CJ Follini: Hi everybody. I’m CJ Fellini, founder and CEO of NOYACK Wealth Club, a 501c3 nonprofit. And today I’m going to welcome you again to another edition of Inheriting the Future, the Noak Wealth Club podcast, where our only mission is to educate young investors about the private investment universe and taking control of their personal wealth management. At NOYACK, it’s not just about the money. It’s about creating lasting wealth and impact. Let’s dive in. And today we have Jared Tanimoto
Jared Tanimoto: Thanks for inviting me on and excited to be here. should I kind of just jump into my background?
I’m based out here in Southern California. I’ve been in the industry for about 15 years now and I actually started out on the insurance side selling products. A big one was long-term care and sometime during that I went out and got my CFP and just found out that I wanted to be more on the investment advice and planning side. So did a bunch of search for a place to move to and ultimately landed on starting my own RAIA.
So in 2017 I started Sedai Wealth a fee only fiduciary RAA where initially I was kind of catering towards serving retirees but that’s kind of shifted to working with a lot of younger professionals some in the tech industry and then others are kind of small business owners and so that’s me spent a lot of time volunteering within the financial planning industry doing pro bono work supporting the profession and so being on here I’m excited to share.
CJ Follini: Thank you very much. I hope you agree that education is not disintermediating any advisors. I’m a big fan of the advisory industry and frankly as I mentioned offline from quoting the old commercial from size SIMS in New York City, an educated consumer is our best customer. And that’s what we’re trying to do is to educate your future customers. And thank you for being here giving us your subject matter expertise.
And today the topic is generational wealth transfer and estate planning. Also not in the prep document. Doesn’t say what the topic is, but let’s say it’s that. And also elder care since I happen to remember.
CJ Follini: Question number one. Jared, are we ready?
Jared Tanimoto: Yep. Yeah.
CJ Follini: What are the key steps millennials can take to help their parents plan for long-term care? And how can they balance this with their own financial wherewithal and priorities?
Jared Tanimoto: I think the big first one and really I think it’s sometimes the hardest is just communication. A lot of times kids don’t talk to their parents or parents don’t communicate with their kids what their estate plan is, what their wishes are, what they want to do. And it’s kind of this topic that I think everyone kind of, is hesitant to dive deep into because sometimes planning for those serious life events where maybe you have to go into a nursing home or there could be re big reshuffling of living situations, finances. It’s not ever fun to talk about.
Jared Tanimoto: And so I really think that is key early on just having the conversation. Maybe it’s yours before you there might even be a health issue, but just understanding what a parents wishes are for what they would want and what kind of care they want. Do they have long-term care insurance? Have they done estate planning? if they haven’t, talking to an estate planning attorney to their financial planner. I think getting organized and on the same page and a lot of times that’s hard because, maybe sometimes parents don’t want to disclose a lot of the financial information, but if planning for these life events are going to be that something that the kids and parents are both involved with.
I think it’s really important that early on communication is key there.
CJ Follini: What is early?
CJ Follini: What do you think? And this is a follow-up question. what do you think is early? Obviously, it’s before they are infirmed that they cannot participate in that discussion. So what are you talking about when someone’s 25 and their parents 60 35 60 earlier later
Jared Tanimoto: So, I’ll give it kind of from both perspectives. So, when I’m working with my younger clients, a lot of times I’ll ask questions. Hey, have you talked to your parents about inheritance, what their financial situation is, because that could either be a in incoming assets that they might get sometime later in life, or it could also be a burden where they now have a financial responsibility to take care of their parents.
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Jared Tanimoto: So bringing up that question and knowing what their plans or if they’ve done any planning and thinking around that and I think it’s all based case by case but I think for a lot of people once their parents retire and maybe it is really early on just dropping maybe little conversations early on and definitely if they notice any kind of health issues come up or…
Jared Tanimoto: they are getting up in their 70s and 80s is knowing that there might be some life event taking place then I think at that point definitely trying to have a conversation is important but maybe trickling it along the way early on when their parents are younger
CJ Follini: Interesting. Early steps. I agree. In fact, as a personal note and case study, so my parents were much older. My father was 58 when he had me and then 60 with my sister. So really even when I was old enough to participate in the family wealth management as a group we started talking and I can say right now the best investment and this is from someone who managed over a billion as a multi-family office CIO.
