Loose Stones, EP 2: Navigating Client Questions with Michael Shelton

Today we sit down with Michael Shelton to go over some client questions. 

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Transcript

Jessica: 0:01

Welcome back to the Reach your Summit podcast, where we are helping you navigate the path to a better, more secure future. We're brought to you by Summit Wealth Group and my name is Jessica Magnuson. I am your host here. We are back with a segment that we started a few episodes back called Loose Stones, and it is where our clients have asked questions or brought situations to our advisors and they let us know how they answered them and what advice they gave. So we call it Loose Stones because those are the things that trip you up when you are on the way to the summit. So today we have our advisor, Michael Shelton, out of our Memphis, Tennessee office, to help us and kind of explain, break some of these questions down a little bit more. Thanks for being back with us, Michael.

Michael: 0:57

Thanks for having me, Jessica. Yeah, glad to be here.

Jessica: 0:59

Okay, so we'll just jump right in. The first question that was submitted says can my daughter's UTMA account be converted into a Roth IRA? And this advisor said the short answer is no. However, I asked some questions about whether or not her daughter had a job. I found out she was working and made enough money to allow a full Roth IRA contribution. So one option I presented was selling the necessary contribution amount from the minor account which is the UTMA, and then using those proceeds to make a contribution to a newly established Roth IRA. The tax-free growth from age 21 to 59 and a half should be exponential if invested properly. Yes, absolutely.

Jessica: 1:49

So what's the benefit of an UTMA account? Is this money they use while they're still a minor, or is this saving for a kid's future?

Michael: 2:00

The clients that I have worked with when we do an UTMA, the major goal was how do I save for a child's future but also have a tax-incentivized way of doing that? And so it really benefits both the giver and the receiver. And so the giver, if they can contribute less than the annual gift tax exclusion each year, so the IRS typically bumps it up each year, but in 2024, it was 18,000 or less. If the giver can save that amount or less into the account, there's no gift tax that's incurred on it. And then the receiver, the minor, were able to grow those investments within the UTMA account and the minor is not taxed on those investments and that growth and they're not taxed on that until they're of legal age.

Michael: 2:52

So a lot of times the giver to the account they want to save in the miner's name, they want to have tax benefits, but they don't want the miner to have access to it until they're of a responsible age. Now I would tell you this full disclosure I was not responsible when I was 18 or 21. And so some people might want to look at what are other options where we can save in a tax incentivized way, but maybe we don't give the client access to it until we feel that they're ready for it, and so I like to also look at other options that are similar to this, that are almost identical but give the client more flexibility on when they want the minor to receive the money. And again, that's something that I would always push back and say ideally, you would work with someone at Summit or a financial professional to help you navigate what are the rules, regulations and options out there for you.

Jessica: 3:48

Okay, so next question or situation is from a 90 year old client and her daughter. Is my estate in good order to avoid probate? And this advisor said you need to add your daughter to your savings account and make sure your car title has her on it. I'd also try to clear up the loans you've made to three of your children, meaning document the amounts that are owed, so that the chance for conflict is minimized. I guess with this, what is probate and why would someone be trying to avoid it?

Michael: 4:23

Great question. So if we don't have assets in writing clearly designated in regards to here's how we want our assets to flow to and here's how we want that we want those assets to flow after we pass away, then it can go to probate, which is essentially the state determining how your assets that you own, that you've put blood, sweat and tears into earning over your years, how those will be distributed. There's a number of reasons why we don't want to go to probate, why we want to avoid probate. I mean, I think the glaring, obvious reason is we don't want the state to determine how our money is distributed.

Michael: 5:09

But I would also say and anyone who has lost a loved one can relate to this in the midst of just dealing with the emotional pressure and stress of grieving a lost loved one, we want to minimize as many additional elements of responsibility as possible during that period.

Jessica: 5:27

Yeah.

Michael: 5:28

If we are mourning the loss of someone and already having to do a lot of work to organize funeral arrangements and getting finances in order and all of that, we don't want to also have to have the responsibility to deal with the state, and so that's why working with someone to understand how much can I minimize the state's involvement with my family's finances is very, very important.

