Podcast

Episode: 482 |
Gabe Nelson:
Financial Planner for Solopreneurs:
Episode
482

HOW TO THRIVE AS AN
INDEPENDENT PROFESSIONAL

Gabe Nelson

Financial Planner for Solopreneurs

Show Notes

Gabe Nelson is the owner operator of a registered investment advisory firm, a fee-based financial planning and investment advisory services to solopreneurs and self-employed professional clients. In today’s episode, Gabe talks about all the important details of financial planning for the solo entrepreneur. Access Gabe’s book, The Solopreneurs Money Manifesto on Amazon, listen to his podcast, Solopreneur Money, or visit his website, GabeNelsonFinancial.com.  

Key points include:

  • 04:22: The services of a financial advisor
  • 10:16: Insurance planning
  • 20:27: Retirement accounts
  • 31:38: Tax changes for an S corporation

One weekly email with bonus materials and summaries of each new episode:

 

  1. Gabe Nelson

Fri, 4/1 1:46PM • 44:33

 

Will Bachman  00:01

Hello and welcome to Unleashed the show that explores how to thrive as an independent professional. I’m your host will Bachman and I’m here today with Gabe Nelson who is a solopreneur, a financial advisor. He’s also the author of The solopreneur money manifesto. He’s got a podcast as well, Gabe, welcome to the show.

 

Gabe Nelson  00:23

Will, thank you for having me on. I’m excited to be here.

 

Will Bachman  00:26

And and let’s give a promo for your podcast as well remind remind me of the name of your show.

 

Gabe Nelson  00:32

The podcast is called the solo printer money, and you can find it everywhere.

 

Will Bachman  00:38

Fantastic. So pause right now go ahead and sign up subscribe to to Gabe show. So Gabe, tell me a little bit about your practice. You focus on solo serving solopreneurs as an advisor, tell us about the services the range of services that you provide?

 

Gabe Nelson  01:00

Oh, well, my my services I provide is is the best way I can explain it, it would be overall financial and business planning advice. Some people might call it wealth management, I just call it overall business and financial planning advice where we go through and discuss everything from you know, your cash flow planning to your retirement planning to all the legal structures that you should have in place, to tax reduction, to how to retire on time and the way you want to all the way to how to run your business better. I’ve been doing this for 20, nearly 27 years. And the best way I can explain it is it’s I’ve made a ton of mistakes. And so I’ve got a lot of wisdom to share with other solopreneurs on how we can run our businesses better as well.

 

Will Bachman  01:56

Okay, and what are the your you said you serve solopreneurs? What are the Give me sort of the typical types of solopreneurs that you’re working with? I mean, that’s a broad range are we talking about? Like writers and artists or consultants, or just what sorts of what’s what’s your typical client?

 

Gabe Nelson  02:22

Typical clients would be in a few different areas. One would be Coaches and Consultants. I love working with them because they’re very similar to financial advisors, in the way they operate and the way they work with people. creatives, I’ve got a client that I work with who’s a very successful creative in the kind of copywriting and marketing world. And then I’ve got another client that has just come on that is an online business manager, which is really kind of a neat thing. She operates overseas, lives overseas. But he is a US citizen, and has contractors all over the country and all over the world supporting her supporting her clients, which is pretty cool.

 

Will Bachman  03:13

So help me understand in the world of financial advisors, there’s could you just sort of break down the different, almost like a taxonomy of the different services that someone might offer? Like, it seems that there’s one piece of it is perhaps. So let me give my kind of non informed view, it sounds like there’s one piece that’s more planning and structuring things. So thinking about, Okay, how much you’re earning. And, you know, we want to put so much into, you know, like this insurance policy, or, you know, this kind of retirement funds, sort of structuring things and thinking about, you’re going to have to have so much for college. And then there’s like a different type of activity, which is more specifically, like managing your actual assets or helping you figure out okay, which specific mutual fund Do you want to invest in? And maybe there’s some additional distinctions beyond there. So if you would think about the menu or the tax amount taxonomy of the different services that someone might get from a financial advisor, Could you walk us through those?

