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August 26, 2023 - Money Matters Podcast

Scott and Pat tackle questions about college costs, financial gifts, and estate planning.

On this week’s Money Matters, Scott and Pat start the show by helping a father decide whether he should self-fund his daughter’s college costs. Then, they help a caller figure out how to value the amount of a financial gift he won’t give for another five years. Plus, Scott and Pat make a house call to a California woman to see whether she took their advice. Finally, they hear from a caller who had an estate planning conundrum.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

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Man: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters." I'm Scott Hanson.

Pat: I'm Pat McClain. Thanks for joining us.

Scott: Yep. Both myself and my co-host here, we're both financial advisors. We like to help people with their finances, make good choices with their money, save well, invest properly, manage their taxes, plan for their assets while they're both living and...

Pat: At the end.

Scott: the end, which no one gets out here alive, last I looked.

Pat: Not so far.

Scott: Yeah. Anyway, I love taking your calls. To join us, you can join us by sending us an email at We'll find a time to get you on, or you can call 833-99-WORTH to get you on the number, 833-99-WORTH.

Pat: Yes.

Scott: And we're gonna start right off of calls here in California talking with Lee. Lee, you're with Allworth's "Money Matters."

Lee: Hi, Pat. How you doing?

Pat: Good. Hi, Lee.

Lee: Hi, Scott.

Scott: Hi, Lee. I felt excluded there for a minute. Thank you.

Lee: Sorry. Hi. A long-time listener, first-time caller.

Pat: Great. Thanks for joining us.

Lee: I appreciate it. Thank you. We're looking at next year, our daughter going to college, and we're just...I'm trying to prepare for that. And we're looking at $20,000, $25,000 college cost to go to UC system, hopefully, locally. And so, I have a couple of funds that will help pay for that, and I'm not sure what priority I should I pay for this?

Scott: Okay. Do you have other children as well?

Lee: Just a daughter going to college. My son, he's probably one who'd be going to college.

Pat: How old are you?

Lee: I'm 54.

Pat: And how old is your spouse?

Lee: She is 48.

Pat: All right.

Lee: She just turned 48.

Pat: And since you've listened to this show, you said for many years, you probably know the questions we're going to ask. So, rather than go through that, why don't you just share the information because the questions are almost always the same that we ask?

Lee: Yeah. So, I have about $45,000 of 529 dedicated for her college. I have $187,000 for my 457 that I could access as well, an additional $60,000 outside the 457 as well.

Pat: How's that money invested?

Lee: They're invested in the stock market 100%.

Pat: Okay.

Lee: Both the 529, I believe, that's on S&P, and then the other one is VTS Stock Total Market Index from Vanguard.

Pat: Okay. All right. And what other assets?

Lee: Assets, we have about 800 in retirement accounts. And that's a combination of 403(b)s, 457, and also Roth IRA.

Pat: Okay.

Scott: How much is in the Roth?

Lee: Roth, I have about $150,000.

Scott: All right. And what's your family income?

Lee: We take home about $280,000. So, I'm projecting next year I'll be $285,000, this year about $282,000 with raises and everything.

Pat: And you're putting the maximum into your 401(k)s and 403(b)s and 457s?

Lee: Yeah. My wife is putting on her maximum. I'm mainly just focusing on the Roth IRA for myself. And then the rest, we're saving it for vacation and, you know, her college and...

Scott: So, once she's in college, you'll no longer be saving for her college. Can you fund some of this out of current cash flow?

Lee: I think so. So, I think we can because we're looking at, you know, a couple of hundred thousand dollars if she does medical school.

Pat: Okay. Let's start over here for a second. Let's start over here for a second.

Scott: No wonder you're calling. Because, first, I'm thinking this doesn't look like an insurmountable problem. Now, you mentioned the medical school.

Pat: Yeah. Did you put any money in your other child's 529 plan?

Lee: Yes, but we have a able account for him, but that's really dedicated for him.

Pat: Okay. Got it. Got it. Got it. Got it. Got it. Got it. Got it. Okay. Thank you. Thank you. And we don't need to dig into what that means, but we understand.

Scott: I mean, my first thought before you mentioned the medical school I thought, if I were in your situation, I'd drain the 529 plan first, then I'd probably look at some of the stocks.

Pat: Yes. I would have gone exactly the same way. Although I would have done it a little bit differently, I would have done it simultaneously. He said he thinks it's gonna be $20,000 to $25,000 a year, and I would have done...

Scott: My guess is you can self-fund some of this, but unless...

Pat: That's right. That's right. I would have done a portion out of the 529s. Medical school throws a whole nother wrench in it. How certain is she going to go to... Well, she's gonna be a freshman at college, so...

Scott: I would still use the 529 first. You're in a high income. I mean, because you sell some stocks, the capital gain tax, you're at a pretty high tax rate on those. Where's a bump to the higher rate on? That's right about there.

Pat: And I question why you are using the Roth IRA.

Scott: Are you staying in California forever?

Lee: Yeah. Our families are here, both my wife and my family. So, I don't see us moving anywhere. We'll probably retire in California. I mean, we're pretty happy here.

Pat: So, the education side of the...I agree with Scott. I would use the...

Scott: Because the stocks, whatever you got gains there, the challenge is California is gonna tax it as its ordinary income. The Feds are gonna give you a break at 15%, but...

Pat: I would use the 529. And quite frankly, I think if you lowered your contributions to your wife's retirement plan and even your Roth IRA, you should self-fund this with just your 529.

Scott: Do you have any pensions that'll come in at retirement?