Jessica: 5:53

Now that is a great point and huge. Like you're dealing with so much already is a great point and a huge like you're dealing with so much already. Let's like make sure things are kind of running as smoothly as we possibly can and kind of preemptively doing things. That makes a lot, a lot of sense.

Michael: 6:09

Yeah, absolutely.

Jessica: 6:11

How do we enroll in Medicare and should we get a Medicare supplement? This advisor said they do have to register with Medicare and start the process of shopping for coverage. We reached out to our Medicare referral team with Ash Brokerage and let them know that we had a client who was interested in their help with navigating the ins and outs of Medicare. Due to Medicare regulations, you will need to schedule the initial appointment with the Medicare referral team. This is kind of how we go about it at Summit, but how would you kind of answer this if a client came to you?

Michael: 6:51

I would honestly answer it identical to the way that was answered. One thing the reason financial planning is very important is we're anticipating things that are approaching before they happen, and so with Medicare, you know there are different rules and regulations on when you need to enroll in different periods of time, and so if you don't plan for it, if you're not sitting down with someone to kind of look out into the near-term future of this thing is coming, I need to start preparing for this. It can be very overwhelming for people to navigate something complex like that, and so I also like to lean on a Medicare specialist team where that's what they do full-time every day. Again, going back to the importance of delegation, so delegating things to people who are specialists and also doing the right planning work to make sure that we know the state is coming. What can we do before it comes so that we're as prepared as possible for when we do need to start enrolling and working with those people?

Jessica: 8:00

Last question yeah, go ahead. Should I make extra payments on my mortgage? And this advisor said it depends on the interest rate. In most cases, If the interest rate is less than 4%, you are typically best served making normal payments. This is because you can find savings accounts or money markets that pay a higher rate than your mortgage. If your mortgage rate is higher than the available money market rates, it might be time to consider making extra payments. Is that the same way that you would advise someone? It?

Jessica: 8:36

is Do you have a different approach? No, I don't have a different approach.

Michael: 8:40

I think that's a very responsible, sound approach and it's a question I get all the time from people. I think there's this emotional response to debt that is not necessarily logical, and a lot of what we do is helping people understand what's logical and what's emotional and what's the best decision. So I would agree with that. I would take it an extra step further as well. I would say that if we can get money market returns that are higher than the interest rate like the 4%, the 5% that's a great option.

Michael: 9:11

I also encourage clients taking a much longer-term approach. So if they can avoid paying extra on a mortgage that's 4% or 5%, and we take the extra money that they were putting into the mortgage and we put it in an investment account that grows 10% long-term, we're essentially putting our money in a much more efficient way. That's going to grow, that's going to significantly outpace inflation more than the money that we're putting into the debt. And so if we've done proper planning and our financial situation allows us to be able to take what we're putting on extra and invest it instead, we can grow more wealth long term. And again, that all just leads back to navigating the path to a safer, more secure future by making small decisions today that have profound impacts long term, like do I pay off the mortgage or do I invest? The difference and those small actions today can really really make a big difference in regards to retirement and quality of life down the line.

Jessica: 10:16

When I read that question it was like wow, that's never occurred to me that approach, but obviously I guess I've never asked any of our advisors specifically. Yeah, I think you're absolutely right. There's such an inclination that we need to get rid of any debt that we have, which in most cases is the most beneficial thing. But with a mortgage, yeah, if there's another way that is going to be more beneficial for building wealth than making those extra payments. Laying out the numbers like that, it just really makes sense. Yeah Well, that is all the questions that we're going to be going over today.

Jessica: 11:01

So thank you again, Michael, for being with us and giving us your commentary on our Loose Stones segment. If you have any questions that you would like answers to, you can send us some of those at info@ summitwealthgroup. com or contact us on any social Thanks for listening to the Reach, your summit podcast brought to you by Summit Wealth Group. Thank you for listening. We'll see you next time. If you enjoyed this episode and would like to help support the podcast, please share it with others and subscribe so you don't miss an episode. If you have any questions or topics that you'd like us to cover. Please email us at info at summitwealthgroupcom.