 

Gabe Nelson  04:22

Yeah, definitely. And that’s the interesting thing about our industry, the financial advisory industries, everybody operates just a little bit differently. And that’s, that’s the beautiful thing, but it’s also hard for the consumer to go what am I really getting here? So you, it spans everything from someone who does financial planning, but might only what I would say sell insurance, they might create a financial plan for you but they might be going down the road of helping you get the right amount of insurance to a what I would call a holistic financial planner. That comes into place or a holistic financial advisor that comes into place and creates an understanding, or a plan based of understanding where their goals and objectives are, where they’re trying to go and creates a plan for their client to follow. That does include Cash Flow Planning, college planning, insurance planning, tax planning, legal planning, retirement planning, all of that. And then some people will just create the plan, charge you a fee to create the plan, and then allow you to go implement it yourself, or hire somebody else to help you implement it. I operate in the realm of creating the plan, understanding where the goals and the relationships and everything that we’re trying to go with, and then how to put that plan in place and then help to implement that in place. Such as, and I don’t do insurance anymore, I used to do insurance, I refer that out. But then making sure that we are putting the plans in place, opening up the college funds and building those up, designing the retirement plan to meet what they’re trying to achieve through the different options that are out there. And then helping make sure they get the right amount of money into the plan. And and then then choosing the investments and managing the investments and the whole piece. There are other advisors out there that do no planning, they, for lack of any other way to put it, and this is not a bad thing, but they’ll take your money and invest it. And so if you come to them and say we’d really like to, we’ve got this million dollars, we really don’t know what to do with it, what should we do, there are financial advisors that are out there will that will put a an investment plan in place. And that’s it, they won’t focus on the remaining planning and advisory. But you’re seeing a big change in our industry over currently and over the next few years where a lot of those advisors are doing a lot more planning that didn’t used to and I think in terms of like the wire houses, you know, the big monster investment banks historically haven’t done a ton of what I would call planning. But they’re starting to move more into that as well, because it’s such a valuable piece for the clients of that planning.

 

Will Bachman  07:19

What are the wire houses, which does include

 

Gabe Nelson  07:23

the wire houses or the Merrill Lynch’s of the world, the Wall Street firms that you think of the Merrill Lynch was is part of Bank of America, the Morgan Stanley, the, the Goldman Sachs, those types of big monster investment banks is what we would call the wirehouses. In my industry,

 

Will Bachman  07:46

okay. So for a listener of the show, who’s you know, smart probably has perhaps as an MBA as a management consultant, let’s say, but hasn’t ever created a financial plan or worked with an advisor to create a financial plan? Walk us through what that would include. So what you finally go through the process, you get the deliverable. At the end, what what does the financial plan look like?

 

Gabe Nelson  08:17

Every financial plan that I create looks just a little bit different. And because it’s basically tailored to that client, but let’s let’s kind of walk through the basics of a financial plan. One, I keep it very, very simple. I try to get my financial plans on one to two pages if I can. The reason being is is the days of the 78 page financial plan with all the projections and everything in there, basically gets set on the bookshelf and never get looked at again by the client. I create a very simple, easy bullet point financial plan that says, here’s what we’re going to do regarding your cash flow. Here’s what we’re going to do regarding your emergency savings. Here’s what we’re going to do regarding your insurance planning, or here’s what you need to do tax planning, here’s what needs to happen. Retirement Planning, here’s what needs to happen. And so I keep it very simple. And go through everything from cash flow all the way through to a state and then what I would call Legal planning. It might be you need to go get a will. I mean, it’s amazing how many people out there do not have a will in place. And might need to change your business from a sole proprietorship to an escort. Or you might go down the road of an LLC or might be an LLC and then you might need to consider filing as an S corp. And so it encompasses everything from cashflow all the way down to what I would say to the legal and estate planning piece of the puzzle that we touch on every piece.