Lee: Yes. I'm with CalPERS, and my wife, she will also have UC Davis.

Pat: Okay. This is easy.

Scott: This is making it easy.

Pat: This is easy. This is easy. This is easy. Yeah. And what percentage of your salaries will be made up in pension at retirement?

Lee: Not too much. I'm expecting probably with my pension and...just for myself, I'll probably be looking at, like, $80,000.

Pat: Okay.

Lee: Yeah.

Scott: So, we still need to factor in your retirement.

Pat: Yeah. But, Scott, we can't get to the medical school thing yet. Let's not borrow trouble if by her junior year she says, "I am absolutely going to medical school."

Scott: So, if I, look, Lee, I'm in your situation, on Monday morning, I would liquidate my 529 and have that moved out of stock market into cash.

Lee: Okay.

Pat: Like, right now.

Scott: Because no one knows where the market is gonna be next year.

Pat: And you're gonna need that money. So, you don't [crosstalk 00:08:26] the first dollars.

Lee: Okay.

Pat: And then, I would actually self-fund. I would lower the contributions on the 401(k)s...

Scott: If you have to.

Pat: ...if I have to. If I have to. But I would have a tendency not to wanna get into that brokerage account.

Lee: Okay.

Scott: Yeah. Because relative to your net worth, you don't have a lot outside of retirement accounts given your...

Pat: Yeah. So, you've got more than enough money to do it. The question you had was, where should it come from? And it should be self-funded even if it requires you to lower your contributions to your retirement plans and to use the 529 plan. Scott, do you agree?

Scott: But I also...I mean, I think...

Pat: But you should obviously take losses into brokerage.

Scott: Doing an in-depth financial plan at this stage, I think would be helpful for you to look at when you're gonna retire, what your retirement needs are gonna be, and if you fund your daughter's entire medical school, how does that impact you? Does it mean you need to work a few years longer? Does it mean you have less money in retirement? [inaudible 00:09:37]

Pat: Well, there's no question that there will be better decision-making doing a financial plan than calling two guys on the radio that have never met you and have four minutes' worth of information about you. There's no question that... It'd be well worth your money to spend the $2,500 or $3,000 or $4,000 to actually do a financial plan. But for an answer on the radio show, it's self-fund and use the 529 and go to cash immediately.

Scott: But I would go to cash on those dollars.

Pat: Immediately.

Scott: I mean, if you think about...if your daughter went to school right after the financial crisis or right after 9/11.

Pat: My daughter just started law school. We picked up all the other 529 plans that we didn't use for the other three children. We pushed them into a 529 plan, and it all sits in cash or short-term bond.

Lee: Would you also consider taking home equity to fund her college?

Pat: No, no, no, no, no, no. I'd be...

Scott: Do you have a mortgage on your house now?

Lee: Yes, but we plan to pay it off in 15 years.

Pat: Yeah. If she's gonna go to medical school, I'd be more inclined to actually get student loans to go to medical school.

Lee: All right.

Scott: And then pay them off after the fact.

Pat: In her name, in her name only.

Scott: Yeah. Yes, yes, of course.

Pat: And don't worry about that till she goes to medical school. And then, look, when she graduates from medical school, if she goes and lives in, you know, small town, middle America that doesn't have enough doctors, which they don't have enough doctors, there are programs that will forgive all of that debt by where she decides to spend three or four years. Very similar to how the military does it with their doctors.

Scott: Yeah. So, appreciate the call and wish you well. And congrats on having a...

Pat: I know a number of doctors that became doctors through their time in the service.

Scott: Yeah. My eye doctor, that's where he started. Let's continue on. We're talking with Jack. Jack, you're with Allworth's "Money Matters."

Jack: Hi. Thank you for picking my call. I'm looking for some inspiration or creative ideas. My wife and I are planning on gifting about 500k to each of our two children to help with house purchases. And one is using his gift right now to help purchase a house right now, the other probably won't be several years before he's gonna be in the house market. And we're trying to figure out how to adjust the future gift to maintain some sort of equity. What sort of interest rate would you suggest to value the second child's gift five years from now?

Scott: So, your plan is to say, "I want $500,000 of 2023 dollars." Is that what you're thinking to yourself?

Jack: Yeah. Exactly.

Scott: To go for each of my...

Pat: Yeah. So, if your other child doesn't take that $500,000 for six years, what would the equivalent amount of dollars be six years from now? That's what you're asking. Correct?

Jack: Exactly.

Pat: So, you're like, "What...?"

Scott: So, my question is this, is this just for your own accounting purposes internally so when this other kid goes to buy a house, you know how to factor it, or are you planning on taking money from your estate today?

Jack: No, this will be just internal. I mean, conceivably, if the second son decides to go forever without buying a house, it would be part of our estate. And, you know, 10 years from now or 20 years from now or something, what would be an equitable value?

Scott: Yeah. I mean, one way...

Pat: I would use the one-year treasury or an interest rate that was today on a mortgage.

Jack: Okay. Now, that's essentially the way...

Scott: Another way you can do it is you can look...I mean, you can prepare something so that should you die sooner than later, you've got a formula in place. But you can also just look at it five years from now, what happened with house prices?

Pat: That would be...

Scott: Particularly, house prices in your first son, what was that annual increase? And that's what the other kid gets.

Pat: We could make an argument for... Actually, I like your idea better, Scott.

Scott: I mean, if your goal is...

Pat: But that wouldn't be fair, the house prices, because then that would...what happens if the house prices went down because it was a geography risk versus a mortgage risk? I would use a mortgage rate because this is in lieu of the person getting a mortgage on their home. And I would use...

