Transcript
Intro
Stephan Shipe: Welcome back to the Scholar Wealth Podcast. This week we open with a couple planning to buy a second home in Boulder at around $2.8 million. They can pay cash, put some down and finance the rest, or take a securities-based line of credit against the portfolio. They want to know what the right structure looks like. Then we hear from a listener with a $35 million net worth that is concentrated in a single stock from an IPO from years ago. Every advisor he has talked to opens with how complex his situation is. But from his seat, it seems pretty straightforward. And in From the Field, we’re joined by Lisa McCurdy, a legacy planning attorney whose work goes beyond documents and into family dynamics. So let’s go ahead and get started with our first question.
Question 1 – Cash, Mortgage, or Securities-Based Line of Credit for a $2.8 Million Second Home?
Stephan Shipe: We’re planning to buy a place in Boulder with a purchase price of $2.8 million. We can pay cash, we can put 25% down and finance the rest, or we could take out a securities-based line of credit against the portfolio. Rates on jumbo mortgages are still where they are. Our portfolio is doing what it’s doing. And I don’t want to disrupt the tax situation by selling to fund a down payment or cash payment. But my husband is opposed to the S-block. What is our best option?
So this is a very common situation of having multiple options, especially as wealth increases. So there’s no real wrong answer to how to answer this. I think there’s a lot of optionality, and assuming that this is not a significant portion of your net worth, then I don’t think either of them are a hard no. But there’s likely an answer that is best, even though there’s no wrong answer. And that’s going to come from a few different questions that require a little bit of follow-up that you can dig into. So one is going to be, what percentage of your wealth is this house going to be? And the other is going to deal with the basis of the assets in the portfolio to determine what we have to do.
So if we look at the three options — paying cash, absolutely the easiest. You could, if you have cash available, pay cash for the house and it’s all done. Where that becomes a problem is if those investments are needed to sustain your current lifestyle now, or to sustain the path that you’re on for future wealth. The reason I say that is because we wouldn’t expect that the home in Boulder is going to actually earn you any return. In fact, research would show that your return on primary residences is around 0% when you take into account the benefits of inflation and the costs associated with updates and everything else. Now, could you go rent out the home if you’re not using it? Of course. Is that probably going to help? Not really. We tend to find that doesn’t last for too long, especially when you deal with homes that are not typical rental homes, and you eventually want to either move into one, or you’re dealing with too many issues of managing it.
So we have the option of cash. The concern I would have with cash is, if this is going to be a large amount of your wealth going into the second home, I’d really want to be careful about how much of your wealth is concentrated in real estate. So depending on what your primary home looks like, you add another, we’ll call it $3 million of real estate into this picture. Are we now looking at a portfolio, or a net worth, of $10 million that’s now $5 million in real estate, and a need for liquidity that becomes a little bit problematic? If you have a situation where you have $50 million, and now we’re looking at $5 million in real estate, that’s not as bad of a situation.
The follow-up to that generally is, is there a perfect ratio of what real estate should be as a comparison to net worth? And there’s not. And what I always go on is, after a certain level of wealth, that wealth can accomplish the goals and spending goals that you have personally or for your family — then above that level, you can start filling that level with real estate, which is what we typically see. In other words, you could have a situation where you build up net worth of 10, 15 million dollars, and a lot of that’s liquid, and you’re very comfortable with being able to pay all of your expenses, all of your goals that you have for the future. And then let’s say you have another $10 million on top of that. Well, that $10 million could pretty easily go into real estate, because as long as it’s not affecting expenses too much, it’s not likely to change the success of your current financial plan. So real estate is really interesting in that. And that’s why I would look at that as the first determination of whether or not I would go with cash.
There are some benefits of debt, especially when you have the deductibility of debt. At today’s rates, as you were saying, that hasn’t really changed too much. When you’re deducting that, especially up to that $750,000 limit, there’s some benefit there. It’s probably going to be more of a wash of looking at debt versus cash at this point. And I say cash is something that could have been invested. So I would look at that as a maybe, but really I see this as two options. Are you just going to go pay for it in cash that you have? Or are you going to have to sell assets to build up that cash?