 

Will Bachman  09:56

Okay, so you talked to you mentioned a couple times insurance planning I’m assuming you’re talking about life insurance. Some advice that I’ve received is just basically most people should just get plain vanila term life insurance, are you talking about life insurance, when you say insurance planning,

 

Gabe Nelson  10:16

I’m talking about all insurance, not just life insurance. I agree with you, I’m a bigger fan of plain vanila term life insurance, just get as much coverage as you can. That’s my philosophy. There are there are places for those permanent types of life insurance out there. But I don’t think that’s the solution for everything. But I’m also talking about disability income insurance, if we’re talking about solopreneurs, they don’t have a benefit package that has disability income in place to protect that, if they lose the ability to continue to produce an income, because of a disabling event, I also dig into their health insurance program, making sure that they’re taking advantage of the health savings accounts if they have them available to them, so that they can take advantage of what I call the the triple tax benefits of health savings accounts. So when I see insurance planning, when I say insurance planning, I don’t mean just life insurance, I mean, life insurance, disability insurance, health insurance, and even touch on, especially for solopreneurs. Do they have some business liability insurance in place? Do they have some things to protect them in case something goes wrong? Or if their house burns down, or all their computer equipment is fried?

 

Will Bachman  11:34

I’m on the health savings account. That that’s come up on the show once before we had an episode, we’re talking about that a little bit. And the what I heard from another guest was basically you should, as an independent professional, you should get a health savings account. And you should max out your contributions. But don’t spend the money on health care. Now, you should. And you get one of these health savings accounts. That where you can invest it in, in like a mutual fund. And then you should let that grow over time. And then you can use that because it grows tax free, right? You put it in pre tax, and then it grows tax free. You can take it out without paying taxes, as long as you use it on health related expenses when you’re whatever over 65 or something. Is that what you’re referring to? Yeah, definitely. Yeah. So that actually changed my behavior. I used to just, you know, just use it for healthcare expenses. But I found I found an account where you can invest it in basically Vanguard mutual funds. So so that that’s that’s what I did just max it out. And it’s it’s sort of like an IRA, but even better, because you take the money out, it’s tax free as well. Yeah, in terms of disability and income. We did one episode on that. When I researched it, it was it seemed at least for my situation, the short term disability insurance didn’t make a lot of sense. But I did end up getting a long term disability policy, the short term it just like the cost of it versus the you know what I get back in, you know, in disability payments, it didn’t make sense. What’s your typical take on disability insurance and like how much to get for a solopreneur and short term versus long term. And there’s also variables about like, you know, when it kicks in, and so forth.

 

Gabe Nelson  13:24

Yeah. Short term disability, I agree with you, I think that you you as a solopreneur can cover that with an emergency savings account, and do a good job of building that up. The costs in relation to the benefits aren’t quite as great Long Term Disability Insurance. Now, that’s a different game, long term disability insurances if you are unable to continually produce an income doing what you do, and I’ll get into a few more details on that. But the idea of disability income insurance to protect you if you can’t continue to produce an income is one of those things that can fall back when I put it can totally derail your whole financial plan. So long term disability income insurance, there’s a few things I always tell people is look for one look for own occupation, definition of disability, own occupation, definition of disability means if you are currently a consultant or a coach, or running your own business in whatever capacity that might be as a solopreneur. And you become disabled, and cannot continue to work in that capacity. But you could go do something else with an own occupation definition of disability. You not only can get the benefits from the contract, but you can also continue to make an income elsewhere, which means you can kind of double dip a little bit. That’s the one thing I always tell people to look for is the own occupation definition of disability. The next thing that I always tell people to start to think about Okay, what is your emergency savings position to allow yourself to basically kind of self insure the first three months, six months or one year of time until that policy kicks in? That’s called the elimination period. And so the elimination period is kind of like your deductible with your car insurance. It’s like, what do you got to pay first, before the insurance company is going to pay the rest of the picture car. And so is are you going to, are you going to self insure the first three months, the six months or 12 months, the longer the self insurance period or the elimination period, the cheaper the premium is going to be. And so it’s kind of like having a deductible on your car insurance, you go from $100, deductible to $1,000 deductible, the price is going to be less on a monthly basis. And so then the next piece of the puzzle that I tell people to make sure that they’re digging into it looking into is then what is the benefit period that you have available to you? And the benefit period is how long is that policy going to pay? Are you going to have a pay tell, you know, five years? Or are you going to have that policy paid till age 65 or 67. That’s the other piece that you want to make sure that you dig into. I’m a big fan of six months of of a elimination period. And then having that own occupation, definition of disability. And then having that policy pay benefits. If you do have a disabling event, realistically, probably till 67 years of age, depending upon you know, your own goals and objectives of you know, when you want to retire. And so that then encompasses what is going to be necessary in a disability income insurance policy. But the big thing I always tell people is make sure that you have been in business for a bit. Or if you’re making a transition, try to see if your disability income insurance policy is portable from your prior job making a change. Because if it’s not, and you want to get disability income coverage, most insurance companies are going to want to see two years tax returns of you being self employed. So that you don’t have that moral hazard of Oh, well. I can’t do this anymore. I’m not being successful, I can’t do this anymore. Maybe I can get the insurance company to pay my premiums by having some quote unquote disabling event. And I’m not making light of a disabling event. I’m just saying the insurance companies aren’t going to give you much love until you’ve been in business for two years or longer.