Scott: Or they might still have a mortgage, it's just not as a very large mortgage compared to what they would otherwise.

Pat: That's right.

Scott: He's in California and there's not a lot of...

Jack: He's in California. These are horrendous mortgages. This is a 900k mortgage.

Pat: And I like the way you're thinking. I like the way you're thinking. Actually, I got to tell you, even in our own trust, we have set up a program that actually values what goes to certain people based upon an underlying interest rate.

Scott: You could also earmark, depending on your situation, I mean, you could actually transfer an account, keep it in your name and invest it in a portfolio that's gonna yield the maximum amount five years from now.

Pat: But are you going to write this into your trust?

Jack: Yes. That'll be another...right now, yeah, eventually, we're gonna end up doing that.

Pat: Yeah. You should...

Jack: So, before we get around.

Pat: Well, you should do it when you complete the gift to the one child. You should put it into your trust immediately for that.

Jack: Yeah, that's exactly our plan is [inaudible 00:15:30].

Pat: Yeah, I would use...

Scott: Four percent.

Pat: And I'd use whatever that interest rate was at the time that I gave the money to the first child for a mortgage.

Scott: What interest? A mortgage rate?

Pat: Yeah.

Scott: Six percent? Six and a half percent? I wouldn't use that high.

Jack: Because that's worth so much.

Scott: I'm more of an inflationary rate.

Pat: I think if you could put it at inflation would be fine.

Scott: I think I'd use 4%. We're not gonna know until the future. Most likely, you'll be alive to adjust it then, right? So, I mean, really, this is about an estate planning.

Pat: That's right. That's right.

Scott: I would use 4%.

Jack: I mean, we definitely want something in writing in the trust right now but...

Scott: I understand. No, I get that. That's what...

Pat: I get that. But in the future, assuming that you don't pass on, and child number two comes to you 10 years from now and says, "Hey," and you say, "Look, I gave your sibling $500,000..."

Scott: "Nine years ago."

Pat: "...and this is where interest rates were," or, "This is what happened to housing. So, you could buy the equivalent size portion of a home for $722,000." But what if home prices fell by a third? Would you still wanna give him 500 grand or would you wanna discount that?

Jack: Yeah. Some sort of proportionate part of the total house price.

Scott: That's right.

Pat: That's what I like. That's what I like.

Scott: I like where you're going, Jack. You've got something in your trust, should you die early, that's going to earmark dollars. You need some formula.

Pat: Yeah. So, it's $500,000 at 4% compounded annually until the date of death.

Scott: Or you could look...

Pat: And then, you remove that once the gift is completed.

Jack: Yeah.

Scott: Or you could put some regional housing...

Pat: Yeah, that'll make it a lot more difficult.

Scott: I assume your estate is relatively large.

Jack: Yeah. We're in good shape there.

Pat: You're doing all right. Yep. I like that idea. I'd use two formulas. I wouldn't worry about how much money I was gonna give that child until it happened. And then in the trust, I'd put somewhere in the four to five range as a compounding interest. And I'd write it into the trust the day, the day that you give the money to the other child.

Jack: We're due to update it. It's been five years.

Scott: Perfect.

Jack: As long we don't procrastinate too long with it...

Scott: Well, that's funny, isn't it?

Jack: ....get updated, but...

Scott: It's funny. I mean, the majority of Americans die without a will, which we all know we're gonna die. Majority die without a will. But I think a lot of it is, we know we're gonna die, but we're not gonna die today. So, we can do it tomorrow because we have other things we wanna do today.

Pat: Actually, I was talking to a friend of mine.

Jack: I'm about to go out for a bike ride, so, yeah.

Scott: Beautiful. Perfect. Perfect. Yeah.

Pat: I talked to a friend of...

Scott: Where in California are you?

Jack: Silicon Valley.

Pat: That's a little...

Scott: Probably not so hot today.

Jack: It's toasty.

Scott: All right. Not too bad.

Jack: It's supposed to start cooling off the next couple of days...

Scott: Perfect. Perfect. So, just out of curiosity, Jack...

Jack: ...compared to where you guys are.

Scott: So, in Silicon Valley while we've got you, so, housing prices, have they come down at all in the last couple of years?

Jack: No. No.

Scott: Not at all.

Jack: Actually, just for a comparison, the son that's about to buy the house just had two...he's made two offers. The first one, there were 20 total offers, and they took the top five and had him do a bid-off. He wasn't in the top five. And then, the second one is [crosstalk 00:18:56].

Scott: And what did this house sell for?

Jack: It sold for about $1.9. The asking price...

Scott: And where was the house? Describe the house to the rest of the listeners.

Jack: So, let's see. It was three and two small...

Pat: Seventeen hundred square feet?

Jack: No, I think it was about 1,300 and it needed a fair amount of upgrades and stuff like that.

Scott: How big was the lot? Like, several acres?

Jack: That was the local town, total acreage, I think.

Pat: And how beautiful was the creek running through the backyard? So, look at that, how much was it? You said one point...?

Scott: It's a small lot, right? I was joking.

Pat: Thirteen hundred square feet.

Jack: The lot was about 6,000 square feet and it was a three and two, 60, 70 years old needing a fair amount of upgrading, fair amount of work.

Pat: Oh, man. That is crazy.

Jack: Asking price is $1.5. And after the five bidders got done, I guess the final price was $1.9. So, things just seem to be slowing down [inaudible 00:20:09]

Scott: That is amazing because this is the environment... Jack, do you have any other questions for us before we keep...?