Which is where the question becomes really interesting, because you had mentioned that I don’t want to disrupt the tax situation by selling to fund a down payment or the cash payment. Absolutely reasonable. That requires a little bit of a deeper dive. I’d want you to look at what holdings you have and what the tax cost would actually be. It’s really common where somebody says, well, I don’t want to go sell a bunch of stuff and take on the taxes to go pay for this, so I’m going to look at the S-block and have this loan against my portfolio. It adds some complexity. So people are uncomfortable with that, because now you’re a little bit at the mercy of the markets as well, of margin calls, which is understandable.
But if you look at your portfolio, there’s probably a significant amount of positions that you could get rid of that, yes, would have a tax consequence, but the tax consequence as a proportion of the total position is actually not that big. What I mean by that is, maybe you’re able to sell a million dollars worth of securities and there’s $100,000 of gains there. Well, now you pay your 23% in tax. You pay $23,000 to free up a million dollars worth of liquidity. So I wouldn’t look at it only as a percentage of tax compared to gain, but more so a percentage of tax compared to the entire liquidity that you’re going to free up.
Now, because there’s a little bit of a question here about which one of you wants to do what option, I think first we start with the facts. I would look at how much cash is available, then I look at how much cash is easily available with a relatively minimal tax impact, and then start looking at the mix on total net worth, look at all the facts, and then make sure you’re evaluating of these three options what that impact would be on your overall financial plans going forward. And if you get to a situation where one of you is uncomfortable with taking on additional debt or additional leverage on your finances through the S-block, then I think in this situation, that’s a reasonable option to say no. And because there are three very valid and good options available to you, I don’t know that there’s one that I would say this is the way you have to go with it that would be worth having a major argument about, or having one of you be super uncomfortable with your finances about.
So that’s the way I’d look at it. I think you have two things to look at. One’s going to be net worth in a big way, and the other’s going to be the cost basis on how much cash you can free up. And then based on those decisions, at that point, I would evaluate whether or not you want to take on additional leverage with the S-block.
Question 2 – $35 Million in a Single Stock: What Does “Complexity” Even Mean?
Stephan Shipe: My net worth is around 35 million, and about 80% of it is in a single stock I’ve held since my company went public years ago. Advisors we’ve talked to open with how complex our situation is, but from where I sit, it feels straightforward. What does complexity even mean?
So this is really interesting — how you perceive the concentration in the stock, and how the advising world perceives a concentration in stock. Because you are absolutely right. The mechanics of what you have is very simple. You open up your brokerage account. Maybe you have one brokerage account, it holds one position, it just says 35 million. It’s something I’ll hear regularly, is someone say, well, it’s just more zeros, so it doesn’t really matter. It’s the same buttons — which has some truth to it. If I told you you had to sell some of the positions today and get out of it, it’s relatively easy for you to manage that portfolio.
So this is a good example of where you start to see a divide of wealth management and asset management and actual strategic advice. So in your situation, what I would agree with is asset management doesn’t make a lot of sense, because I think you’re probably managing your single position pretty well. The question then becomes more of the strategy around that position, and where the complexity tends to live.
The complexity is, I would say, really threefold. One is going to be the net worth now being above the estate limit. So you’re married, your estate limit’s 30 million on the federal level, may even be lower in your state, but we immediately have major tax consequences for future generations. So thinking about that — how much we should be gifting, what we should be putting into different types of trusts. Charitable considerations start to come into play. It’s enough of an amount where if you said, Stephan, that sounds great, charity is a great option for us — then I would say, well, how much charity is an option for you? Because if it’s only going to be a few hundred thousand dollars, maybe a DAF makes a lot of sense. If you start immediately throwing out millions of dollars that you’re looking at, then now we’re looking at a possible foundation, and you having a lot more control over how that money gets used out into the future. So that now starts to — if that door is opened, now we have a lot more considerations. Does the foundation take appreciated stock? Which of those stocks are you getting rid of? How does that impact your gifting and diversification path that you’re going to be dealing with?