 

Will Bachman  17:41

Okay. So let’s say we talked about HSA, we talked about life insurance a little bit. And disability insurance. What are some of your other like most common recommendations, so when you you’re sweating, your typical client comes in and you’ve done the plan? What are some of the most common recommendations that you’re that you’re providing

 

Gabe Nelson  18:07

most common recommendations, and not in any particular order. But generally, we need to build up our emergency savings fund, we generally need to get that taken care of most people don’t have enough cash sitting around to protect and if something happens, how much do you recommend that I recommend six months for solopreneurs. I mean, I I will hang around three to six months, but I’d like six months just to allow them to weather things happening. I mean, we just went through a pandemic, we’re not quite out of it yet. But we’re getting close. And I mean, there’s some people who their businesses shut down for three to six months immediately. So emergency reserve fund is the first piece. The second piece that I generally see that needs to be done as solopreneurs need to start building their retirement, they need to start moving forward with that they might have something sitting in a prior job or whatever it might be. But a lot of times that gets kind of pushed aside as we’re building our business and we’re growing our lives and we’re reinvesting in our business and we’re traveling and we’re doing the things sometimes we forget to go get that retirement plan put into place. And that’s where I get really excited, I get excited talking about the different types of plans that are out there. And then designing the plans to allow them to retire on their terms and and start to be able to do it how they want to do it and then start to allow them to put as much money in as they’d like help reduce their tax bills help to plan for that is usually where we go. And a lot of times we have got to hound people to go get their wills done. I said it earlier. It’s amazing how many people do not have their wills in place that need to be taken care of. The other thing that has a tendency to be in place, is we got to go work on paper Get off deck, there’s a lot of people that are sitting out there with a lot of debt that we got to go clean up. And so those are the things that I see most of the time that we have to work on on a regular basis.

 

Will Bachman  20:11

Yeah. Let’s talk about that retirement piece a little bit. So one common vehicle would be an SEP IRA. Talk to me about that a little bit and talk to me about some of the other vehicles that you that you work with clients on.

 

