Buck shares the similar path that almost every successful entrepreneur he knows took.

Market Updates:

Investment Topic: Private Credit Funds

This week’s episode on Wealth Formula Podcast is a primer on asset protection.

One of the things that I learned a few years back is that asset protection and estate planning are not one and the same.

Asset protection is simply protection against creditors. An offshore trust in the Cook Islands, for example, is a rock solid way to protect your assets but it is not an estate planning vehicle.

Since this week’s podcast discusses asset protection, I want to just remind you of what you MUST know about estate planning.

As of today, if you are single you can leave up to $13.61 million to your heirs without being subject to estate taxes—double that if you are a married couple.

As long as you are below that, you need two things at a bare minimum to ensure that you don’t make your loved ones even more miserable than they already will be.

You need a will AND you need a trust.

The key difference between a will and a living trust lies in how they manage and distribute your assets during your lifetime and after death.

A will is a legal document that outlines how you want your assets distributed after you pass away. It only takes effect upon your death, at which point it goes through the probate process overseen by a court.

On the other hand, a living trust is a legal arrangement where you transfer ownership of your assets into a trust during your lifetime. The trust is managed by a trustee (which can be you initially) for the benefit of your beneficiaries. Upon your death, the assets in the trust are then distributed according to your instructions, bypassing the probate process.

You want to avoid probate at all costs if you want to make it easy on your loved ones. Probate is the legal process that takes place after someone dies to distribute their assets and property to the rightful heirs or beneficiaries. It involves going through the court system, which can be time-consuming, expensive, and open to the public.

It can drag on for months or even years, especially if the estate is complex or there are disputes among heirs. A living trust allows assets to be distributed relatively quickly after death without court involvement.

Furthermore, probate fees, court costs, attorney fees, executor fees, etc. can eat up a significant portion of the estate’s value. With a living trust, you avoid most of these costly probate expenses.

So if you have not done so, PLEASE make sure you get these documents done. It’s not expensive and your family will thank you for it.

Show Notes:

05:47 A Review on Estate Planning & Asset Protection

07:56 How to Determine What You Need

12:03 Protecting Your Real Estate

13:53 When Do You Need a Trust?

16:45 Asset Protection Strategies that Mitigates Tax

19:45 Upcoming Law Changes

23:50 Beneficial Owner Information Report

The upcoming wealth transfer from Baby Boomers to younger generations is a significant and unprecedented event in history, often referred to as the “Great Wealth Transfer.” Research indicates that about half of this $100 trillion transfer will go to Gen X, with the other half going to Millennials and Gen Z.

This generational shift is interesting, as Gen X has been described as less altruistic, preferring to retain wealth for themselves, compared to the younger generations’ greater focus on social equity and environmental sustainability. It will be intriguing to see how this “impact” orientation evolves as Millennials and Gen Z age.

For those listeners who will be on the receiving end of this wealth transfer over the next decade or two, it’s important to have the proper structures in place to ensure a smooth and tax-efficient transfer to your heirs. This is something that can and should be addressed now.

Considering this upcoming wealth transfer also leads to some additional implications from an investment perspective. Baby Boomers’ portfolios tended to be heavily weighted in stocks, bonds, and real estate. However, surveys show Millennials and Gen Z investors are much more open to alternative assets, such as real estate, private equity, venture capital, crypto, and other investments.

This shift aligns with the younger generations’ higher focus on sustainable investing, which accounted for 73% of their portfolios compared to only 26% for the general population. While there has been some recent backlash on sustainable investing, this trend could see a resurgence as the wealth transfer occurs.

Interestingly, real estate seems to be a consistent favorite across all generations.

Turning to the current market environment, equity markets remain near all-time highs, bond prices are generally steady, and safe-haven assets like gold and bitcoin are also elevated. The market expects the Federal Reserve’s preferred inflation metric, Core PCE, to show further cooling when the latest data is released this Thursday.

The Baby Boomer generation (born 1946-1964) was historically the largest, peaking at around 78.8 million in 1999 when they were in their prime working years. However, the current Baby Boomer population in the U.S. as of 2019 is estimated to be 71.6 million, having declined due to mortality exceeding births as this generation ages.

The Millennial generation (born 1981-1996) has now surpassed the Baby Boomers to become the largest living adult generation in the U.S. As of 2019, there were 72.1 million Millennials. The Millennial population is projected to continue growing, partly due to immigration, and peak around 2033 at 74.9 million before declining as mortality rises].

Following the Millennials is Generation X (born 1965-1980), with 65.2 million members in the U.S. as of 2019. Gen X is expected to outnumber the declining Baby Boomer population by 2028.

The youngest major generation, Generation Z (born 1997-2012), is also a massive cohort. Gen Z makes up around 20% of the current U.S. population. The Gen Z population in the U.S. is expected to grow from immigration as well, similar to Millennials.

The sheer size of the Millennial and Gen Z generations presents both opportunities and challenges for the U.S. economy. A larger working-age population can drive economic growth through increased productivity, consumption, and tax contributions. However, it also puts pressure on job markets, housing, infrastructure, and social services.

