All About Family Money Drama!
2024-06-19 01:57:03
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Live from the headquarters of Ramsey Solutions, it's the Ramsey Show, where we help people build wealth, do work that they love, and create actual, amazing relationships. The phone number here is 888-825-5225.. Rachel Cruz, number one best-selling author, co-host of the Smart Money Happy Hour podcast, along with a YouTube show, along with Mr. George Camel, also my daughter, she's my co-host today. Open phones at 888-825-5225..
Nathan starts this hour in Anchorage, Alaska. Hi, Nathan, how are you?
Doing well, Dave. How are you?
Better than I deserve. What's up?
Hey. Calling in. Built a duplex with some family members last year.
I got out everything I put into it, but I was supposed to get a paycheck at the end of the summer, and it never came. And the relationship with the family members hasn't been great after that. Just kind of curious what your thoughts on what I should do.
What did you learn from this process?
That I don't want to do any deals with family anymore.
Disagree. I disagree. I think you should have learned you don't want to do deals that aren't clearly defined and written down with anyone ever, because you guys did this out of your ear and your rear and don't even know what the other one agreed to.
We had it written down.
Oh, you do? That you have a contract with your family member that they're violating? Yes. Why are they choosing not to pay you? Why are they defaulting on the contract?
They're wanting to just extend the term. They're not wanting to pay out right now. And that's my parents.
Okay. Why?
They can't pay right now.
They don't have the money.
They don't have the money.
Okay. So how much do they owe you?
About $110,000.
Okay.
And they're supposed to write you a check for $110,000 at the completion of the construction?
Correct.
And where did you think they were going to get this money? When you signed the deal?
Out of the loan that we signed on it, the mortgage.
Both of you signed a mortgage?
Yeah. The properties in LLC, which I own 50%, and parents own the other 50%. Okay.
And the loan was taken out. Where did the proceeds of the loan go if they didn't go to you like they were supposed to?
They went to my parents.
What did they do with it, since they don't currently have any money?
They paid off some of their line of credit that they used to finance the project.
Mm-hmm. We knew they were going to do that at the beginning, didn't we?
Correct.
And then they pocketed the rest.
How much was the loan for, total?
Loans for about $385,000.
Okay. If they pocketed the rest, they have the money to pay you.
Yeah. We spent about $360,000 on the project. We were supposed to get a check for about $63,000 at the end. And then they're wanting to buy me out now, if that's what they tell me. And the whole check would be about $110,000 of my equity portion past the loan amount.
Okay, that's a different story than you're talking about. You didn't talk about the $110,000 as a buyout. You said they owed you $110,000 at the end of the project. That's not true.
They owed me like $60,000.
. Okay. I think it was about $60,000..
Okay, but you said the thing cost $360,000 and you borrowed $385,000.
. Or the flip, you think they're going to get $60,000?.
That's a $20,000 spread, not a $70,000 spread.
Correct.
How many properties have you built? Were you the builder?
I was the builder on it.
Have you ever built anything before?
I help people build stuff, but this is my first owner-builder project. I'm a general contractor up here.
Yeah, okay. Okay.
What are you, 25?
I'm 22.
Okay, all right.
Are they saying they will pay you back, Nathan? I just wonder if they even acknowledge, yeah, we owe you about $30,000 and we want to buy you out, but we just don't have the $63,000 right now. Do they acknowledge it when you talk about it?
Yeah, they acknowledge it. But I haven't seen anything from it.
My mom manages the finances on the rent. The rents are good, and the tenants are AAA. One's a nurse that makes a bunch of money at the hospital, and the other one's actually missionaries for a church, and the church was never going to default on that.
Okay.
The tenants are great, and it covers the mortgage and all the expenses that I haven't seen.
Let me backtrack to the beginning of the deal. You signed up to build the property, and the builder's fee that you were to be owed when the property was completed was how much?
Right about $60,000.
Okay, that's $60,000.
. And you signed up to build a property, and when you signed up, what was the budget for the property? What were you supposed to spend to build it?
The budget was.
Right about $410,000.
Okay, and who put in all this other money?
Because you only borrowed $385,000 at the end of the story, I think I heard.
Well, yeah, so the budget was $410,000, so I had a build budget of $410,000.
And you built it for $360,000?
For $360,000, yeah.
So you came in with $50,000 under budget?
Correct.
At the beginning of the story, you were supposed to get $60,000.
. The budget was $410,000.. So you all originally planned to borrow $470,000?.
We originally planned to borrow, because the property appraises for $550,000 last year, and right now it's about $600,000 this year.
What did you originally plan to borrow when you were promised $60,000 and they had a $410,000 budget?
We were originally planning to borrow about $420,000.
That's not enough to pay both of those things, honey.
$420,000 minus $410,000 is not $60,000.
I think we found the problem. You've entered into a deal that you have no idea how it was structured, because you can't even recant numbers back to me that make sense on some basic addition and subtraction. The only way this deal would have worked at $410,000 and you get $60,000 is if they had planned to borrow $470,000.. You follow me?