You could argue that maybe you don’t need a ton of diversification, because you just have a significant amount of wealth compared to your expenses, that even if the stock were to drop significantly, you’d be fine. I’d think that’d be a decent argument, depending on your age, which is one of the other factors that come up in this. If you’re younger, and let’s say you’re in your 30s and you have this single concentrated position, now you’re looking at decades out, in the 50-plus years out into the future — we don’t know what that individual stock looks like in 50 years. And that is the riskiest part of idiosyncratic risk, or asset-specific risk — that when you hold one stock, time is a major factor.
And a good example of this — if you look back at like the 1970s, and look at the S&P 500 or the Dow 30 at that time, and look at what stocks were included 50 years ago in the S&P 500, what you’ll see is they are very different from the stocks that you would see today. The companies at that time that were the greatest companies of all time, the companies that were all over the magazines and CEOs were celebrities — you’re talking about Sears, JC Penney, GM, all of which have gone bankrupt since then, or are very different now, when we’re looking at the large, mostly tech companies now that hold the lion’s share of the S&P. So that’s the risk of having an individual stock — that it’s not just that you hold the individual stock and it has asset-specific risk, that maybe the CEO does something or a product doesn’t do as well, but you have the risk of overall industry and economic changes that are very much out of the control of that individual stock, and that becoming a problem. You don’t want to be holding Kodak in the 80s and 90s and then say, it’ll be fine because everyone’s going to take pictures in 50 years. That’s true. It’s just not with a camera.
So we have all of these issues that come into play. So time is a big factor that starts to require maybe some forced selling, or some ways to hedge against that risk. So we’re looking at liquidation issues, liquidity events. We’re starting to take into account what the tax treatment is. Is there any gaming there of certain taxes paid in certain years? Do you start lumping together charitable contributions, or estate considerations for trusts? So none of this has anything to do with the actual management of the asset in the truest sense. And I think where we’d agree on it is where you’re looking at saying, it looks pretty straightforward, it’s one stock. I’m not having a bunch of trouble managing this one stock in my portfolio. I’ve got one ticker symbol I look at and it goes up and down, and I’m fine if it goes down, because there’s plenty there for me.
What I’m more concerned with is all the other stuff that’s around, the satellite pieces of your portfolio that have to deal with the estate, have to deal with tax, have to deal with your bigger goals in your life. Whether it’s, do you have any interest in buying real estate? Do you have any interest in setting up a foundation or charity? Do you have any kids that we’re starting to worry about handing down wealth to, that they’re going to be able to use, that will not be one single concentrated position? Because now you’re breaking it up into smaller portfolios that may not have the same advantage that you have of being able to hold a single position. In other words, they might have a smaller amount that we can’t handle a drop in that stock, because that would adversely affect their lifestyle in a major way.
So that’s where the complexity starts to come in. In this case, I don’t think you’re wrong that it’s very straightforward. It is straightforward from an asset management perspective. It starts to get very complex when you start looking at all the different decisions and what this touches. And the trap that I’d be very careful about you falling into is, when you start to see these types of situations, I don’t want you to think it’s simple so I don’t have to do anything. That’s typically where we see the most problems happen. Because you’re looking at it saying, it’s simple, there’s nothing I have to worry about, when really there’s this huge cloud of stuff around you that really should be taken into account earlier rather than later, so that way you start to have things in place.
From the Field – Legacy Planning Beyond the Documents: Family Dynamics, Governance, and Preparing the Next Generation
In our From the Field segment, we’re joined by Lisa McCurdy, a legacy planning attorney who manages both a law firm and a consulting practice focused on generational wealth stewardship. Her work spans the technical side of trusts, governance structures, and fiduciary roles, as well as the human side of family communication, values-based planning, and preparing multiple generations to steward wealth together.
Stephan Shipe: Lisa, welcome to the Scholar Wealth Podcast. To start off today, why don’t you give us a little bit about your background and how you got into this work?