CJ Follini: My best personal investment was long-term care for my father who aged in place at home, full-time round the-clock care, hospital bed, everything at home, which would have run probably over the years that he remained with us. It’s close to a million dollars. I probably paid, over the years we had We started late. He was in his 70s because he passed away in a 70, so it wasn’t inexpensive. But let’s say we pay $200,000 and we received a million dollars in care, healthcare expense.
CJ Follini: Not many, 5 year, 10 year investments if to be so crass as to call your parents care an investment because that’s what we’re here for about personal wealth management. There are not many investments that you’re going to make a 5x and feel very good about that you made a difference like taking care of a parent. So that’s a personal story and I still believe it was one of the best investments we ever made both u emotionally and financially. question two, gonna jump we’re gonna skip the Medicaid question if you don’t mind. What is your opinion about medic Medicaid as a Let’s not…
CJ Follini: if that’s okay. What’s your opinion of Medicaid as a critical resource?
Jared Tanimoto: Yeah, I think it’s important.
CJ Follini: Let’s call it the safety net of long-term care. What do you what?
Jared Tanimoto: Yeah, I think it’s important to be educated on it and it depends on where you are in the country because out here in California it’s called medical and recently they’ve changed some of the rules where it used to be an assetbased test on whether or not you qualify and they recently just changed that to an income base. So there’s there’s no assets. It’s really just they look at the income that you have from social security, annuities, any other sources could be from your investment account. So it is still somewhat tied into asset base, but that’s specific to California. I know across the country, they’ve changed the look back from five years and lowered it a little bit, but I think I’m not sure if each state has it.
Jared Tanimoto: And so I always refer someone to kind of a planner if that is something that they think they’re going to utilize. But understanding what Medicaid is, what they cover, how to qualify. and if you are in a state that there’s, look back, working with a planner to maybe spend down or…
Jared Tanimoto: Gift away a part of the state in ways where you can qualify can be beneficial.
CJ Follini: Interesting. You mentioned gift and That’s part of what we’re talking about here today. So I’m going to skip question three and go to question four about asset protection. How can life insurance policies become part of your asset protection plan as you if you’re the children of older parents and you’re the ones responsible for your parents’ long-term care, how are you using life insurance policies for flexibility, forget financial security. We all want that asset protection.
Jared Tanimoto: So it depends on what kind of level you are at. And so a lot of very high net worth people use life insurance is a estate planning tool where there’s ways where you could set up irrevocable life insurance trusts and pass on assets tax-free. I think in a sense of long-term care, there are these very popular hybrid policies these days where portion of the cash balance or cash value of the insurance policy on some of these permanent products can be used to cover life insurance while the insured is still living. And correct.
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CJ Follini: You mean a long-term care rider to the existing life insurance policy? So, actually life insurance that actually helps you while you’re still alive.
Jared Tanimoto: So they call them hybrid policy. So, it’s similar to a universal or whole life policy where you’re funding it and then while the insured is maybe they need long-term care, they could tap into that cash value while they are still living and then that just reduces the death benefit. And so, that’s a way where hey, if we don’t use the long-term care, you still get a death benefit and you’re not just spending away the premiums. And that’s been popular over the years. I’ll just tell share a real quick story. So, the beginning of my career in 2010, I was with New York Life and they were proud that they were one of the strongest long-term care insurers and had one of the strongest policies and that they’ve never raised a premium in the history of their company. And so, it made me feel comfortable and safe to go out and sell a lot of the products.
Jared Tanimoto: I sold it to my parents which they still have and it’s good long-term care product but sometime I would say call it a little bit before 2020 maybe 2015 to 2020 a lot of the insurers started dropping out of the industry and then New York Life for the very first time said hey we’re going to have to raise premiums because these policies are losing us a lot of money so there’s tons of carriers that dropped out only a handful that remain and now the
Jared Tanimoto: Price for long-term care for a standard policy has gone way up where it’s almost to the point where I think long-term care is good for the middle class because it helps cover those catastrophic expenses of long-term care and then once you get to a higher net worth you can kind of self-insure but it’s almost been to the point where now unless you are high net worth you can’t really afford the really good policies without having very long exclusion periods without capping your limits So like you mentioned your father had a policy that had a really good benefit payout. A lot of these will cap out at a certain dollar amount or a certain daily limit. So they are more to be kind of subsidized or cut some of the very very expensive portion of long-term care but not fully covered think in my opinion. So I think that’s where hybrids have become more popular over the years.