Jack: No.

Scott: All right. Thank you, Jack.

Pat: And thanks for calling. You know, it's bad we're gonna sit and have a discussion.

Scott: Oh, this is crazy. So, here's an environment, right? Think about the last three years. And Silicon Valley locked down about as hard as anywhere in the country, right?

Pat: Yeah. California.

Scott: And then, the Bay Area particularly, and the county. So, people are working remote, people are moving to other areas. That's probably one of the most expensive areas in the... Clearly, for what you get, it's the most expensive area in California, if not anywhere. I mean, for what you get for $2 million. But you would think that these people had figured out how to work remotely, and they moved to somewhere else where they get a bigger house for less dollars. And if they have to go in a couple of days a week, they just go back and forth a couple of days a week. But that doesn't seem to be the case. Here's a house, $1.5 million.

Pat: Oh, this is so much to unwrap here, Scott. There's so much to unwrap here. There's corporate cultures to unwrap. It's, "Do I believe that I'm gonna move up the organization faster if I show up in the office four days or five days a week if I'm visible?"

Scott: Of course. And if you have a house, if you live locally as opposed to...

Pat: And live locally versus...

Scott: Yeah, a three-hour drive.

Pat: Like, "Am I really showing my commitment to the organization and to the industry as a whole by staying in Silicon Valley? Do I want that connectivity to those movers and shakers in the corporate world?" My answer is no. I'm just telling you. There's so much to unpack here. But it's an issue.

Scott: Well, the housing market is a surprise to many.

Pat: Oh, it is. I was talking to a gentleman...

Scott: Myself included.

Pat: ...a friend of mine, and he's a developer. And he was telling me when these interest rates, they...

Scott: And what do you mean by developer?

Pat: They develop raw land in California. So, raw land...

Scott: For houses.

Pat: For houses. That's been doing it for years. It's all he's ever done. So, what happens is the...

Scott: Something I used was a ranch years ago.

Pat: Ranches. It's those big McMansion neighborhoods you see. What they do is they go to large institutions...

Scott: What do you mean by McMansion? You mean like a 3,000-square-foot house, one on top of the other?

Pat: That's right.

Scott: Okay, 3,000 or 4,000-square-foot houses.

Pat: Yeah. Yeah.

Scott: Maybe even bigger than that. Yeah.

Pat: And planned communities.

Scott: Bigger than 1,300 in Silicon Valley.

Pat: Yeah, the planned communities. And what they do is they're multi-year, sometimes 10, 15, 20-year projects, where they will go to institutions like pension plans and say, "Okay. This is the design for this ranch. We just bought, you know, 50,000 acres."

Scott: Then they gotta get the zoning, they gotta get the water lines.

Pat: And they gotta get the water. And then, they've gotta get all the electricity, the infrastructure in the school.

Scott: [crosstalk 00:23:11] utilities. It's a lot of work.

Pat: It's a multi-year, but he's been in this one project for probably 13, 14, 15 years, longer than that, 20 years. And I was talking to him, I said, "Is this just the most amazing thing that you have ever seen with interest rates going up and all of a sudden new home prices in not just Northern California, but other parts of the United States just on fire?" They're seeing it in Texas, Houston, parts of Florida. And he said, "Yeah. When these interest rates started going up and we realized that we thought they were gonna continue to grow, go up, we thought that we were just gonna have to kinda, you know, save all our powder, let all the investors know there wouldn't be any returns for quite some time, and then everything had to just calm down." Exactly the opposite happened. Exactly. So, all the investors with their economic know-how, I don't think many predicted that new home prices would actually not only stabilize but go up.

Scott: And in part, it's because the secondary market for homes, people aren't selling because their mortgages are so low.

Pat: Dried up.

Scott: Right? Their inventory is so low. Like, I wouldn't mind doing a move-up, but I don't wanna give up my mortgage. I have a $800,000 mortgage at 2.78%.

Pat: And I'm not gonna cash that in for a 6% or 7% mortgage. It just makes no sense. So, what we're seeing is we're seeing rehabs on existing homes, which they're not borrowing money. So, people are actually staying in place...

Scott: Like, the Home Depots of the worlds are doing better than anyone would have expected.

Pat: Exactly. Exactly. Which, by the way, is fueling part of the inflationary economy? That's why the Fed...

Scott: I think the biggest lesson, though, Pat, as from an investor standpoint...

Pat: That's right.

Scott: ...there's things to look at and say, "How would you have predicted this, that home prices would continue to rise in a time like this when interest rates have essentially more than doubled on the mortgage?"

Pat: When historically...

Scott: It's just the opposite.

Pat: It's exactly the opposite.

Scott: And so, the point is, like, don't think you can outsmart the markets in the future. That's a fool's game, and that's how you destroy your finances.

Pat: Long timelines. Long timelines.

Scott: Long timelines. We're gonna take a quick break. When we come back, we'll continue with the program. This is Allworth's "Money Matters."

Man: Can't get enough of Allworth's "Money Matters?" Visit to listen to the "Money Matters" podcast.

Scott: Welcome back to Allworth's "Money Matters." Scott Hanson.

Pat: Pat McClain.

Scott: Yeah. Thank you for your part in the show.

Pat: Yeah. So, we've got a segment we've run once or twice in the past, and it's called House Calls. I don't know why.

Scott: Well, you had this idea, Pat, of, "Why don't we have people that have been on the program?"