A recognized major emerging problem is the challenge of supporting the aging Baby Boomer population as they continue retiring in large numbers. The burden of funding Social Security, Medicare, and other retirement programs will fall primarily on the Millennial and Gen Z generations. This will almost certainly strain public finances and some economists have even predicted a major national depression around 2030 because of this.

All of these problems have been previously covered to some extent on Wealth Formula Podcast episodes in the past. This week, however, we cover another less appreciated problem…the transfer of massive amounts of wealth to a generation with different political views and values.

My guest on this week’s Wealth Formula Podcast believes this is a major underappreciated issue that needs to be addressed as soon as possible. Find out why.

Show Notes:

00:00 Intro

05:54 The 100 Trillion Dollar Wealth Transfer

08:25 The Mindset Difference between Baby Boomers and Millennials

10:32 The Risk of the Wealth Transfer

14:59 Monetizing Influence

16:39 Where is Gen-X in All of This?

18:36 The Positive Outcomes

21:12 Where Does the Discourse Take Place?

23:10 The Worst Case Scenario

Buck Joffrey is joined by Rod Zabriskie and colleagues of Wealth Formula Banking to discuss this powerful financial tool that leverages your savings to invest the same money at two places at the same time.

Takeaways

Tom Wheelwright, my friend and author of Tax-Free Wealth, describes the US tax code simply as a series of government-sponsored incentives. As someone who hates paying taxes, this fact has made me extraordinarily patriotic. The problem is, that sometimes incentives backfire.

Case in point—during the British Raj rule in India, there was a proliferation of venomous cobras in Delhi. To deal with this problem, the colonial government introduced a bounty/reward program where people would be paid a cash amount for every dead cobra they brought to the authorities.

Initially, this seemed to work as intended – the cobra population started declining as people hunted and killed the snakes to earn the reward money.

However, people soon realized they could exploit this system by breeding and farming cobras specifically to kill them and collect the reward. Driven by the monetary incentive, many started cobra breeding operations.

When the British officials discovered this unintended consequence of their bounty program – people were now breeding more cobras than they were killing – they scrapped the reward program altogether.

This led to another unintended effect – with no more reward money to be made, the cobra breeders simply released their now-worthless snakes into the wild, causing the cobra population to proliferate even more than before the bounty was introduced.

As an American of Indian descent, I would love to tell you that the Colonial British were just a bunch of idiots. But, the reality is that the cobra effect is alive and well in the US tax code.

To explain how, this week on Wealth Formula Podcast I interview one of America’s leading experts on tax policy.

Show Notes:

04:31 What is Taxocracy?

06:11 Tax Codes Are Just Incentives

07:15 Are the Tax Codes Making Americans Disapprove of the Economy?

08:30 The Global Wealth Tax

13:22 President Biden’s Proposal on Capital Gain

14:38 The Death Tax

18:17 In Comparison to President Trump’s Policy

20:39 The Mansion Tax

23:59 Other Tax Influences

25:46 The Tax Foundation

My key takeaway from our guest (Ryan Bourne from the Cato Institute) on this week’s episode is that policy mistakes that adversely impact the free markets happen for a variety of reasons:
Misread of data
Poor use of policy tools
Political motivation
National Security interests

Whatever the reason, the consequences of policy mistakes are real for investors. 

For example, the FED let inflation run too hot when it thought it was transitory, which probably then created a situation where they had to hike more aggressively than they would have if they caught inflation at the front end.  Resulting in a detrimental hit to interest rate-sensitive investments such as real estate and debt securities.  

Today, we can see examples of potential fiscal and monetary mistakes unfolding in front of us:

On the monetary policy front: the FED is waiting for data it needs to start cutting rates…but, it’s running into the presidential elections timeframe (RNC convention in July, DNC in August).  So, it may decide to not touch the FED rate until end of year…Thus the FED may be forced to make a policy error due to political considerations.

On the fiscal policy front: we see large investments to support US manufacturing; large investments to onshore critical technologies such as semiconductors; trade protectionism including tariffs on imports (new tariffs announced today on Chinese EVs, storage batteries, steel and aluminium products); immigration policy is also at risk of politically motivated policy decisions. 
 
As investors, what can we do?

It’s not possible to predict and factor in the impact of all of these policies.

What we can do is isolate key macro themes that are likely to drive secular trends over the coming decades.

For example:
The Aging population in the US and other developed countries.  This will drive growth in health and wellness products and services. 

Investment in upgrading the US grid to support huge demand of electricity (data centers, AI driving computing, EVs) and to accommodate new energy sources.

Deployment of AI in key industries such as biotech to accelerate drug discovery.

Historically high level of cash ($6 trillion) is sitting on the sidelines as investors decide to clip 5% interest in money market funds.

As soon as any signal comes from the FED that it is ready to cut rates, or even if it is going to significantly taper its Quantitative Tightening policy, there will be an enormous amount of capital rushing back into investments: equities, bonds, real estate etc.
 
Investors should already start deploying their capital into investments.

Do not sit on cash and/or money market funds.  At 5% money markets may be tempting, but that rate will not last when the FED starts cutting and then you’ll be chasing assets that have already appreciated dramatically.