Okay.
Is that right?
The $60,000 was coming out of the build budget.
Oh, so $410,000 included the $60,000?
Yeah. So my builder's fee, like my total bill...
Okay. So you were supposed to build it then for $350,000 and instead you built it for $360,000..
Yeah.
So you went $10,000 over budget.
But then that means there's still $50,000.
But they didn't borrow $385,000.
. I mean, they didn't borrow $410,000.. They borrowed $385,000.. Yeah. I think you guys put the house on the market and sell it immediately, and both of you get out of it what you can get out of it.
And I think you have got to learn a lot more about business before you do another one of these transactions, because you're having trouble even laying this out logically for us. And I think that's the nature of the problem here.
Yeah. And this isn't to point blame, but it does... I'm like, it kind of sucks. He's a 22-year-old kid, goes in with his parents. Like, there's a trusting process there.
And that's hard to learn. That's hard to learn.
Yeah, except that he's blaming them for ripping him off. And I don't think that's what happened. This is The Ramsey Show.
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But you know what? The interesting thing is the law of gravity worked 20 years ago and the law of gravity works today. Common sense is still common sense and it is still marketable. But we went through, updated all the statistics and tuned up the stories and got some things in there. for you.
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great books are sold. The Total Money Makeover, 20th year anniversary edition. Rebecca's in Toronto, Ontario. Hi, Rebecca. Welcome to The Ramsey Show.
Thank you for taking my call.
Sure. How can I help?
Okay. It's a bit of a complicated situation. I'll try to simplify. But I'm calling on behalf of my parents. Basically, we want to know if it's wise or even ethical to sell their matrimonial home.
Basically, my father, he was extremely verbally and emotionally abusive, growing up towards my mom and then later for me and my brother. And it got so bad that I had to leave home and my mom joined me. That was five years ago and we made it clear that we weren't welcome back. But prior to me leaving, my brother, he was away at university and then he went back to live with my dad. But he left home because he couldn't take it anymore and now he's joined us.
But we're struggling. Cost of living in Toronto is extremely high.
All our friends and family are telling us it's not fair that this is our situation and my dad gets to live in the home. But at the same time, my dad...
Why is it not fair that your dad gets to live in the home? Because he was a jerk? That you give up your rights to home ownership because you're a jerk?
I'm sorry.
Because he was abusive and he's not letting us back in the home.
But it's not your house.
It's not my house, but my mom's. It's under her name, too.
But she's a grown-up and that's her decision, right?
Yeah. I mean, she wants to sell.
That's her problem with him, right? What's it got to do with you?
I just wanted to get advice, to help them, to guide them, because my dad, he, also had a stroke a few years ago, so he's not able to work.
But he's independent, so that's kind of why we didn't push to sell the house as well, just so that he can live in the house.
Who's we? Who's we? that's pushing to sell the house?
The mom and the brother, the family. The family that left the abusive dad, that is now living together.
I'm sorry, your mom lives with you?
Yes, my mom and I. I miss that.
Okay, but they've never gotten a divorce.
Yeah, I was going to ask, is there going to be a divorce?
They're legally separated, but
So when the divorce happens, then that's where things can really start moving with the home. With the equity that's there, with what's owed to her, I mean, all of that. He may be in a position where he would have to sell it, in order to get proceeds for them to have, I mean, I don't know the divorce law in Canada, but that's where you can actually make legal acts to Rebecca, but just you can't be on that.
Here's what I don't want you to do, and I kind of think I heard this, but I might be wrong. You tell me if I missed it, okay? I'm willing to be wrong on this. I kind of think you still want to be able to have a reasonable, logical conversation with your unreasonable, toxic father.
Right, yeah.
Yeah, and I want to help you that that's not ever going to happen. He's an unreasonable, toxic human being. That's why all three of you have separated yourselves from him. Now, to expect him to suddenly be reasonable and non-toxic regarding a real estate transaction is not going to happen. Is that okay to understand?
Yes, yeah. I agree.
So the only thing this guy's going to do is when someone makes him do it. Agreed? You're not going to persuade this guy to do anything.
Right.
So, Rachel's right. When the divorce court drops the gavel and the judge says Sir, your house is going to be sold voluntarily or at auction as an order of the court, then he will sell the house, but until then he will not.
Right, yeah. My mom, she wanted to get lawyers involved, and we just don't have the money for that right now.
Well, what is the house worth?
Right now, probably close to.
$900,000.
. No, I think your mom's got the money. then. Again, I'm like Rachel. I don't know Canadian law, but I suspect your mother has rights to half of that $900,000..
Does she not?
She would, yes.
Okay, why don't you all talk to an attorney and talk to the attorney about getting paid when the house sells.
Okay, yes.
And the attorney gets paid out of the house proceeds and he goes and files the divorce and gets the house sold under divorce court, because I don't expect your unreasonable, toxic father to suddenly become reasonable.