Lisa McCurdy: My life’s work has been focused exclusively on legacy planning — all levels of planning for one’s future. High net worth, ultra high net worth, usually a more complex situation — think trusts, governance structures, et cetera. But a number of years ago I realized that the family dynamic plays such a critical role in the success of that plan. The relationships really matter, and communications among the generations, as well as preparation of the next generation to really steward the wealth, is key. So not only do I manage a law firm, but we listen to our clients, and we also host multiple generations of families through facilitated conversations and communication through a consulting firm, which allows us to reach beyond our bar associations where we’re licensed to practice law into consulting. And it has really brought depth to our clients and depth to the community.
Stephan Shipe: Do you find that most members of the family are pretty open to having those conversations? Or is it really top-down driven? Or is everyone really excited to go talk to Lisa about the estate?
Lisa McCurdy: There’s usually a family leader, and I’ll talk more about that. But it really depends on the family. Most families have some unspoken concerns, certainly assumptions, labels and identity that they’ve given — each of the family members. Think, who in your family was named the smart one, or the pretty one, or the fun one? And that can unfortunately be a blocker when we’re looking at generational wealth stewardship, and family members feeling involved enough to actually pick up that baton and do the work, serving the roles that allow for wealth to really be preserved and for family teams to work well together around a common mission and vision for generations to come.
Stephan Shipe: So give me some of the topics that you’re going into. When you start to pull a family together and you’re guiding these discussions, is it more the relationship dynamics? Is it just planning for the future of, here’s what you should expect, a little bit of both, or education on what the trust is? What do those topics look like?
Lisa McCurdy: It’s really all of the above. So certainly on the legal side we are preparing trusts, we are designing strategies and plans. We’re leaning into the purpose of the trust, and sometimes the individual beneficiaries and the extent to which they’ll need additional guidance, who should serve in certain roles, as well as of course making sure that there’s clarity around all of that.
But beyond that — and I’ll tell you where this really began. We were being hired by adult children just to begin the conversation with their parents. They didn’t want to seem controlling, they didn’t want to seem greedy, they just didn’t know how to open up the lines of communication, knowing they were going to be stewards of significant wealth down the road, but having no idea what that looked like. And that led us into this area of the family dynamic, communications, roles. There’s a pattern of avoidance that we see dressed up as respect in a lot of families. They tell themselves, we’re being considerate, we’re protecting family members from hard truths and discussions. But what they’re actually doing is letting something fester for years, quietly, while the paperwork moves forward. Oftentimes they’re committed to the paperwork, but the difficult conversations can be really debilitating. And so we help families to get past that, starting with small wins, focusing on things where there’s some common ground — values, guiding principles, common wisdom, maybe even leaning into stories. And we move forward from there with the short, small steps of success.
Meeting Every Family Member Where They Are
Stephan Shipe: When you have a family come in, I can’t imagine that everybody in the family is at the same either knowledge level or readiness for those types of discussions. So how do you facilitate that type of discussion, or maybe have an example of how that’s done, that doesn’t make the ones who aren’t ready for that discussion feel left out? Because I imagine it’s really easy for someone who is familiar or is ready for this discussion to take charge in those meetings and really get a lot out of it, and maybe even alienate some of the others in the room.
Lisa McCurdy: Sure. We design the program to meet each member in the family where they are. So oftentimes we start with the simplest of exercises. Tell us, silently to yourself, identify three values that are core to you. And we give the family — sometimes three generations in a room, think from five to ninety-five — some time to identify those values. And you’d be surprised, even the youngest have an idea about these types of things. So we involve them very early, and they feel very connected to the family even then. And then we come together and share.
Many family members are surprised at how connected they are around the same values. They may describe things slightly differently, but they can feel centered, even in the smallest way. Of course, this doesn’t solve everything, but even in the smallest way, feeling reconnected around these values, around guiding principles, starts us off on the right track and reminds family members how they are more connected, that they think of things maybe in a more similar manner than they thought they did. And then we move forward from there with those small steps, expanding from there.
Stephan Shipe: Do you ever see, after you start with these values and start to build this — it starts to sound a lot like almost a family mission statement of what the goals are, what the overarching path is for the estate. Does that end up changing any of the estate documents?
