your family, your community members are asking.

Hopefully, maybe they answered some of your questions as well.

In the future, hopefully you'll rejoin us and we'll answer more of your questions right here.

It is our pleasure to do exactly that.

We'll be happy to see you very next time right here on More Than Money.