Right, yeah. And we just wanted to know if it was ethical because of his stroke too.
Oh, it's very ethical. He'll have $450,000 with a stroke. He can take care of himself.
Okay.
You guys, the story you have told me is so sad that the three of you are still worried about this guy's happiness. Okay, that's you know, a therapist would call that codependence. I'm not worried about his happiness. I don't like him and I haven't even met him and I've only known about him for three minutes.
You know, I hope he turns out. I hope it's okay. But I mean, his own daughter is telling me this horrible story on him, and his wife has indicated that it's true by leaving him, and his son has indicated that it's true by leaving him, and so your story is corroborated, right?
Yes.
Yeah, I'm sorry, honey. I'm sorry, y'all have gone through this broken, twisted mess and I'm sorry the scars are going to take a while for all of you to heal from, but your need to support him or make him happy needs to stop today. You all need to take care of you guys.
He lost that right from you guys.
Yeah, he lost that. He lost that.
And Rebecca, and that's a, you know, and you kind of flew over, but seriously, like those types of environments, it's extremely damaging on many levels. and so for you guys, your mom, to seek help and to have somebody, a professional, talk to you, Rebecca, I'm like being a child of that, it's just. I mean, it's horrible, so I mean making sure that you put yourself in a healthy spot as well, especially on the emotional side, not just, you know, this, but even feeling like you have to take care of your mom too. in this, I understand you guys are banding together, which makes complete sense, but making sure that you're, you know, navigating this well to bring in a professional too.
for you guys. Yeah, start aiming at what happiness 10 years from today looks like and what are the steps to get there. and making him happy is not one of the steps. I'll go ahead and tell you. Jesse is in San Antonio, Texas.
Hi, Jesse, how are you?
Hey, Dave, how's everybody doing today?
Better than we deserve, sir. What's up in your?
world? Alright well, I'm trying to, I guess, prioritize saving and investing. I am probably between baby steps 3 and 4. right now I've got about 10% of my income invested in retirement. I'm working on trying to get a down payment for a house and I'm trying to figure out how much, how much, I should prioritize the saving for the house versus putting money in investments, whether it's retirement or otherwise.
I wanted to see what your advice was on that.
Do you know how long it'll take you to save up for a down payment, the kind of home you guys are looking at in your budget?
A year, maybe.
two. Okay, I honestly would, probably, because it's that short, I would probably pause investing, even the 10% and save up that down payment, whether it's 5 or 20%, and then, once you guys have that saved and you're in the housing process of buying the home, then I would press play and invest 15% of your income into that.
We call that baby step 3B around here.
Yeah, so I was looking at that and I was like, I wasn't sure whether that meant hitting the pause button.
It doesn't always, sometimes people keep doing the 10%, but Rachel's saying in this current housing environment it's a cool thing to go ahead and get into the house because they're continuing to go up in value, continuing to go up in cost, they're not going down, and so short-circuiting some of that by piling up the down payment as fast as possible is not an unwise suggestion, it's a good suggestion. This is the Ramsey Show.
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Rachel Cruz Ramsey Personality is my co-host today. it is a free call anywhere in North America. thank you for joining us today's question comes from Jenny in Illinois.
Jenny says I'm a single woman and I rent an apartment in a great city. I'm very happy here as it is close to my work, my church, and most of my social activities. I have no desire to own my own home because I'm afraid I have to have maintenance and lawn care, people on speed dial and to buy something even remotely affordable I would have to move way outside of town. Is it ok to rent forever? I hear you talk about a paid off home being a large piece of people's net worth, but is it still possible to build wealth if you don't own a home?
I think the biggest piece in this, Jenny, is looking far in the future and I always look to when it comes to retirement time. the singular expense that continues to go up that you will not have control over is your house, is your housing. so rent will continue to rise and if you own your home and you pay it off, then that's an expense that you don't have and it's continuing to work for you, building equity. So it is a part of your financial picture that I would want you to have a part of. It doesn't have to be today, it doesn't have to be in the next five years, but eventually I would have home ownership in your financial picture for many reasons, but I think, mostly when you look towards times like retirement, you won't have to have that expense that continues to rise and you actually have an asset for you.
I can completely endorse that. where you are today in your life, Jenny, that this particular situation makes sense. It sounds like you got it made right now. There's nothing wrong with that at all. It just doesn't scale long term.
So here's the problem. She doesn't say how old she is. Let's just say she's 30.. Every single year, from 30 to 70, your rent's going to go up.
Or your landlord's asleep at the wheel. they will die and the next person will jack it through the roof to make up the difference. But the value of the rent goes up every single year from age 30 to age 70.. Your most expensive line item in your budget is housing. So the most expensive line item in your budget is out of your control, variable and increasing.
That is not scalable. That's not sustainable long term. Again, what Rachel said, if you want to do it for 4 or 5 years, I think you got a good gig. go ahead and do it for 4 or 5 years. But let's not translate that to.
is it okay to rent forever? It's okay, but it's going to kill you.