CJ Follini: And how so with your clients, what ratio would prefer tax advantage accounts like an HSA high yield savings account or health savings account versus a hybrid insurance product like what you said? Are there pros and cons? Would you make a recommendation? Is it specific to the client? Do you have an opinion?
Jared Tanimoto: Never use the HSA, it becomes similar to a 401k or IRA where you could take distributions in retirement, then pay ordinary income on it. But if you save it, and I tell my clients, try not to spend it because that can be part of your long-term care policy.
I say try to do contributions, backdoor Roth if you’re above the income limits. And that’s another nice one because if there’s a single year where you have a lot of expenses and you only have your 401k to draw with, then you’re tapping into the highest tax brackets. But if you have that Roth account and HSA, there’s going to be a lot more money that you could pull out free. And yeah.
CJ Follini: What an HSA is. Maybe not everyone. We just made that assumption. The acronym is for health savings account. If you can just give a brief intro, Let’s explain.
Jared Tanimoto: So these are essentially investment accounts that are attached to a high deductible health care plan.
Jared Tanimoto: So, a lot of employers and most people only could qualify through their employer, but if you have a high deductible plan, mostly PPOs, your employer will allow you to contribute up to I think for family now they raise the contributions around $8,000 per year and that money is deductible. If it’s used for any health care expenses, it’s comes out tax-free and then any growth in that account is tax-free. So, it’s kind of that triple advantage account where you get tax-free in all three sides of that where no other account is like that.
CJ Follini: I agree. And frankly, I’d like to consider myself a wealth management professional. I’m more of an alternative investment professional than anything else. I’m not really a wealth management professional, even though I self-direct my own. I was unaware of the health savings account. And for so long, I’ve said, I make a pretty decent living. I’ve worked very hard since I was 15 to do that. I want a barbell. why am I paying an insane amount of money for the platinum plan on the marketplace if I’m solo and even then I can’t even choose my own doctors the ones I want to use. So I’m paying all this I’m paying out of pocket as well and I’m getting no deduction.
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CJ Follini: So from a health plan I said let’s barbell let’s go the cheapest plan one that just covers the safety net use of I’m in the hospital covers critical care right and then just pay out of pocket.
CJ Follini: If you combine that idea that approach with an HSA the HSA is actually the other side of the barbell very cheap plan covering your safety net for critical care and then deducting putting cash into an account, health savings account, which will come out of your taxes and you can pay for the doctors you want. Interesting.
Jared Tanimoto: 100%. And another added benefit, some employers will if you move from that very expensive plan to the plan, the cheaper one like you mentioned on the high deductible plan, employers will say, “Well, you’re now in a cheaper plan. We’re going to actually throw some money into your HSA for you.”
Jared Tanimoto: And so, that’s a nice one that I’ve seen…
CJ Follini: Right. Interesting.
Jared Tanimoto: where it says, we normally would pay for your very expensive plan, but because you just want to be in a, high deductible, we’re going to put a couple thousand into your account each year, you can fund the rest of it yourself, and that money is Spend on any healthcare expenses. And if you never use it, and I think this is the one people didn’t know about, which has led them to say, what, I don’t want to fund it too much cuz I don’t spend that much on my healthcare expenses.” If you never use it for that and once you’re 65, you could take that money out as essentially an IRA distribution.
CJ Follini: I actually didn’t know that even though I’ve been learning about HSAs recently. Did not know that part. And also the way you mentioned it, it puts it in the context of yet another negotiating item. If you’re working at a company, hey, I’ll save you 5K. Let’s split that difference and you put it into my account.
CJ Follini: I’ll still save you 2500. that’s another great thing item to add to your negotiating table with your employer. That’s great. especially for the younger adults, they’re always thinking how to renegotiate next year’s salary. That’s one way that seems a little bit less painful for the employer. it’s a win. Okay. Thank that was really interesting. Let’s get to the next one. What elder care costs continue to rise. know We’ve been talking about it is nuts. I have a 96 year old father-in-law now and we’re dealing with this right now. We’re looking at all the options and they are insanely expensive and it’s not ting. How do families who are not unable to fully self-fund these,…
CJ Follini: How do they manage this without jeopardizing their own futures? what have some of the strategies that you’ve come across or recommend to your clients?
Jared Tanimoto: Yeah, it’s really hard.