Lisa McCurdy: Well, it can change the documents, and maybe it should change the documents. I’ve worked with families where the parent had, kind of quietly for years, realized that all of the children weren’t ready to steward the wealth they’d built. One might be a natural steward, kind of financially literate, engaged; the others maybe were on different levels of readiness. But nobody wanted to say it out loud. Nobody wanted to have these kinds of conversations. So instead of naming the elephant in the room, the families did what most families do. They just wrote the documents that were necessary, maybe even split the wealth evenly, because they wanted to be quote-unquote fair, but they didn’t address the important and actual needs.
Once they’ve gone through our process of governance, of family mission statement, and developed some of the tools to prepare the next generation of stewards, and most importantly have started to open dialogue around these issues, oftentimes there’s a shift. There’s a shift in a couple of different ways, really, at each generation. So the matriarchs and patriarchs understand who is ready to take the baton and move forward, who’s available, who’s ready, who’s interested. The sandwich generation, we’ll call them, feels a sense of comfort that their parents are discussing these issues openly, that they often are able to become better aware of what’s been planned, of what their role and responsibility is, what others in the family’s responsibility will be. And the youngest in the family feel a different sense of responsibility, and having been included, they have some skin in the game, because they’ve been involved in what they believe is kind of the development of that wealth stewardship and wealth preservation, and what their family will become known for. And so responsibility — not burdensome, but truly empowered.
Stephan Shipe: Does that mean that different children, I guess if we’re looking at that second generation, end up taking different roles in the estate process or in the trust process? Or are those divided equally as well?
Lisa McCurdy: Well, we use a methodology called Legacy on Purpose, and it really focuses on the intentionality around making these decisions, identifying those. And very similar to any other type of team, a family team needs to be able to identify who would be ideal, for instance, in a co-trustee or trust protector or another fiduciary role. There may be a better nurturing role, where that person helps to facilitate and identify and design the family meetings and communication. So there are typically different roles. Everyone can’t serve in the same role. And too many cooks in the kitchen, they say. But there is a wonderful role for each and every one, based on their talent, based on their interest, based on their ability, and their willingness.
How Often These Conversations Should Happen — and Using AI as a Communication Tool
Stephan Shipe: When you go through this training or these programs, is this meant to be continuous? How often are you meeting with families? Or is this — I’d hate to compare it to a summer camp, but you know, is this the estate summer camp where you get the family together to start talking about whose role it is? Or is it more of a, we’re going to meet regularly and continue to build on these skills?
Lisa McCurdy: We think these should be common conversations that occur at least annually, but that’s really the lowest bar. Typically a couple of times a year, so that they become comfortable and common. It’s really the silence, the assumptions, that derail a family. We think that it’s the legal structure, the documents — but oftentimes they’ve had the most sophisticated planning and those things, the structure is in place, but the human element is critically important, just as important oftentimes as the structures. Because there is a role. And when family members feel fractured, feel disconnected, there’s an opportunity for — and we see it time and time again — for there to be infighting, for there to be significant challenges, especially when a loved one passes away and they’re no longer there to center family members around the why. Which is why it’s so important, prior to someone becoming ill or prior to someone passing away, for these conversations to be regular, consistent, and an opportunity to discuss those silent questions that are in the background.
We’ve also been leaning into AI recently, AI as a communication tool. So we have been able to help a number of families who are scheduling meetings, and they know that there’s a challenging topic that’ll be coming up down the road — to not, you know, with all of the warnings, don’t feed your Social Security number or your tax filings into an AI agent, but when you know there is a topic, maybe it’s investment, maybe it’s philanthropy, you can, with the proper instructions, design language that a baby boomer needs to hear, that a Gen Xer needs to hear, so that they feel included in the conversation, the door’s open, and there’s opportunity to get past the challenges.
When each member of the family feels heard, when they feel involved, when they feel like there’s a door open for them to walk through and ask those questions that they’ve had, or provide their perspectives — and even if something different than what they’ve suggested is the final answer, the dialogue and the communication and the openness speaks volumes for the success of building those stronger family teams, and the success of that wealth stewardship along the way.
Stephan Shipe: So you’re using the AI to frame how the family should be talking to each other, or how to explain a topic. Ooh, that’s interesting. So you have generation three trying to explain what they mean to the first generation. So they take what they have, AI reframes it in a way that would resonate better. And then how does that information get sent? Is there the third generation just writing a letter and sending it to grandpa after ChatGPT looks at it? Or is it just framing it as talking points in the meeting?