Because what you're paying in rent now is nothing compared to what it'll be 40 years from now. I think we can all agree with that. And so, when you buy, if you buy on a fixed rate 15 year, you now have a fixed payment for a property. It doesn't have to have a lawn, it can be a condo. You have a fixed rate.
And then, when you get paid off, you have a fixed rate which is zero other than your taxes and your property insurance. Those are two things that will go up as well, but they're a much smaller percentage. And they don't end up being the largest thing in your budget anymore, usually.
And I will say this too, Jenny, that it doesn't have to be a single family home. If you are single, you don't need a lot of room. It could be a condo, but owning property that you eventually own full out is what the key is. That's the goal.
I don't want you to confuse the fact that you've got a really good situation right now, and I endorse you staying there with a forever plan. It's not a good forever plan. It's a really good short-term plan, though. I would sit there and I wouldn't let your friends shame you into buying something. And that's what's happening.
People are going, You gotta buy a house! You gotta buy a house! You don't have to buy a house right now. You've not got a bad deal. But you do need to stabilize the most expensive line item in your budget before it gets out of control and starts messing up your life.
I mean, can you imagine being 70 years old and broken? Your rent goes up every month. Every year. That'd be no fun. San Francisco's calling, and that's Valerie.
Hi, Valerie, how are you?
Hi! Hi! Hi!
Hi!
Things are good in San Fran, huh?
Oh my gosh! Oh my gosh!
What is up with Valerie? Well,
as excited as I am to talk to you. I got some trouble, of course. So, I I filed for bankruptcy and I believe it was everything was discharged either May or June. I can't remember the date. But this year, because it was a little problem and they were missing a paperwork, and so whatever, we got that cleared up.
So, I believe the discharge was probably June instead of May. But, I realized that how do I build my credit up without getting a credit card? How do I build my credit back up? I know that it was a mistake.
Wait a minute, Valerie. You went deeply in debt and got bankrupt. Why are you wanting to go back in debt? I don't want to go back in debt! Well, what is credit for?
Yes, I do realize that.
If you don't have a credit score, is used only for one thing. Going into debt. You build it only by going into debt. And you just got discharged from debt. Why are you so itching to get back in?
Honestly, I'm going to call you Uncle Dave. Honestly, I'm not trying to get back in debt. I just own a house with my four other siblings, and me and my sister live in the house and we're paying for the house and they're paying the insurance and the taxes. We all pay the insurance and the taxes on the house. Well, I want to be able to come out of this house, because this house is what got me into debt.
Trying to fix stuff. and then we had a guy that we knew he was a contractor. He is a licensed contractor. But he screwed me and my sister over. And I ended up going into debt, trying to not have holes in my house, not have water flowing from the kitchen.
So it was.
construction, Valerie, that got you to the point of bankruptcy. It wasn't credit card debt or car loans or everything else.
You would tell me that my car loans are ridiculous.
It wasn't just construction.
But it was really the issue of we had water damage. And when he went in to fix all of that and redo the kitchen, they gave us the money to redo the kitchen.
Okay, stop. You had a crisis. You had a mess. And you used debt to fix it. And then you called me after filing bankruptcy and said, how can I go back into debt?
No.
No, that's what you did.
Building credit.
There's only one way to build credit, only one reason to build credit, and that's to go back into debt.
So you're telling me don't worry about it.
If you're not going to borrow money, you don't need credit.
There will be things, Valerie, if you apply for a job, sometimes they will pull your credit report. For a cell phone company, sometimes they'll pull your credit report. Renting an apartment. There are different times in life, yes, they will pull your credit report.
But a credit score, you can live without. You can do all of those things. without a credit score. It may be harder. There's going to be some workarounds.
But it is possible. The only real reason that you need it is if you're going to go take out a loan for a car or something else. And if you want a home later, you can do what's called manual underwriting, and there's a process there. But for you, Valerie, I want you, you have a lot of things going on, and I like your energy, and I want to channel that energy to changing completely the way you've been doing money. The mindset of even credit.
There is a totally different system out there that does give you control. It gives you peace. It gives you a plan. It gives you guidance. It's going to be a change, a mental change.
But if you're ready for that, I'm going to have Christian pick up, and I would love to give you Financial Peace University, our nine-lesson course on money, every dollar premium, our budgeting app, the Total Money Makeover 20-year anniversary edition. I would love.
Financial Peace. Yes.
You go through that, and that will answer your question.
But when I went through bankruptcy, honey, it wasn't any fun. And I decided what caused it. It was borrowing money that caused it. I had a lot of reasons for borrowing money. But at the end of the day, very few people file bankruptcy that are debt-free.
This is the Ramsey Show.
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Rachel Cruz, Ramsey Personality, is my co-host. I'm Dave Ramsey. This is the Ramsey Show. Open phones at 888-825-5225.. James is in Fort Lauderdale.