Jared Tanimoto: I mean, I think it’s a case byase situation where some families are being supported by their children, some people are on a program like Medicaid or medical. And so I think understanding what that provides it’s a pretty complex program where when you send in mail a lot of applications are still by mail takes a long time to hear back just because it’s so impacted and so many people it’s kind of like reaching out to social security administration. So it’s very hard and to get an answer and so knowing early on what it is is important.
Jared Tanimoto: I have had clients who have done things like reverse mortgages and I think they’re a great program Back in the day, they used to have a pretty bad stigma related to them, but I think the policies and the contracts that are underwritten are a lot more fair. And it’s a really good rate way to tap into equity. being out here in California, I have some retirees that don’t have too much assets, but their house, they bought in the 70s and now it’s worth a million or even more. And without a reverse mortgage, it’s, hard to tap into that equity. And so that’s a way where they can use that to fund long-term care events, still leave an inheritance for the children if they need to, and stay in the house.
CJ Follini: Health savings account in a way, Because there’s no cap into the amount of there is depending on the valuation of your house, but it’s a lot more than $8,000. unless you’ve done you’ve been contributing to HSA for 40 years and then you have one hell of a cushion for your declining years of health.
Jared Tanimoto: Yeah. Right. Yeah. I’ll just add one.
CJ Follini: Super interesting. have I missed any questions? Is there anything? Yeah, please do.
Jared Tanimoto: I think while you do financial planning and…
Jared Tanimoto: It’s hard when you’re already in your 70s and are approaching these because there’s not a lot that you could change in your financial plan because you’ve already retired, but earlier on planning for a very long-term horizon, planning maybe till the age 95, 100 and being able to understand just how the stock market works so you’re comfortable with a more aggressive allocation.
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Jared Tanimoto: Being in stock because I have had some clients that I want to just be in a conservative investment and showing them the trade-offs. Hey, how it might impact you long term. within the next five years, it might not be big of a difference, but if I’m working with someone in their 30s and we plan till their 90s, 1% difference is huge in terms of how much their count might grow to.
CJ Follini: Also investments. I think that the individual investor non-institutional their approach to alts is changing dramatically as we speak. my generation X was 6% average allocation. Millennials already are averaging north of 20 for the first time ever. So, that is a very interesting development and trend on how you use old-term investments for both retirement and future elder care. last question I’m going to leave you with. We need a sound bite for our social. What is the year speaking to millennials,…
CJ Follini: The children of the elderly parents, should they start thinking about everything we talked about today? What year of their parents’ age?
Jared Tanimoto: Should rephrase that.
Jared Tanimoto: What year? When? Yeah.
CJ Follini: Let’s say their parent, not their age because it’s all, who knows when what year of their parents’ age should the children start the conversation about, hey, what are we going to do to take care of you?
Jared Tanimoto: When we’re talking about long-term care, I think having the conversation as early as you can is important. I think once you kind of can understand…
Jared Tanimoto: What might happen in the future, having a maybe just small little conversations as early as you can. if you don’t have that, I would say by the time they’re in retirement, starting to have those conversations. But I think 70, yeah, I would say 70.
CJ Follini: Does 70 sound right?
Jared Tanimoto: There’s no right year, but I think if we were just to pinpoint one, I would say around there would be a good time.
CJ Follini: I hear I need a sound bite for the social. So, let’s say it’s 70.
Jared Tanimoto: Okay. Yeah.
CJ Follini: And also with the let’s do it again remember so need a sound bite for the social judge so I’m going to ask you a pointed question given that life expectancy has reached 80 for the first time…
Jared Tanimoto: Let me say that again. Yeah, broadly speaking,…
CJ Follini: Although I think it is declining in the US sadly but let’s pretend it isn’t what is the right year the target year that children of elderly parents older parents should start talking to them about their elder care and being able to afford it.
Jared Tanimoto: I would say around the age 70 is when people should start having those conversations because it’s a little bit before a lot of those events usually start taking place and a lot of those are in the 70s
Jared Tanimoto: 80s. So I would say 70 would be a good year.
CJ Follini: Thank you very much Jared Tanamoto of Sedai Wealth. Thank you for joining us and everyone here. Thanks for tuning in to the episode. If you have found value in today’s episode, I can’t leave you without a shameless plug. Please don’t forget to subscribe and share it with a friend. Also, we have a very successful newsletter, 160,000 subs subscribers called NOYACK Wealth Weekly. Scan the code. I hope it’s down below me because I’m just pointing this way. So, wherever that QR code is around me, scan that and become a subscriber to NOYACK Wealth Weekly out.
