Randy Fox Interviews Mark Trewitt, Part 2

Randy Fox Interviews Mark Trewitt, Part 2

Article posted in General on 12 October 2016| comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 13 October 2016
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Summary

Mark Trewitt interview number two continues our exploration of his book and his thoughts on a higher plane of thinking about philanthropy.

Click here to listen to the audio version of interview.

Randy:    Hi this is Randy Fox with the Planned Giving Design Center and we are back again with Mark Trewitt, author of Integrated Generosity. Mark, welcome back.

Mark:    Thanks, Randy, for having me back. I really enjoyed our last discussion and glad to have the opportunity to dig a little bit deeper into the book.

Randy:    Yeah, I know we gave it the 50,000-foot view last time and this time I hope to really dig in a little bit more, but before we do that you had mentioned in some of our conversations that there are some resources that are on your website at integratedgenerosity.com. Tell me what's out there so that people can go get that free stuff.

Mark:    Absolutely, Randy. That's a great place to start. First of all, we've carved out the last section of the book which comprises all of the contributing author content as a free eBook titled Keeping the End In Sight. By requesting the eBook, you're also signed up for an 8-week white paper series that covers probably the most important excerpts from the book with content that can be easily read and enjoyed over a cup of coffee. There might be one of those segments that requires 2 cups. Additionally, we've developed a self-assessment questionnaire which helps families begin the process of making significant and impactful paradigm shifts in their thinking and in their planning. That's found on the website under the 360 degree tab. Lastly, we've begun developing strategies for charities and ministries to deploy the book as a tool to generate discussions with their supports, as a fund raising tool as well, but most importantly to help their clients, their donors, their supporters, their champions, their board members, to help them beyond checkbook philanthropy towards accomplishing larger generosity objectives. That's on the website under ministry resources tab.

Randy:    Let me just ask you one question about the self-assessment questionnaire because I love self-assessments. Most of our readership, our advisors or people in non-for-profits, do you object to them using the self-assessment for some of their clients and donors or how would you like to see that self-assessment distributed?

Mark:    Randy, some of the best ideas that I've ever been able to utilize in my practice have come from others. I'm absolutely eager for other advisors to use whatever questions they can draw from that self-assessment questionnaire in helping their clients. It's not about me. I don't consider it necessarily that it's mine. It's collective of what I've gathered from others over many years.

Randy:    Well, the book is about generosity and this is you being generous to the advisor community. Thank you. I signed up, of course, for the white paper series and I think it's really interesting. I really found the chapter about paradigm shifts to be really insightful. Let's start where we left off discussing involuntary philanthropy as pertaining taxes of all kinds. One of the planning precepts that is included in the white paper series takes the position that taxes, estate taxes, are largely voluntary and we can control that. I think that's really hard for most people to wrap their head around.

Mark:    Certainly. We touch on this in the very first chapter. Drawing from my own family's experience, that chapter is titled Experience Is The Best Teacher. In our family, my step-grandmother's estate tax bill was almost $500,000. My mother put a very personal perspective on this commenting that it was a shame that the East Coast Trust Company that manager her step-mother's investments didn't do more to reduce the impact of estate taxes. They just really did the investments. $500,000 would have more than paid for the college education of all my mother's grandchildren.

Randy:    I think I remember you said that was your family's t-shirt which I thought was a really interest twist of phrase. What's that about?

Mark:    Well, I think most everybody that'll be hearing this has probably heard the expression been there, done that, got the t-shirt. As indicated before, experience is the best teacher and my hope is that readers can draw from some of the stories in the book about mine and many others in there of families much wealthier all across the spectrum where both good planning and bad planning outcomes have resulted. These stories are key to reinforcing planning precept number two and that is estate taxes are truly voluntary. Everyone has a choice as to the three destinations for accumulated wealth, family, charity and the IRS. Interestingly enough, when you put the words the IRS together, it spells out theirs and we'd like to change that. With proper planning, the IRS can be excluded from participation in the wealth that passes from one generation to the next.

Unfortunately, Randy, there's a cost of silence between generations. When good planning is void of proactive measures to change the default planning paradigm and the outcome, the result of which is paying too much in taxes during life and allowing estate taxes to be present at all at the point of estate passing from one generation to the next. Given the choice, most families would prefer to disinherit the IRS in terms of what they leave behind. Philanthropically focused advisors and their clients know this and have the opportunity to be impactful in seeing that their outcome is a zero tax estate and wealth transfer plan.