Hi, James. How are you?
Hey, guys. Thanks a lot for taking my call today.
Sure.
So my question is, I'm a W-2 employee. I've been pretty bothered by the amount of income tax I pay. I've been investing into a Roth 401k because of your teaching. My company does match 3% of the 6% up to 6%. Good.
But I feel it makes sense to do a traditional 401k for the tax savings and invest the difference of the savings into a backdoor Roth IRA. I wanted to see what your thoughts are on that.
Well, the math doesn't hold up.
Let's just take a simple example. I'll just make up, not you, but let's just use an example. If you save $100 a month from age 25 to age 65 in a decent series of gross stock mutual funds, you'll have somewhere around $1,000,000..
If you do that in a Roth,
100% of it is tax-free. If you do that in a traditional, you're going to pay taxes on 100% of $1,000,000, which will be somewhere around $350,000..
So, instead of having $1,000,000, you'll have $650,000 after the government. However, let's add that up. 12 times 100 is 1,200.. Right? Do you follow me?
Times 10 years would be 10,800.
. Times 40 years, which is the period of time we're talking about, would be right around $50,000.. So you saved taxes on $50,000.. Meanwhile, you got to pay taxes on $1,000,000..
That's your traditional numbers.
Okay, so I'd be saving now, just not later.
Yeah, but see, when you get to the $1,000,000, well, my point is 95% of what's in there is growth. Not what you put in. And you're only saving taxes now on what you put in. Now, if you want to get real nerdy about it, you could run a present value calculation on that $50,000, but it still doesn't make the point.
But if you had invested that $50,000 in a backdoor Roth, somehow, what does that come out to?
It still doesn't offset the fact that you've got $350,000 in taxes.
Okay, well, wouldn't it? Don't I pay taxes on the withdrawals on the back end?
Not on a Roth, no. Roth is 100% tax-free.
No, on a traditional.
On a traditional. As you pull the $1,000,000 out, you're going to pay taxes on $1,000,000..
Mm-hmm.
Which is $350,000.
. If you did it in one year or ten years, you're going to pay out $350,000..
I see. But what if I'm living off less than I'm making right now, but later?
And you're in a lower tax bracket?
Correct.
Well, if you can help me find a place in the history of the United States of America where taxes go down permanently,
I'll go with you on that. But taxes don't go down, they go up. Because Washington has an ever-increasing appetite for my money.
So, James, I think the argument is by the time you retire, even if you're in a lower tax bracket, that lower tax bracket is probably going to be the same or lower than it is today for you.
Yeah, here's the other problem, okay? Let's pretend you didn't just do $100.. Let's pretend you did $1,000.. Well, now we're dealing with $10 million. Your mandatory withdrawals are going to keep you in the highest tax bracket.
And, by the way, on the Roth, you don't have mandatory withdrawals.
Oh, I don't? No. You have a required minimum distribution of $72.5 on traditionals. You have zero requirements on Roth. So, I'm sitting here with a several hundred million dollar net worth and $100 million, probably, I don't know, not quite, in Roth.
But guess when I will take that money out for that Roth? I'm 63.. You know when I'm going to pull the money out of that Roth? Never. Because it can go to my next generation tax-free.
I'm going to let the sucker sit there and grow. I'm 63.. Let's say I lived to 93.. That's another 30 years. all that money's going to grow tax-free and then it's going to be handed to the next generation tax-free.
Not true. with traditional. An inherited IRA is taxable. So it screws up your estate plan. And if you do really good and you save a whole bunch, you're going to be in a high tax bracket.
Doesn't seem to matter which way you vote. Both of them screw it up.
Okay. I'm just telling you, man, anything you can do to keep the government from controlling the money, the distribution of the money, or taxing the money, you're always going to come out ahead because you're so young and smart. The beautiful thing about what you're asking is, you're actually thinking about it. Way to go! And you're actually running numbers and asking very intelligent questions.
You came to the wrong conclusion, but you're asking great questions and you're paying attention. So I can tell you this, from having done this for 35 years, you are going to be wealthy. Because even if you did this wrong, you're going to end up with a lot of money.
I have a question.
For the average.
listener out there, that's not going to build a massive company and not going to have your income. They're more just like, yeah, I'm going to retire. And I am going to use the money, but I'm actually going to retire, and that's my retirement plan, is to use that money. I'm not saying this meaning your money. I'm saying the average person out there.
So talk that out.
Let's say you've got a $5 million net worth. Or a $2 million net worth. But here's the thing. If you start at his age, it's going to be difficult for him to not end up with $5 million, because he's paying attention.
Totally.
The power of compound interest is magical.
But your point is, let's say, we talk about our typical millionaire and they've got $1.
5 million net worth.
between 401K and Roth.
$600,000 house and they've got $800,000, $900,000 or whatever in their Roth IRA and they're going to start drawing it out. Now, what's your question about that?