Pat: It's from the old "Click and Clack, the Tappet Brothers." Years, you've gotta be really old to know these people. And they would call people up a week, months after they gave their recommendation on how to fix their car and ask, "How did it turn out?" I thought was always interesting to me because it's like...

Scott: Because you love working on a car so much.

Pat: No, it was the advice, "Taken, used, not used? How was it?" Once we give advice on the radio show, I have no idea what happens to it. It goes into the ether. And so, we've created this program called...part of our segment called House Calls, where we actually get together with someone in the past that we had given advice to, and we ask them, "What happened?" So...

Scott: Yep. Last year, we spoke to a woman named Linda. She's been a long-time listener to the show. She's not an Allworth client, but she wanted to know whether it makes sense to give an early inheritance to one of her two children, basically, her daughter, to buy a home in California. And here's a clip for that call.

Linda: My husband is semi-retired, and he's collecting a pension of around $150,000. He's gone back to work as a retired annuitant, and he's working part-time. And his pay last year was around $93,000. And he plans to do this until he's maybe 70.

Pat: How old is he now?

Linda: He's 62. So, neither one of us is collecting social security at this time. We have no mortgage on our house, and we both have long-term care policies.

Pat: And do you work outside of the home, Linda?

Linda: No.

Pat: Okay.

Linda: We have financial assets, excluding our house, of around $4.1 million. So, we're thinking about giving our oldest child maybe half a million. Is that something that we should even do?

Pat: Okay. Let's talk about this for a second. And how old are you?

Linda: I'm 63.

Pat: And what's the value of the home?

Linda: Around $1.4.

Pat: And do you owe anything on it?

Linda: Nothing.

Pat: Okay. That's what I assume.

Scott: And my guess is you're not...maybe I'm wrong, but my guess is you're not spending all the income that's coming in your house right now.

Pat: You're not spending... Yeah. Because right now you've got income of $240...

Scot: Two-forty.

Pat: ...coming in approximately. Are you living on all of that? Are you spending all of that?

Scott: No.

Pat: Okay. Of this $4.1 million, how much of the money is outside of IRAs?

Linda: Outside of IRAs?

Scott: Yeah, 401(k)s.

Linda: $2.6.

Pat: Is outside.

Linda: $2.6.

Pat: And how much of that is invested in cash, bonds, and/or stocks? So, tell me how much is in the cash or bond portion?

Linda: Okay. In the equities portion, it's around 70%, and in cash and bonds, it's around 30%.

Pat: Okay. So, we've got about 850 grand.

Scott: Is this something both you and your husband want to do? Is this something that one of you wants to do?

Linda: It's something that I think I would like to do more because I think that why should they wait until we're gone to help them out that we can do now, especially in purchasing a house.

Pat: Tell me about the second child.

Linda: The second child, they're both... Okay, both of our kids make good livings. The daughter, she probably makes a little bit over $150,000.

Pat: Okay.

Linda: And my son, he will be making good living, but he plans to maybe marry soon. And between him and his future wife, they'll be making a great living.

Pat: Okay.

Linda: So, he won't need the family inheritance.

Pat: Well, I know that. So, is your daughter married?

Linda: No.

Pat: Okay. All right. So, here's...

Scott: And this would be for your daughter buying a house or your son?

Linda: Yes.

Pat: Daughter, the oldest. Not married.

Scott: And how old is she?

Linda: She is 30.

Pat: I like the idea.

Scott: I don't have any problem with that either.

Pat: I like the idea. Here's the one thing I will caution you, only because I've seen it. I know Scott has seen it multiple times. You give the check to your daughter, and you don't give the check to your son right away. The same time, you're going to create animosity between either the two of them or your son and you. I don't care if your son has all the money in the world, it is a degree of fairness in their minds.

Scott: Not always. It can be, but I don't think that's always the case been. Not in my experience. And even my own kids. Like, Christmas time, I never care if it's... It's not always even since I'm [inaudible 00:31:45].

Pat: You're not talking about half a million dollars though.

Scott: That's true. We're talking about $50 gifts.

Pat: Look, Scott, even know, we'll get personal here. Even when I sat down with my kids this last December and we went through our estate plan and we said, "Here's who we think should be the trustees on this estate plan if Mr. Hanson can't do it," and there was a dispute over, "Why on all four listed as trustees, why are only one or two?" Regardless of the fact that I said the trustee doesn't have any special powers, it was just seen as a degree of fairness. So, in this numbers here, I mean, you could give it to your son and your daughter at the same time.

Scott: Or, I mean, you could also gift a lesser amount to each. Help your daughter get that house and give an annual gift after that to help pay down the mortgage.

Pat: Which is an even better idea.

Scott: Because sounds like she's got the cash flow to help make a mortgage payment. So, what if you gave $200,000 and then...

Pat: Each year. Yeah.

Scott: Yeah. Each year, you give a check to...

Pat: Thirty grand to each one of them.

Scott: ...or whatever.

Pat: So, Linda is joining us now. Welcome back to the show, Linda. I have two questions. When did we record this? When did you originally call in, and what did you end up doing?

Linda: You know what, I really don't remember when this call was. I know it was sometime last year.

Pat: Okay.

Linda: And since then...

Scott: Last year. Yeah. My notes say last year. In 2022.

Linda: Yeah. It was last year. I think it was mid-year. Maybe May, June.

Pat: And let me tell you why I asked that question. Interest rates at the time were not nearly as high on a mortgage as they are today.

Linda: Correct. Yes.