Randy:    Yeah, well you're really preaching to the choir here, Mark. Let me add a couple of things to this and digress just a little bit because it's really interesting. I get a call at least once a week from an advisor who says something about I've got this client, but he's not charitable. I don't think they realize that their client really is very charitable. It's just that the charity that they're picking is the IRS. Most advisors don't seem capable of communicating that to their clients. It's very odd to me.

Mark:    That's one of the reasons that we address that very early in the book and as well, we address it often all the way through the book.

Randy:    Many of the advisors I work with have business owners as clients and every business owner I've ever dealt with, and maybe it's the same for you and maybe it's different for you, I'm not sure, but every business owner does everything in their power every year to pay as little income tax as humanly possible without falling under the scrutiny of the IRS. They will do anything they can to save 22 cents and yet when it comes to end of life planning, they don't mind turning over half their estate to the government. It makes no sense from a logic perspective. We are obviously, as an advisor community, doing a terrible job of communicating that and I know you and I are working to change that and that's one of these reasons we're having this conversation.

Mark:    Well, one of the quotes in the book is along the lines of people don't know what they don't know and they might think they're doing all they can to keep their income taxes to a minimum, but a lot of the strategies in the book that involve becoming more charitable during life with liquid assets, as we talked about in our last call, are designed to bring more tax dollars back into the family wealth cycle and allow that to be applied so that the family can be more generous, have a more integrated plan and create what we refer to, through that significant income tax reduction during their life time, create what refer to in the book permission slips to enable them to live more, to love more, to give more and to leave more.

Randy:    I really like the permission slip idea to just be common sense that just we miss. Why do we need permission to live our lives that way? Give us an example of a paradigm shift as it pertains to estate taxes.

Mark:    Absolutely, Randy. One of the most often missed opportunities comes from the use of application of life insurance to pay estate taxes which are voluntary. I've had the opportunity to speak in front of insurance industry folks and I ask the question, I had them all raise their hand, how many of you believe estate taxes are voluntary and all the hands go up. Then I ask them the question how many of you have ever sold a policy to pay estate taxes which are voluntary and slowly but surely, including mine, most of the hands go up. One of the stories we share in the book is a discussion with an attorney who was very pleased to find, this was a new attorney in the situation, terminally ill client, was pleased to find that there was a life insurance policy in place of less than $10 million, but he indicated, "Hey, this is great because those funds are going to be necessary to pay the estate taxes," on what the family had been able to manage down to a fairly small taxable estate.

The paradigm shift is at the core of the intentional stewardship concept being the stewardship among the family of what is done and the planning that is done for a better outcome. The result of the children encouraging and the parent agreeing to implement a zero tax charitable end game where the estate taxes were eliminated entirely through the use of a testamentary lead trust. Had there been the all too typical silence between generations in respect of that wealth transfer that was about to take place, the result would have been a multi million dollar life insurance policy just trotting off, proceeds trotting to Washington. Whereas in this case, it served the purpose of restoring to the family, because it was retained, it wasn't decimated and eroded by taxes, they were able to restore it to the family what they directed toward their desired charities as a result of a last minute testamentary lead trust that was put in place.

For that next generation, the two sons in the situation, they had the ability to exercise what we refer to as directed generosity so that they could take those lead trust payments and send that out to the charities and the causes that were not only important to them, but that dad was very passionate about. Unfortunately, and this ties in to what you said before, when there's not charitable element involved during life or death, life insurance is often the default mechanism of providing liquidity to pay estate taxes and it simply becomes an installment payment for a future tax that could have simply been avoided.

Randy:    I agree and the idea of selling life insurance or buying life insurance to estate taxes has always puzzled me. I think it's one of the reasons why people don't like life insurance. They realize what they're doing subconsciously and they don't want to do it. It's just no one has ever shown them a better way. It's become a necessary evil, but when you do it the way you describe you really have a much more impactful outcome. Right?

Mark:    Absolutely. Randy, once a person grasps the concept of involuntary philanthropy as taxes being paid to the IRS and that includes income taxes during life, that includes capitals gains taxes on transactions and liquidity events that take place and this is really applicable for closely held business owners and if their company gets bought by a public company or whether they just get bought out and it especially applies to estate taxes. All of that falls in that category of involuntary philanthropy. When it comes to life insurance, the realization that paying premiums to fund a solution in order to pay that tax that is voluntary is simply flawed at the outset.

In the book, I highlight a number of discussions with families where their present planning include life insurance premiums well into six and in some times seven figure sums where the insurance proceeds will be needed to pay estate taxes. It's nothing more than the result of there being no significant creativity in the charitable and wealth transfer mechanisms where the estate tax could be totally eliminated. It's not to say that the planning that they've done is bad. Usually it's very good planning that's been done, but it's very traditional planning and we've got to help our clients step outside the box a little bit and at the very least, evaluate the choices that are available and help our clients become much more aware of the better choices and outcomes that they have.