Yes, you're still going to be paying taxes on it. The argument still stands.
No, you're not going to pay taxes on it.
If you did a traditional.
Yeah, that's what I'm saying.
It would still be the traditional route. But the lower tax bracket, high tax bracket still, the argument stands that it'll probably still be the same.
when you look twice. It's hard to compare a lower tax bracket with zero. Roth is zero. That's the lowest possible tax bracket. I don't care how low the tax bracket is, because the $50,000 created the $900,000 $950,000.
in our scenario. It was the seed that grew $950,000 worth of corn. What you end up with, because of compound interest when you start in your 30s or 20s particularly, is 95% growth in your nest egg when you get there. How that growth is taxed really matters. Here's the other thing.
It's probably even then not going to draw it all down. Let's say you got $900,000 and you live off of 10% of it and it's growing at 12%. 10% is $90,000 a year. You're going to live on $90,000 a year and never touch the nest egg. That $900,000 is likely passed, from an estate planning perspective.
100% tax free. Versus, if that $900,000 was traditional and you lived off of $90,000 a year and you paid taxes on the $90,000 a year because it's taxable, but at a lower tax bracket but not zero, and if you did that, then you still are going to leave $900,000. if you never touched the principal and just lived off the interest it created. You're still going to leave $900,000 all taxable to your kids, because an inherited IRA is taxable and the new rules require that you pay all the taxes out within 10 years on it under the Secure Act. Thank you, Joe Biden.
There you go. You cannot drag your inherited IRA out. You've got to cash it out because those people want your money and they're not going to let you keep your money if you structure it in a way.
What's the death tax?
The death tax is an estate tax. It means I've already paid income tax.
Is that, on top of that? You have to have a minimum of that, right?
$20 million.
But if you get $40 million or $120 million, you get taxed on $100 million at death that you have already paid taxes on. That's why they call it the death tax because you're taxing people who've already paid taxes, but they're too dead to do anything about it. This is the Ramsey Show.
Live from the headquarters of Ramsey Solutions. It's the Ramsey Show where we help people build wealth, do work that they love and create actual, amazing relationships. The phone number here is 888-825-5225. Rachel Cruz, Ramsey Personality, is my co-host today. as we answer your questions about your life and your money.
Aaron is with us in Salt Lake City. Hi, Aaron, how are you?
I'm wonderful, how are you?
Better than I deserve. What's up?
I am 58 years old, my father is 83 and we farm together.
He still comes to the farm 5 days a week. 3 years ago I lost a leg. We have about $150,000 in cattle and the cattle prices are high. I would like to sell the cows. They are just too much work.
And they don't normally generate a lot of income, not the income for the work that they take.
If you're going to sell beef, this would be the time to do it, I agree.
Well, that's what we're talking about. And he has been against selling the herd off and I'm.
done. How long has he had the herd?
We're farming 20 years.
He don't want to sell the family. They're family.
They are and I enjoy them.
but I lost this foot.
3 years ago.
I'm on crutches. I've been 11 weeks on crutches and I've had it. Trying to farm 600 acres of ground with crutches is ridiculous.
it's crazy. How did you lose your leg?
I was in a car accident and got diabetes from a car accident 21 years ago.
I'm sorry. I'm sorry, Aaron.
I hit a motorhome head on. I'm here because of seatbelts. A lady hit us and then pushed us into a motorhome 29 feet later.
It's been an experience. It's a rollercoaster.
Do you have family? Are you married?
I'm divorced 11 years ago. I lost I basically lost all my wealth that I had accumulated in the divorce. My wife had a traumatic brain injury in an accident.
after 25 years of marriage. she says I just can't handle the stress. I'm an entrepreneur. I've always been self-employed.
If you sell off the cattle, they'll bring how much?
About $150,000 and they're paid for.
And your dad. he didn't want to do that because of what?
Just because he knows it's probably the last time he'll own a herd of cows, but he's to the point now that he realizes that this is a good, if we're going to sell, this is a good time.
It is definitely that. It's the timing issue. for sure. You don't want to wait until next spring and then go, dad blame, we missed that.
That's right. They're worth double of what they were two years ago. I know.
Yeah.
Let's try this. Let's try this out. Okay? Okay. Sometimes when we're making decisions like this, we feel like that they're more permanent than they have to be.
Let's pretend, let's pretend. we sold the cattle for $150,000, and you and I are both of the opinion that cattle prices are probably not going to continue to go up. They generally, like all agricultural prices, go up and down and they are at an unusual high. so it's fairly easy for a non-economist like you and I to predict that probably next spring they'll be less. Agreed?
Agreed.
Let's pretend that you could buy that same herd next spring for $100,000.
If you sell off the cows. if you sell off the cows, you still got the land. Next spring. you're miserable. Your dad's miserable.
He's 84 and he's miserable because he doesn't have any cows. Well, take some of the $150,000 and buy the cows at half price that you sold and buy them back.