Gabe Nelson  20:27

SEP IRA, a SEP IRA is a fantastic retirement account. Especially for solopreneurs. But and the reason I say but is it has a few limitations in it. When you start doing tax planning, and start doing income planning with how you pay yourself, that SEP IRA, the limit, you can go up to 25% of your bottom line, I always tell people stay within 20% To be safe, the CPAs will always then come back with the exact number that we should be doing. But I usually play around that 20% that you can generally do in the form of your retirement account. Well, a SEP IRA works like this, let’s just say you had $100,000 Bottom line, and you are a sole proprietor, which means your bottom line is then your taxable income 20% of that for simple math would be $20,000, that you could put into a SEP IRA. And then that money can be invested in mutual funds, ETFs, or whatever it is, your stocks, bonds, whatever you’re going to use, and then that money grows, tax deferred, and then comes out when you go to retire, you’ll pay ordinary income taxes on it when that time comes. As long as you’re 59 and a half years of age or older. The $20,000, in this example, is pre tax, it’s bottom line, it’s top of the line kind of comes off of your your profit of the business. So instead of paying taxes on 100,000, you’re gonna pay taxes on 80,000 for this example. So that’s a SEP IRA. Some of my solopreneurs will go down the road of a simple IRA, not as many as we use SEPs, or the next one that I’ll talk about, which will be a solo 401k. But a simple IRA is basically taking the idea of a 401k. And bringing it down into a small business, where you can put up to, I think it’s $14,000, you can put in this year, if you’re under 50 years of age, you then can have a catch up contribution of another three to $4,000. To check the rules. Those change numbers change every year. So that allows you to put kind of like if you were still working at a job, it’s kind of like a 401k contribution, you choose how much you’re going to put in, it helps helps to reduce your taxable income. And then generally your simple IRA has anywhere from a one two or a 3% match that you would use your corporate checkbook your business checkbook to match for your salary or your bottom line 3% of that would go in so that you’re doing salary deferrals plus company match into a retirement plan for yourself. The one I love to use for solopreneurs is the solo 401k. It takes the idea of a big business 401k and brings it down to a solopreneur where you though have the ability, as long as your income can support it, you have the ability to get that maxed out all the way up to 60 $70,000 per year of contributions to your retirement account, depending upon how old you are. And if you’re doing ketchups, etc. But the the solo 401k allows a solopreneur to defer up to $20,500 of their own, quote unquote, salary, whether that’s traditional 401k or Roth 401k, you can do either one. And then you can come back in and do catch up contribution of another $6,500. So someone’s 50 years of age or older and 2022 year, they get to $27,000 into their solo 401k. Whether that’s traditional or Roth can be decided. The benefit of the traditional is you get a tax deduction today, the money grows tax deferred and you pay taxes at whatever rate you take it out at retirement. The benefit of the Roth is the Roth is the same as a Roth IRA only thing with a lot more contribution amounts that you can put in and no income limitations. The Roth can go in after taxes so you don’t get a tax deduction for funding it. It grows tax deferred And when you go to take it out at retirement, 59 years of age 59 and a half years of age or older, it is tax free at that time, then you have the ability to do what’s called a profit sharing contribution inside of the solo 401k, where you can go up to 25% of your W two, or your bottom line, depending upon how you’re paying yourself. So we can use the same example, let’s say you’re 50 years of age or older, and you have a $100,000, w two or bottom line, and you deferred $27,000 to the solo 401k. And let’s just use traditional, traditional 401k as the example, you then can come in and do another 25% profit sharing plan, which also reduces your tax bill because it’s coming as a tax deductible expense from your business. So 25% 25 grand plus another 27,000, you just put $52,000 That year away into retirement account, that then allows you to then grow that for retirement, so that you can retire on your own terms. Now. conversation needs to be had as a do you need that much tax deduction? Do you need to go with some Roth, you know, it, that all comes into the planning piece? But that is that’s kind of my favorite place to go? Because it allows the solopreneurs that are you know, doing well build your retirement, but also reduce their tax bill, because no one really likes to pay their tax bills.

 

Will Bachman  26:38

So can someone do the solo 401k and the SEP IRA?

 

Gabe Nelson  26:44

No, you cannot. And you wouldn’t need to. And the reason you would need to is the SEP IRA is just technically really the profit sharing portion of the solo 401k. So the SEP is just really, like I said, it’s the profit sharing piece. And so 20 to 25% comes out of the corporate checkbook as your contribution to your retirement plan.

 

Will Bachman  27:11

Okay, so, for someone who’s at a higher bottom line, let’s say someone is, is, let’s do it like above, well above the max for a SEP IRA. So it’s SEP IRA, I think that the maximum you can put in is like 58,000, something like that 25% of that would be obviously be what four times 60 240, something like that bottom line, let’s say someone was making half a million dollars. So with the SEP IRA, they’re, they’re limited because they can only put out 50,000 $50,000, you know, pre tax, right? Even though they’re making half a million dollars, they’re limited by the 25, not by the 25%. But by the by the cap with the 401k. The simple 401k, how much could someone put away into that if they’re making half a million dollars, bottom?