Lisa McCurdy: Talking points in the meeting. Some of the information and details could become part of their governance structure, or kind of meeting notes and things like that that they would refer to, but absolutely for talking points. We really want the communication to be open. Obviously you can communicate through email and letters and things like that. But we like to get people in a room. That’s critically important, because dialogue unearths additional dialogue, and topics and subtopics that need to be addressed. And AI has proven to be a wonderful tool to be able to reframe some of those difficult topics so that they’re better received, we’ll say.
The Assets and Structures That Cause the Most Conflict
Stephan Shipe: Of those difficult topics, are there any assets or structures that tend to cause a little bit more issue, that people should be looking at and saying, if I’ve got one of these, I really do need to be talking to Lisa about having a conversation earlier? And I guess to add context to that one — if somebody has, let’s say, thirty million dollars in cash and three kids, and everyone’s just getting $10 million of cash, I would assume there’s less conflict after — maybe I’m wrong — than if someone had other types of assets or structures in place.
Lisa McCurdy: No. There are feelings about all types of assets. So when there’s significant wealth there, the type of asset really doesn’t matter. The structure is usually going to be much more complex, whether there’s cash, whether there’s a family business. So I’ll lean more into the family business. Oftentimes when there is a business involved and all of the children aren’t involved in the business, which is very common — oftentimes one or two children are involved in the business, others aren’t — it could make sense that the child who’s involved in the business will inherit more of the business assets, and just as importantly, the operational authority to continue on, versus another child who might receive cash, and another who might receive some type of property. Those conversations can be a little tricky, because there’s a difference in growth in terms of value.
And those can be the conversations that family members really need to lean into. Well, is equal equal? Or are there adjustments to be made? There are a number of formulas, for instance, that we can build into trusts to adjust for inflation, adjust for changes in value, adjust for changes in industries, whether that’s related to a business or shifts in real estate values. So there are ways for us to not only communicate around these issues, but also plan around these issues. But it really does start with communication — unearthing, opening these conversations to dialogue, versus burying them, leaving them to chance and assumptions. Assumptions rarely are accurate. And that’s where the stumbling blocks come into play, when the reality is revealed against the assumptions. These conversations help to avoid those stumbling blocks.
A Story of What It Looks Like When It Works
Stephan Shipe: In avoiding stumbling blocks — I think that’d be a good segue into another question. If you look back at the time you’ve done this and the different cohorts you’ve had and families you’ve worked with, as we start wrapping up today, what example do you have? Do you have a story of a time where it’s worked really well?
Lisa McCurdy: I have a great one. We worked with a family — this was about eleven, twelve years ago — a family of several matriarchs and patriarchs who not only owned significant land, but also a family business focused on tourism. Their children and grandchildren, many of which were adults, spread out around the country. This family was in South Carolina, Hilton Head area. And they had a belief — the matriarchs and patriarchs thought, we’ve built this for future generations, they should be willing to relocate, to join the family business, to claim the family land now.
We helped them to understand that this was unrealistic, en masse, to expect their children and grandchildren, who had built businesses, built relationships, built homes, built careers around the country, to just pick up and return. Instead, we helped them to establish an apprenticeship program where those in the family who were potentially interested in relocating, joining the family business, relocating to claim their land, would take at least one week out of the year, out of their vacation time, and apprentice at the family business in the role that they believed they might want to assume. It allowed those family business leaders to observe, to train, to guide. It allowed those prospective next generation of leaders to meet vendors, customers, clients. And we’re thrilled with it.
Stephan Shipe: That is a great story. Well, thank you for sharing that one. And thank you for joining us today. This has been really helpful. I think once we get away from those documents, there are a lot of different dynamics floating around that, unfortunately, a lot of people don’t know how to navigate, because it’s always so personalized. Well, thank you so much for joining us today, and hope you have a good one.
Outro
Stephan Shipe: That’s our show. Thanks for listening, and we’ll see you next week.
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