Makes sense. But here's my question, and this is we have commercial real estate on the interstate on I-15.. Is that got anything to do?
with the cattle?
It does, because what I want to do is, if I take the cash, I'm going to get taxed pretty heavy because I've carried over losses in the past. last year the price was high enough. when I sold the cattle I erased all my losses. so I'm not carrying any losses from the past. so everything I sell is going to get taxed pretty heavy.
What I would like to do is well, can I build a commercial building on the property I already own on the interstate and take this $150,000 and convert it into a building?
Nope. You can, but you're still going to pay the taxes. It doesn't hide the taxes at all. The commercial building is depreciable on a depreciating straight line asset.
at 27 years. So if you spend a million dollars, you can write off 1, 27th of that.
Not going to help you.
That was my question. Can I hide that?
There's no tax shelter for this, because you've already blown through your losses, which were legitimate losses. I mean you really lost the cash. It wasn't like a tax shelter. It was lost money.
For livestock, what is the tax?
We live poor and die rich. Yeah.
I mean I live on a thousand, is what my budget is.
What's your?
farm worth?
$13 million. Good God.
Dave, I have lived on a strict budget for a thousand bucks.
Are you the sole heir?
No. Well, no. Not. on the main farm. I have on an LLC.
I have 107 acres of commercial real estate. that's in an LLC. My dad and I are equal partners. The first guy that dies. the remaining guy gets the wealth.
Okay.
And I think my dad might outlive me.
Sounds like there's a chance.
He's pretty healthy.
If I'm in your shoes, I ask myself if I had $150,000 cash in the middle of the table, would I go buy cattle right now at an all-time high? The answer is no. That means I'm going to sell them.
And even if you don't sell them all, I would sell 80% of them. Agreed. And get it down to where the daily chore is more manageable, because we've got a guy with an amputation and a guy that's 83 trying to handle 150 head of cattle. It sounds like an impossible.
task to me. And that has over $10 million.
on land.
You're going to be okay.
Just to hear a mooing.
Enjoy yourself.
You guys really ought to put this in a position where you can enjoy something here. You've earned the right. Rachel's right. Both of you.
I've taken three vacations in 30 years.
What's the 150 head worth? $150,000 is what they're worth. It's not $150,000..
Well, I've got 100 head and they're worth about $1,500.
So it's $150,000.
. That's what I would do. And it's not because I hate cattle farming or anything like that. Dude, we have an 83-year-old and an amputee. You told me what's going on.
The fun left the building on managing this cattle. Elvis left the building, man. And if you hate it, you can buy them back next year at pennies on the dollar. Probably. And that's worth exactly what you paid for it.
This is the Ramsey Show.
Rachel Cruz, Ramsey personality, is my co-host today. Selling a house the Ramsey way makes homeownership a blessing instead of a curse. Buying a house the Ramsey way makes homeownership a blessing rather than a curse. It is tough out there right now in the real estate market. It is tough to buy.
It's an interesting time. Prices continue to go up and there is a shortage of houses. There's an inventory shortage. And so that's why prices continue to go up. And yet there's people buying.
in other words. It's happening. More people buying than selling. So if you're a seller in a weird market like this, you need someone representing you that's going to help you maximize the asset and not think crazy about what you're going to pull off here. If you're a buyer in this market, you need someone to talk sanity into if you get in one of these bidding wars.
And that's a high-end, high-octane, high-producing real estate agent that knows their stuff. And that's the only ones that are Ramsey trusted. I got my real estate license in 1978, and so I know what a real estate agent looks like. that is a high-performing professional, and I know what one looks like what I call a donut eater. They sit around eating donuts and talk about real estate.
But there's a difference. So who's going to sell your most expensive asset? Your aunt, who just got her license three weeks ago and she's sweet? Or somebody that sold 150 houses last year? Nick, say on the aunt say.
I'm just saying. No way. Don't do this. Alright. Go to ramseysolutions.com slash agent and get a Ramsey trusted real estate agent to help you with this.
You'll be glad you did. Allen's with us in Phoenix, Arizona. Hi, Allen. Welcome to the Ramsey Show.
Hey, how are you, man? Thank you so much for taking my call.
Sure. What's up?
I'm so got an upside-down loan in a car that kind of ran into my car loan. now and sitting down trying to look at everything that we can here in Arizona. Of course, everything is going up.
That's like one of our biggest bills that we got. The car loan is like $695,000, with like $6.9 inches right on it. We're just trying to figure out. I don't want to do a repo. I just need to try to get that payment down somehow, some way.
What do you owe on the car loan?
$32,000.
Have you looked up what it's worth on private sale on Kelley Blue Book?
Yeah, we even took it to, like Carvana.
Carvana is going to pay you wholesale. They're going to pay you wholesale.
Yeah, Carmax. I mean, they told us that it was worth $22,000..
That means it's worth $27,000.
Okay.
Not because Carmax is trying to rip you off. Carmax is in the business of buying cars at wholesale and selling them at retail. That's how they make a living. Mm-hmm. Why would they pay someone retail for a car?