Pat: And as I was listening to the clip, I was thinking, "Would I give that same advice today where interest rates are or would it change?" And I don't know the answer to that, but it caused me to think that. So, that's why I asked you when the call was. And it was when mortgage interest rates were lower. What did you end up doing?

Linda: I ended up giving my daughter $500,000. And I also offered it to my son, but he has declined because he thinks that he and his wife can do it on their own. So, that's a different story. So, she has been...

Scott: We're both looking at each other. I'm thinking, "No, that's the story." But that is the story.

Linda: That is the story.

Scott: Anyway, tell us, with your daughter, that is...we both stared at each other like... All right. So...

Linda: Why would he do that?

Scott: Well, you gave $500,000 to your daughter, then what happened with your daughter then?

Linda: Okay. So, she started searching for a house last winter, and she thought it would be fairly easy, but it was not. It was actually quite hard because of the supply. You know, the inventory was really low. And she wanted a certain size house, and she found out that the certain size house that she wanted was very competitive, very, very competitive. So, she lost out on many offers. So, she placed around 5, 6, 7 offers, and she lost out on all of those offers. So, then she started rethinking, "Hmm, maybe if I look at a lower-priced market, I would be more competitive because I would have more of a down payment." And that actually worked for her. So, in May of this year, she was able to purchase a house, but she actually had to...she overbid. She had to overbid by almost $51,000 to get the house.

Scott: Wow. Wow.

Pat: It's just what we talked about earlier in the show.

Scott: I know. And same situation, a family helping their kids buying a house.

Pat: Yes. Interesting. Interesting. And so, she moved into the house. And are you gifting to the children on an annual basis now as well?

Linda: We are not, but for my son, I think that's what I'm gonna do instead is to gift him and his wife, you know, the $68,000 a year from both of us so that he has it so that when he's ready to buy, he'll have the money or he'll have, you know, enough to buy.

Pat: And he just flat out...give us the...which is, we said this, the story.

Linda: Well, okay, it's a different story because he and his wife are physicians. So, they wanna do it on their own.

Pat: I wanna do it on my own, but with someone else's help.

Linda: I don't think he realizes how tough it is, especially since they live in southern California and it's much tougher down there. And, you know, there's just a lot more money back there.

Scott: I like your concept. So, you're gonna do the annual exclusion amount that doesn't reduce your unified credit for your estate tax purposes, and then you could stop it whenever you think you've reached parity.

Linda: Correct.

Scott: I think that's a brilliant idea.

Pat: That's a great idea. I like it.

Linda: So, you know, I don't think he'll turn that down, you know, as long as we say, "Well, you know, you can do whatever you want." And then, hopefully, he'll use it towards the house.

Pat: Yup. Perfect. Perfect. Perfect. Perfect.

Scott: Yeah. Is there anything else we can help you out with why you were kind enough to call back?

Linda: Yes, I have another question.

Scott: Okay, good.

Linda: If you don't mind.

Scott: Of course not.

Linda: So, I have an IRA account. And you probably won't like hearing this. It was mostly invested in one stock, which I know is a no-no. But I have sold off a lot of that one stock because it's at a very high price now, or it was a couple of weeks ago. So, what should I do with that money?

Pat: What was the stock?

Linda: Microsoft.

Pat: And how much of the percentage of the portfolio is left in the Microsoft stock?

Linda: I would say it's still 40%.

Pat: Okay. And the reason I ask that, and by the way, you know, owning a single stock, everyone is big boys and girls if they understand the risk in doing so. And you obviously understood the risk in doing so because you said, "You're not gonna like hearing this." And is the percentage of a...

Scott: And it's a real problem if somebody can't afford it.

Pat: That's right.

Scott: If somebody could afford a decline or a loss or a wipeout even in that stock, then that's their choice. Where it's really problematic is when someone is...their life savings is a million dollars or planning on using that for the retirement income, they've got it in one or two securities. One goes south, then there's...

Pat: That is where an issue is. So, you want something in that portfolio that doesn't actually represent the tech sector. And it's highly unusual, but I think I would go with direct indexing in this portfolio and would carve around that tech sector so that you get the rest of the representation of a broader market without having...

Scott: Or use some ETFs that exclude tech.

Pat: That's right. And those exist too.

Linda: And so, would you dollar cost to average or would you just throw [crosstalk 00:39:36]?

Pat: No.

Scott: No, you're already in equities.

Pat: You're in equities. Yeah. No, no, no.

Scott: But you're not planning on spending these dollars anytime soon.

Linda: No.

Pat: Yeah. So, I would go 100% equities but try to exclude as much tech as I could. Are you...

Linda: Even though it's a lot of money, you would just throw it in one day.

Scott: Oh, yeah.

Pat: You took it out. How many days did you take it out over?

Scott: It's been in the market.

Linda: I took it out over months.

Scott: Well, so, I would have advised at that time to as you reduced your exposure there to take the proceeds and put it back in the market at that time. But still, like, if dollar cost averaging works so well as a strategy, then as soon as your portfolio was fully invested, you'd move it all to cash and dollar cost average back in the next 12 or 18 months or whatever formula you wanna do, and then you'd continue to do that. But it's a risk mitigation tool. It's not designed to enhance returns.

Pat: Yeah. What you're trying to do is minimize the volatility in the marketplace.

Scott: But considering you have had one stock and that stock was volatile the last couple of years and you stuck with it, like, I...

Pat: Now, you're worried about volatility?

Scott: No, that's what's fun.

Pat: Now, you're mentioning it? Now, I would just go all in.

Linda: Okay.