 

Gabe Nelson  28:01

Well, well, the IRS, the IRS sets sets the limits. And so the SEP IRA and the solo 401k contribution limits are going to be very similar. They’re going to be about the same each and every year. But you have the ability to with a solo 401k, you then can layer in what’s called a defined benefit plan. And a defined benefit plan takes the old school way of our grandparents who used to have pensions, and some of our parents might have pensions my dad actually does takes the idea of you’re building your own pension. So let’s take the half a million dollar bottom line person. And let’s just say that half a million dollar bottom line person is 50 years of age, for example, that person could do the salary deferral of $27,000, they then would elect a certain amount of profit sharing dependent upon how much they wanted to put into their defined benefit plan. For example, a 50 year old person could adopt a defined benefit plan and put easily $100,000 into a defined benefit plan. So without adding any profit sharing contribution, that person was able to put $127,000 away for retirement. And if they’re doing that they’re probably planning to do it all pre tax, which means that a half a million dollars, let’s just use simple math, you know, 30% tax bracket, you put $127,000 in, let’s save it Yeah, yeah. 30 $40,000 in taxes for the year.

 

Will Bachman  29:42

Okay, that’s very helpful. Now, you mentioned salary deferral a couple times. If someone has a plain vanila LLC, then they’re they’re not really getting a salary, right. They’re just it’s just, it’s just profit, the bottom line they just distributed to themselves. Are you talking about sort of assuming that they have an S corp, or they’re paying a salary. Talk about that a little bit?

 

Gabe Nelson  30:05

Yeah, yeah, the thing, the thing a lot of solopreneurs will do is they’ll start to, they’ll start to notice the complexities build as they start to become more successful. And then what happens is, is they start getting a little upset about the fact that they’re paying so much in taxes, and they start looking to their CPA, and sometimes their advisor for solutions. And that’s where a lot of people will switch over to a. Basically, they might keep their LLC in place, usually they do, they just start to file taxes as an escort. And when you file taxes as an escort, you then have to start paying yourself a salary, which means you’re going to issue yourself a W two, you’re going to pay some withholding, you’re going to pay your your fed and your FICA taxes, you’re going to pay those taxes, like payroll taxes, if you were still working somewhere else. But that’s where that salary comes in. And a lot of my clients, we work towards that, or we move them there, because it helps start to make a lot more sense tax wise for them to go down that road.

 

Will Bachman  31:10

Oh, and how does that help? Like, can you give us a theoretical example? Like walk through the numbers, if someone is making I don’t know, you can use their same half a million dollar a year example, if they starting with an LLC, or making half million dollars after all their expenses. Okay, so they’re their profits, half million bucks, full stop. And if they structured it as an S corp, and pay themselves a salary, you know, how would their taxes change?

 

Gabe Nelson  31:38

The South ate? Well, first of all, anybody that’s in that boat is paying self employment taxes. And so yeah, that’s usually the tax that surprises solopreneurs is the self employment taxes, when you work somewhere else, they withheld 7.65% out of your paycheck, they then had to match 7.65%. So there’s your 15.3%. So you’re going to have self employment taxes up to a certain level on your income, I believe that’s going to be right up to the Social Security Max wage base Max, which is in the 140, I think it’s 148,000 this year, so you’re gonna have self employment taxes up to that number. And that you don’t really get rid of unless you change the way your salary is in your W two range. But you basically have self employment taxes. And then you also have ordinary income taxes on your bottom line. And so that half a million dollars is going to put you in that 30% tax bracket. So you got 30% tax bracket on your half a million dollars, which is, what is that going to be 150 grand, that seems a little high? No, that would be $150,000. Which is ridiculous. And then you’ve got your self employment taxes, up to let’s say, the Social Security Wage Base Max, well, there’s another chunk of change, that’s going to be be there. A lot of times, what we’ll see is we will see solopreneurs go and move to an S corp, they leave their LLC in place, they change to an S corp. And they pay themselves a salary. And sometimes they’ll pay that salary up to the Social Security Wage Base max. And that limits their there’s their self employment taxes. Sometimes we’ll even see them go lower, and they might pay themselves $100,000 in salary. And they take a distribution out for some of the other and that allows them to reduce the tax bill from that full bottom line on their on their income.