Randy:    Yeah, it seems so inefficient. Again, you said it really well a few minutes ago which is basically it's an installment payment, like paying off your mortgage, to buy something that's eventually going to just go to the government. You may as well just pay them the taxes. Just give them the money.

Mark:    Yeah. A lot of people, and this is an important sidebar, a lot of folks, the reaction you get when you start talking to them about estate taxes, "Oh, it's not my problem. I'm going to be dead." That's, unfortunately, a very selfish attitude and it's not one that represents good stewardship. We're all blessed with things way beyond what we deserve and in most of the circles that I run in and the folks that we work with, they understand it doesn't belong to them. They're simply stewards of what they've been blessed with. To ignore such a significant area of what we refer to as wealth leakage is just poor stewardship.

It's not that folks become more charitably inclined. It's that they experienced their own paradigm shift when they're exposed to new ideas. They realize in this particular context that they have a choice between the status quo of their present planning with the result being a significant amount of involuntary philanthropy to the IRS as opposed to becoming more proactive in their pursuit of better outcomes for both intentional stewardship of what passes to family. Not just the valuables but also the values that pass down to family because if you leave wealth without leaving values, you might as well give it all away to charity. Beyond that, the directed generosity in respect of significant charitable impact and the causes that their family cares about. This includes in most instances significant reduction of income taxes during lifetime which becomes the fuel, the power, the planning engine. That's the sweet irony is that the solution to all these problems can be funded by the subsidies that the IRS makes available. Given the choice of what's possible, most families would choose to disinherit the IRS during life and at death.

Randy:    They say you can't take it with you, but you can certainly who gets it.

Mark:    Absolutely. The lead trust I mentioned a moment ago falls right into that category.

Randy:    Exactly and you mentioned some of the public figure outcomes, both good and bad, in your book. Why don't you just tell us a little bit more about that?

Mark:    Well, I'll give you a teaser and maybe, Randy, we can save that for the next interview.

Randy:    Sure.

Mark:    We touch on some of the real life examples of Jackie Onassis's estate and what came after that with JFK Jr's passing. We focus in on a lot of the public information that's out there. We draw that into the book in respect of Sam and Helen Walton, George Steinbrenner, the Robbie Family that infamously lost, due to estate taxes, lost both the Miami Dolphins as well as Robbie Stadium. The stark comparison with George Steinbrenner who had the I guess fortunate timing of his passing, at least for his family, of passing away in 2010 when there was no estate tax. We look at Mitt Romney and a lot of the planning that has been done there. Much of that inferred by the press because of all of the public disclosure that was required when he ran for president. Those are a few examples in there, but we also have a couple of chapters, one of which highlights the organization that Bill Gates and Warren Buffet set up where the billionaires basically pledge. It's the Giving Pledge.

Randy:    The Giving Pledge, yeah.

Mark:    Yeah, where they've pledged to give at least half of their wealth to charity and in reading some of the letters that are available on the website, it pains me to hear that many of them are going to do that when they die. Again, missing opportunities that exist during life. There's also a chapter on Giants For God, these are very significant leaders, both alive and dead, that have impacted Christianity in very significant ways. We can dig more into this on our next interview. How about that?

Randy:    That would be a whole interesting conversation. I actually keep a copy of Jackie Kennedy Onassis's will on my computer to show and talk about at seminars on occasion. Of course, I follow the case of Prince who died without a will and a number of the big actors, movie stars, music people, athletes who have phenomenal wealth and have failed to do any planning whatsoever as bad examples of how to waste tremendous opportunity.

Mark:    Well Randy, I might simply put this out there that after we get passed the election and we know what changes are on the landscape, we'll probably be updating the book and when we do, I'd love to invite you to contribute a chapter specifically on some of those other public figures. It's interesting that you keep that handy to remind people. I keep a copy of my step-grandmother's estate tax return close at hand when I'm talking with folks about this because it's what drives and has driven my passion on this topic for almost 20 years now.

Randy:    Yeah, unfortunately one of the sad ways to learn is from our own experience. We can have really good experiences and we can have really impactful experiences like yours with your step-grandmother's estate and that stayed with you and has helped create this book probably. That bad experience has turned into something very, very meaningful for the rest of us, Mark. Thank you for that and thank you for your time today.

Mark:    Absolutely, Randy. It's been my pleasure and thanks again for having me on. I'll look forward to one more segment in the future.

Randy:    At least one more. Good enough. Thanks, Mark.

Click here to listen to the audio version of interview.

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