Pat: And you wanna look for something that excludes as much tech as possible, either direct indexing and/or either direct indexing.

Linda: Okay. Well, thank you very much.

Pat: All right.

Scott: Or ETFs. All right. Appreciate it.

Linda: Okay.

Scott: Thanks.

Pat: Thanks, Linda.

Linda: Okay. Thanks a lot.

Scott: Glad you called. This was really interesting, Pat. We had two callers in this program that were both large chunks of money to help...and most Americans do not have that kind of capital to help their kids get a house.

Pat: Most Americans don't listen to this show.

Scott: That is true.

Pat: In fact, the vast majority. In fact, even most.

Scott: Okay.

Pat: Scott, this show may appeal to people with...

Scott: Clearly, here's my point. It's not the listeners, I would think it's the next generation, right? So, like Linda, I'm assuming her and her husband have worked hard over the years, saved well, were disciplined in their savings. The vast majority of people call this program, Pat.

Pat: That's right.

Scott: Most of them aren't making a million bucks a year. They're professionals, they've been diligent with their savings, they've taken ownership of their lives, they were fortunate enough to not have any major calamities that derailed them, and they've, at a time in their life, where they've got more assets than they need, some of the people, and they're able to help their kids, the next generation to get a house. What I'm saying is, most kids, first of all, no one has a chance to pick their parents, right? It's gonna be interesting the next 20, 50 years.

Pat: The generational wealth?

Scott: Correct. And it's so much more difficult for a young person starting today, housing costs, not just homes, but just rent.

Pat: Yes. As a percentage of their earnings.

Scott: Yes.

Pat: Relative to what it was for even you and I.

Scott: Correct. I mean, it's one of those things you kind of look at like, "This is not sustainable, this track we're on."

Pat: Yeah. It will change. But the people know, the reason I...

Scott: It'll change how?

Pat: The markets will reach equilibrium at some point in time. People will move to lower...

Scott: Or individual home ownership for the average Americans...

Pat: Will change.

Scott:'s gonna be like a lot of other European countries.

Pat: So, Scott, I received this on my LinkedIn. I got a message from a young lady, Miss Ellington, which... Did you get one of these on, you know, LinkedIn message? "I wanted to connect and send a quick note of appreciation for your Allworth Money Matter show. I discovered it yesterday on the radio..."

Scott: I did get this link

Pat: " accident during my drive from the Bay Area to Oregon." So, the long drive. "And I ended up listening to nine hours straight on Spotify.

Scott: Got that.

Pat: So, I responded to her.

Scott: Oh, thank you. Because I did not.

Pat: I responded to her, "Glad you enjoyed this show."

Scott: I actually can't get through my fan mail.

Pat: Okay. This is the only reason I'm reading it.

Scott: It's the only one you got.

Pat: It's the first one I've ever received. "Glad you enjoyed this show. We really enjoy hosting. Please rate and share with your friends and colleagues. And then, by the way, eight hours straight, that's a record amount of time." But she's a young lady. My point being is she'll do well financially over life because of her interest in money like this.

Scott: Yeah. Look, I mean, part of the reason we've done this for so many years is to be a source of education for people.

Pat: But we give...

Scott: We're pretty passionate about that.

Pat: Oh, yeah. Give advice to young people, old people, people with money, people without money. Anyway, I don't know why that...

Scott: What is hard, Pat, is giving advice to someone at retirement age that doesn't have anything saved because there's not much we can do for that person.

Pat: Yes.

Scott: It's like... Yeah.

Pat: So, just save, save, save.

Scott: Yeah. All right. Let's go to the calls.

Pat: All right. We're talking with Ray. Ray, you're with Allworth's "Money Matters."

Ray: Afternoon guys.

Pat: Hi, Ray.

Ray: Thank you for taking my call.

Scott: Yes, thanks for calling.

Ray: So, thanks to Bob Brinker, my wife and I purchased I bonds from TreasuryDirect starting in 2001. We invested about $110,000 and the recent value is approximately $211,000.

Pat: All righty.

Ray: The accounts are in our names, but our trust attorney recommended that we move the ownership to our trust to avoid any probate issues when we pass.

Scott: I would agree.

Ray: But in order to change ownership, TreasuryDirect requires a form be completed with a signature guarantee from a financial institution.

Pat: A medallion guarantee. Yes.

Ray: It doesn't have to be a medallion, it does have to be a financial institution.

Pat: Okay. Okay.

Ray: So, I discussed this with my bank. Can I name the bank?

Pat: Sure.

Scott: I don't care.

Ray: Chase Bank.

Pat: Okay.

Ray: And they said their corporate rules did not allow them to do a signature guarantee.

Pat: That makes sense.

Ray: Really?

Pat: Yeah.

Ray: And so, I'm ticked off.

Scott: Are you a customer of theirs?

Ray: I've been a customer for over 30 years.

Pat: Do you have a brokerage account anywhere? A relationship with a firm like that?

Ray: Fidelity, Vanguard, local one I... Actually, I did. Yeah. And the local Edward Jones, I contacted them.

Scott: They wouldn't do it either?

Pat: And they wouldn't do it either.

Ray: They wouldn't do it either.

Pat: And you have an account with them?

Scott: So, we're surprised. You know, it's funny, we're both surprised and we're like, "I wonder what Allworth's policy is."

Pat: I don't know what it is either. I know what it used to be.

Scott: Yeah. When we were a small organization.

Pat: Yeah. It's a risk mitigation thing.

Scott: Yeah.

Pat: It's $220,000. What percentage of your overall portfolio is this 220 grand?