 

Will Bachman  33:49

So like, typically, I’m sure it varies a lot by state and the specific circumstances but like order of magnitude, if someone was making half million dollars just for our numbers, and they switch from LLC to S Corp. Like how much might they typically save and taxes

 

Gabe Nelson  34:10

five to 10 grand probably pretty easily. Okay. All right. It’s worth it.

 

Will Bachman  34:15

Okay, so that’s, you know, not like earth shattering numbers, but probably worth paying attention to and going through the hassle of figuring it all out with your accountant. What are some things that we talked about? Let’s see, we talked about insurance. We talked about HSAs talked about retirement? Even we talked about emergency savings and disability. Any other tips that you have? Like we didn’t really get into college savings we didn’t talk about maybe just anything else that people should be thinking about? What are the kind of common recommendations that would end up in your financial plan?

 

Gabe Nelson  34:59

Well, the We didn’t talk about his, we didn’t talk about the estate planning piece, which is important. Meaning wills and trusts and things like that. But people, they don’t like to think about dying. And therefore, they don’t generally take the time to go get a will drawn up, and then decide where their stuff is going to go up, something is going to happen. It’s probably one of the easiest, yet hardest things for people to go do. And so what I tell people is, is just think in terms of a few basic things. If something happens to you, where do you want your stuff to go? Or, you know, does it need to go to your kids, if it’s going to go to your kids are your kids old enough to to, to inherit that money, or those assets. And make sure that if they’re not, or they’re not in a position that you you seek the advice of an attorney to create a trust, so that the assets can go to the kids or the heirs or the charity or whatever, properly, and not put the kids or the heirs of the charity in a bad position. Now, the charity not so much, they can just sell the stuff and use it for what they want. But the example I always like to use is our own situation, I have three daughters, I have a 22 year old, an 18 year old and a soon to be 16 year old. Now, when we created our estate plan, we basically knew that if something happened to both of us and all of the assets were to go to my three daughters, and under South Dakota law, that’s where I live is in the state of South Dakota, at age 18. It’s theirs, they can do whatever they want. And I’m of the fan. And of the thinking that if I’m 18 years of age, and I inherited anywhere from a half a million dollars to a million dollars, I’m going to figure out some way to make that last on the beach and can Coogan for as long as I possibly can. Which means I’m going to blow it at 18 years of age. So what we did is we created a trust. And it’s it’s it’s a testamentary trust, a trust that basically comes out at the time of death. And I call them poof trusts. So you die poof, the trust is supposed to come out, the assets go into, into the trust for our children. And then there are rules and stipulations as to how that money comes out for my kids. So that if each of my kids inherits a million dollars, you know, up until age 25, it’s going to pay for them to go to college, it’s going to pay for a car, it’s going to pay for their health insurance, it’s going to pay for all the things that they need to do to live. And then at 25 years of age, they’re going to get a third of the trust, which then will get distributed out so that they can start to learn how to handle this. Or maybe they’re going to use it to start a business or maybe they’re going to use to buy their first house. Five years later, there’s another third that’s going to come out which is then basically the half of the remainder of the trust. And then at 30 years of age, they get the remainder. Now why did we do that, just in case they’re having trouble figuring things out, and they don’t screw it all up in one shot like I would have done had I inherited money at age 18. Most people haven’t taken the time to create their estate plan. Now there’s another piece that the attorneys always bring into the mix when they’re doing this. It’s your durable power of attorney, or your power of attorney. And your living will. Those are extremely important. Because if something happens to me, I need to make sure my wife Melissa can step in and take care of everything that needs to happen. All the way down to selling my business. And if in fact, I’m dad, and there’s no power of attorney, and there’s no will in place, and there’s nothing in place, then we have to wait for the courts to figure things out, which then my business could be decimated, which means then my family doesn’t get the benefit of all the work that I’ve put in to have this business in place for many, many years. And I’ll give you two examples of why this is so important. And well I don’t make a penny on this. I mean inviting people to do wills. It’s just an important really important thing for people to do. There was a business that was sold in our town that in our city of Sioux Falls, that the owner had went into an agreement is my understanding and I don’t know if the agreement was signed or just verbal to sell his business to somebody else. He died without a will. And it is my understanding that if that contract was not signed, which I don’t know if it was or not, but the rumors were going around that the contract was not signed that the owners future owners needed to wait for the state of South Dakota just settled his estate before they could buy the business. So it did not allow for that business to go where it was supposed to go. I don’t know what kind of money these guys were talking about. I don’t know anything about that, I just know that I heard that story. And then on top of it, I got a phone call late last week, from a son of a client of mine, quite a mind fell down the stairs. He’s in his upper 70s, early 80s. And he is experiencing loss of mobility, and may very well have loss of mobility for the remainder of his life because of spinal cord injury from falling down the stairs. His son had questions as to what was going on with his financial situation to determine what they needed to do next. It was good he have long term care insurance, did he have his estate plan in place? Did he have what what about the assets? Do we need to take money out of his investment accounts to pay for things down the road? Where are we at? Well, thankfully, the Son, and I have copies of all of these state planning documents, thankfully, the son is his power of attorney. So I can share information with him and help him understand his father’s situation. In that instance.

