Smart Money MD

In the asset management world, there is always some discussion on how you can maximize what you leave behind to your heirs. We all want to make sure that Uncle Sam gets the minimum amount of your hard-earned wealth upon your demise. Fair enough.

I think too much emphasis goes into squirreling away your money into various protected vehicles.  Cash value insurances. <shudder> Trust funds. Step-up basis. Sure, these opportunities are worth knowing about, but the main question about all of this is who in this world should benefit from your financial prowess? And how much is enough?

Leaving religion aside, one has to realize that you can’t really take any of this to the grave. Anyone other than yourself will get your wealth. Most people are going to give it to their kids, grandkids, relatives, and charity. I’ve seen this in my closer friends. It’s an interesting phenomenon to see on the outside.

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Middle class inheritance.

I have a friend who lost her parents a few years ago. Her family was a quintessential middle class family. She worked as a manager in a local small business. No one in the family had professional degrees, but they all managed well. All of the siblings ended up splitting the savings accounts and the house. As I recall, each recipient received on the order of $100,000 total.

I would take a windfall over nothing on most days, but you realize that an amount like this isn’t going to allow anyone quit their day job. Taking all of this in cash all once would probably trigger a relatively sizable tax amount for the average American too.

I’d want to take back my loved one any day in this situation.

Upper class inheritance.

I have another distant colleague whose parents were in some shipping business. She is a general surgeon who doesn’t seem to practicing medicine anymore (I don’t know her that well, but she stopped after having kids).  Her husband was “in the finance industry”. Now, it was no surprise based on her lifestyle during medical school that she came from serious means. Nice clothing, furniture, apartment, and vacations. If I were in her shoes, I might not have even had the ambition to go into medical school, yet alone become a surgeon. When her mother passed, I recall that people spoke about “serious amounts of money” in the inheritance. Not sure what that means, but the people who spoke about it were all doctors, so I would assume that these amounts were big in my book too.

Thanks to Facebook, I now see vacation pictures from their family almost every other month. They have a nice home in the Bay Area that recently sold for nearly 8 figures.  I think that they are all happy.

Windfalls and their impact on your lifestyle.

The easiest way to ruin any person’s self-initiative is to give them a crazy amount of money before they have established their careers. In this regard, it’s probably a good idea to set up a trust fund if you end up having significant wealth to leave behind.

Fortunately (or unfortunately) most of us will never have enough excess money to ruin someone’s life. But we should consider whether leaving an inheritance should be part of the investment equation. My strategy is as follows:

1. Work hard and save as much as you can before you have dependents.
2. Continue to work hard and instill work ethic into your dependents or mentees.
3. If you are able to contribute to others’ well-being, do so. Invest in their education and work ethic.
4. If you have excess after helping out your family and friends while you are still alive, consider the charities that you have left out.
5. Leave behind what amount you feel is adequate after you’re gone.

That’s it. Simple and sweet. If you hustle enough in your working years to fall into the trust fund level, congratulations. You’ve gone above and beyond. Otherwise, there are more pressing matters to deal with in your lifetime.

(Photo courtesy of Flickr)

College is an experience that most parents encourage their kids to consider. It is a means to advance in society, get a good job, and become financially stable.  Likewise, my parents fortunately emphasized college as a necessity in life—you need to get into a good college in order to succeed in life. Period.

But should college be an option for everyone?

As a physician, it would be hypocritical for me to even suggest that kids should consider bypassing college completely.  I certainly encourage students whom I mentor to get the best grades possible and challenge themselves in any way they can.  If college is a possibility, I encourage them to go for it.  The problem is that many people end up in careers that don’t necessarily require a college degree. You might have “wasted” several years of your life in college for naught.

College is not necessarily free.

The problem with implicitly mandating college is that someone has to pay for it.  You. Uncle Sam. Your parents or family. Everyone.

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It seems like most students become involved with student loans at some point in their lives.  I certainly was.  I am sick of hearing about student loans.  They’ve been a necessary burden for many of my colleagues, and some of my colleagues are still repaying their medical school loans from a decade ago.  College is no different.  Last I checked, tuition at Stanford University in 2016 was around $45,000 a year.  Room and board will tack on another $14,000.  Big numbers add up quickly.

I view colleges in the same light as I do with medical school.  There is a trade-off between cost and perceived quality.  Top-tier schools are difficult to become admitted into. Many of them are also expensive.  Many parents whose kids are admitted into a top-tier school will likely make sacrifices for their kids to attend.  Even if your daughter’s art history degree from Yale cost you $260,000 and delayed retirement, it might still be worth it to you.  Your kid will have gone to one of the top Ivy-league schools in the country.  A top college will likely have high cost, high prestige, and likely high quality education.

The problem with an expensive degree is exacerbated if neither you nor your child gets anything out of it.  An art history degree from a no-name private college may still cost you $260,000 after all is done.  As a parent, you’ve go no bragging rights for your child. If your child doesn’t find a decent job, she is also stuck without a means to build her own financial future.  You don’t want colleges with high cost, low prestige, and low-quality education.  Everyone loses.

College does not guarantee a secure financial future.

A college diploma certainly doesn’t guarantee you a means to generate income, but your experiences in college can certainly create opportunities for you to acquire a job.  Fortunately for our society, the unemployment rate for college graduates over age 24 is lower than 5 percent (perhaps 2-3%).  By going to college in the U.S., you’ve putting yourself in a good position to become employed.  Not bad, but someone should compare income rate to the cost of obtaining the education. I suspect that it is lower than one would expect.  Sure, going to college may help you get a job but it still might not be enough to pay your bills.  Someone needs to solve that conundrum.

You’ve still got to play your cards right even if you go to a good college.

You life still isn’t set if you go to a good college even at a good price.  Not everyone is suited to learn in a classroom.  Not everyone will be able to take advantage of the social interactions in college.  Some kids who opt to live at home during college in order to same money may even miss out on some of the experiences they would have otherwise gleaned from living in a college campus.  There are many variables at stake. No one will be able to offer you or your child a clear strategy to win in school.  That’s what makes life so unpredictable.

Who should actually go to college?

If your kids want to enter professions that require college degrees, they don’t have much of a choice.  In actuality, if you attended professional school there is a strong likelihood that your kids will end up going to college.  Most parents who went to college will at least encourage their children to go to college.  Unfortunately, not every child whose parents went to college will actually benefit from a college degree.  That’s a fact.

The problem is that no reasonable parent would actually discourage her kids from attending college, no matter how poorly suited the kids are for the classroom. In these cases, you just have to cut your losses. Lay out the facts, offer options for your child, and what you would be able to contribute to their education. For instance, if your child got into NYU and has her mind set on attending (even though your parental instinct tells you that it’s a six-figure mistake), make it clear what you can contribute to their education.  Give them the freedom to make their life choices.  You might be pleasantly surprised.

What are your thoughts on college?

(Photo courtesy of Flickr)