Scott: Two hundred and eleven.

Pat: Oh, 211,000.

Ray: It's small. It's a small portion.

Pat: Yeah. I gotta tell you.

Ray: But I don't wanna leave a hassle to my kids.

Pat: I understand.

Ray: I want it to be smooth when I'm gone.

Pat: I gotta tell you. If I wouldn't...

Scott: Ray, for one thing, and I'm not an estate plan attorney, so I don't mean to be trying to practice law, I state that because I've been threatened to be sued by an estate plan attorney because we talk. But oftentimes in an estate plan of a larger estate, one will leave some assets outside of the estate in the event that there are some claims that arise...

Pat: And then, the pour-over will picks it up and puts it back into the estate.

Scott: Yes. And then, there's a pour-over will that puts it in the state.

Pat: And so, how many different people have you asked for the signature guarantee?

Ray: Well, I called around and I called a lot of banks, and they said, "Yeah. We will sign it, but you've gotta have an account that's been open for..." I think the minimum was six months.

Scott: Got it. Yeah. That makes sense. It's just for money laundering purposes.

Ray: And I did find El Dorado Savings, local banks said 90 days. So, we now have an account with El Dorado.

Pat: Okay.

Scott: You found a solution. So, what's your question?

Ray: To me, this whole thing is ridiculous that TreasuryDirect requires, you know, a financial institution signature. So, why can't they demand that all financial institutions give a signature guarantee?

Pat: Oh, well, no. Look, look, and when we say that, I don't know what our policies are on signature guarantees.

Scott: Look, anytime someone opens an account with a financial institution, there's some background check to make...for money laundering purposes, for foreign entities, all the others, there's lots of knowing your customers. So, I mean, I can understand if a financial institution doesn't have a relationship with somebody saying like, "We're not gonna wanna a signature... I'm not gonna guarantee who you are. I just met you. I don't even know you."

Pat: Yeah. But I don't understand why a large...

Scott: But I think the question you're asking, you're trying to put logic to government. The government, they don't design things for customer service in mind. That's not how they function.

Ray: But I'm of an age where I don't want these hassles.

Scott: Well, then get it out of TreasuryDirect and put it in a brokerage firm.

Ray: I guess I could, but it's paying pretty darn good interest.

Scott: No, no, no.

Pat: You don't have to liquidate it.

Scott: You keep the TIPS.

Pat: Yeah. You keep the asset. Just put it in a brokerage account.

Ray: Oh, I could move this to, say, Fidelity?

Scott: One hundred percent. Yes. If you already have a brokerage account, it makes it even easier for your heirs.

Pat: And they're I bonds.

Ray: Okay.

Scott: Are these savings bonds or are these treasury...?

Pat: Wait, wait, wait.

Scott: No, these are TIPS. Treasury inflation-protection securities.

Pat: They're I bonds.

Scott: What are these?

Ray: iBonds. Yes.

Pat: They're iBonds, not TIPS.

Scott: Oh, they're savings bonds.

Pat: You can't. You can't do it. They're savings bonds.

Ray: That's what I thought.

Pat: Yeah. They're savings bonds.

Scott: I was thinking they were TIPS. Yeah.

Pat: Yeah. Nope, there you go.

Ray: What do you mean there you go? What do I do?

Pat: There you go. You just did it.

Scott: You've already did it.

Pat: You did it.

Scott: You're gonna get the signature guarantee.

Pat: You go to El Dorado Savings, whatever you said, and be a nice customer, bring the ladies cookies, and then you hit the signature guarantee.

Ray: I think you'd do a service to your many, many listeners to say, "Make the change now. Don't wait until you are getting up there."

Pat: Oh, look, there is that... Yes, getting one's estate in order, we talked about it earlier in the show, is really, really important. I had a friend that's going to Greece, and he said, "Well, I just updated my trust because I'm going to Greece." And I'm like, "Gonna get shot in Greece?"

Scott: I'm as shocked. I'm like, "What?"

Pat: "A plane gonna go down? All of a sudden, the chances of you dying?"

Scott: "That's not how you're gonna go."

Pat: "Go up significantly?" Anyway, appreciate the call, Ray.

Scott: Yeah. Thanks, Ray. It's funny because...

Pat: You've seen clients say, "Well, I'm gonna go on vacation, so I think I should update my trust." I'm like, "Story over?"

Scott: Well, no. I'll say story over, that's some few years ago.

Pat: I know. What sort of landscape are you going to that your chances of dying...

Scott: I usually say, "I think that's a great idea," because If they haven't updated it, I'm not gonna mock them because the statistical chances of dying on vacation are so small. I don't think you would mock them either.

Pat: No. I really...

Scott: You think?

Pat: I think to myself.

Scott: You judge them.

Pat: This gentleman that was telling me that I said, "That's a good idea."

Scott: You did?

Pat: Yeah.

Scott: Yeah. Okay. But internally, you're judging that person.

Pat: You know, I'm like, "What? What are they talking about?"

Scott: Look, whatever it takes to motivate somebody. And some people don't like flying, and they're afraid. Like, "What happens if something happens when I'm over the Atlantic? The plane goes down." I must say, I don't like it when I'm over the Atlantic either. You know, bad turbulence or something and you're like, "Amazing, these wings don't just fall right off." Don't you think that? Anyway, we're out of time. It's been really great being with you. Hey, if you haven't given us a review, please do so wherever you get the podcast. And if you think this is helpful, share it with a friend or family member. All right? We'll see you next week. This has been Allworth's "Money Matters."

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.