 

Will Bachman  41:20

Yeah, no, that’s, I totally support all that. We, my wife and I, we’ve we finally, after years of putting it off, we finally went through a willingness date, a whole kind of session a couple years ago, and it’s, it’s not something you’re going to be able to accomplish in an afternoon, you know, you want to meet with an estate attorney, there’s, like 100 things to think about different dimensions, particularly if you own a couple properties or a business, it’s, it’s, um, you know, like creating, like several different trusts so forth. There’s a lot that goes into it. But it certainly feels good to get it all taken care of, and for your parents as well, any listeners who have parents, if if you’re just relying even on a will might what I’ve learned through that was, you know, like, a trust or estate, there’s consult things in a much better way than just a simple well, because even if you have a simple well, it can take a long time to get adjudicated, and so forth. And, like the cost of that whole thing could be something like 10% of the value of the estate, just the all the attorneys fees, and court fees, and so forth. So, so definitely look into it, it’s definitely worth the worth the investment and get your parents through the same thing with that, you know, medical power of attorney so you can take care of your folks when something happens to them if something happens to them. So I totally second at that point of view. So Gabe, tell us again, for listeners who want to follow up with you and find out more about you know what you’ve gotten on. Tell us again, your book, and your podcast and any websites where people can find out more about what you do.

 

Gabe Nelson  43:01

The book is The solopreneurs money manifesto. It’s how to master your finances and create the life you want. Available on Amazon. easiest, fastest way to find it. Let’s see podcast podcast is called solopreneur money. It’s on all of the podcast platforms. Wherever you listen to podcasts, and websites, I’m going to give two websites that are the best places to find the one is Gabe Nelson financial.com. That’s my Registered Investment Advisory my financial planning firm. There’s a Start Here button there that walks you through if if you know my philosophies aligned with yours, and you’re interested in exploring how I operate. There’s a Start Here button and just kind of walks you through how I do things. And then my other is the website is called solopreneur money.com. And that’s where you can also find my information on my book. That’s where the resources that I share in my podcast are at that’s where you can listen to my podcast if you want. There’s all kinds of resources there for you as well. So those are the places to find me.

 

Will Bachman  44:09

Fantastic and we will include those links in the show notes. And listeners. If you found some value in the show, a review on iTunes. We’ll Help others discover the show. And you can go to umbrex.com/unleashed and sign up to get a weekly email to stay in touch with the latest episodes. Gabe, thank you so much for joining today.

 

Gabe Nelson  44:30

Well, thank you it’s been a pleasure.

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