They sell cars at retail. If they're willing to buy it from you for $22,000, you can rest assured it's worth $27,000, which leaves you $5,000 in the hole. How stinky is your credit?
It's bad. It's like $515,000, and that's why I can't refinance.
Who's the car loan with?
It's with Toyota Finance. It's a 22 Toyota Camry.
So somebody told me about subleasing it to somebody.
No. Somebody's a fool.
Okay.
And why?
Because if they don't pay it, you still owe it. And they won't pay it.
You're taking the risk on somebody else.
Who buys a car on sublease? Somebody can't buy a car any other way because they're too screwed up. Screwed up. people that are so screwed up they can't buy a car any other way ain't going to pay your sublease and then you're going to get screwed again. You've been screwed enough on this car.
We need to stop it.
What do you make? What's your household income?
I make $50,000 myself. My wife is a hairdresser, but she recently just got a job at a call center. She makes $18,000 an hour.
Okay. How much other debt have you guys got?
When I look at everything with my kidney transplant and all that type of stuff. my credit alone I owe like $17,000 right now.
Your kidney transplant?
Is that like medical bills?
Medical bills, yes.
You had a kidney transplant?
Yes, sir. Kidney and pancreas transplant three years ago, four years ago.
Wow. How are you doing?
I'm doing good. God is good. They call me a miracle because they say a lot of people don't get called for a kidney.
I'm thinking after you've been through that, a car payment ain't no step, right? Wow.
That's something else, Alan. Here's the answer to your question. Here's what I'm fishing after. The answer to your question is we need to sell the car. In order to sell the car for $27,000, we need $5,000 to put with it to be able to pay the car off, right?
Oh, okay.
And that gets rid of the whole stinking problem. And then we go save up and get a $1,000 hoopty until we can get some money saved to move up out of the land of hoopty. But right now, because, dadgum, man, with what you're paying a month you could save some serious money towards a car. Ten months of your car payment will buy a $7,000 car, man.
Jeez.
Right? Wow. That's the world you're living in. So we've got to get rid of this Camry.
Do you have any money saved, Alan? Anything?
So, there was another question of mine, but they only said I had to ask one. That's a very concerning one, because I've got children. I get depressed about it. I'm 42 years old and me and my wife, we have no savings. We live in Arizona in a two-bedroom condo and it's $1,800 a month and we don't know what to do.
It's just like we don't know how to go about it. if that makes sense.
Yeah, it does. I've been right where you are, man. It's not fun. I haven't been with the pancreas-kidney thing, but oh my gosh, I've been with the rest of it. I've been where you are.
I know what it feels like to be scared.
I was still working full-time doing it, too.
It was such a journey. By the time my bills are paid and everything like that, it's kind of hard enough to save anything.
Here's the deal. Let's just close our eyes for a second. If.
you had $25,000, your whole life would be different. You'd be 100% debt-free and out of this car.
Mm-hmm.
You'd have paid off all the medical bills and be out of this car and be selling it if you had $25,000.
. Right? I would, yeah. Okay.
$1,000 a month is $25,000 in two years.
Okay.
$1,000 a month extra jobs. $1,500 a month extra jobs gets you out in 18 months.
Okay.
I need you to save up $5,000 and sell the stupid Camry as soon as possible and then just continue cracking that whip on that $17,000 from then on. and let's be done with this thing. And get you a cheapo, cheapo car. I don't want you to drive a cheapo car the rest of your life. I want you to get rid of this thing.
that's killing you.
Okay.
And it's not with the CarMax or Carvana. It's selling it to an individual for $27,000 and not for $22,000. but you've got to have the money to cover the difference, because you can't get the title to give to the buyer if you don't pay off the bank.
Toyota's got your title.
So the moral of the story, Alan, I think you know, the conclusion is what's going to help get you guys out the fastest is raising your income, and if you can do something evenings and map it out too, because this can feel always really overwhelming. but just to say okay, on average, if I work an extra three hours a night for five nights a week, you know, what is that going to equal in money? If that's driving Uber, if that's Instacart, whatever it is, you know, find some side hustle stuff and kind of map it out and just say okay, how much do I have to work for us to get to a goal of $1,000 and then timeline that out, just like what Dave did earlier, and then say what if I did $1,500 a month, right? Like, start running those numbers and actually write them down, you and your wife sit down and your $50,000 doesn't even count her salary. so maybe there's a challenge for you guys, lifestyle wise, to take her income and throw it, all of that.
Everything at this.
We're cheering for you, Alan.
So you hang on, we're going to put you through Financial Peace University and then I want you to call us back as you're walking through this, if you've got other questions. You get some money piled up and you don't know exactly what to do. holler. We'll help you, man. We've been scared, too.
We know what it's like. This is the Ramsey Show.
Rachel Cruz, Ramsey Personality is my co-host today. Open phones at 888-825-5225.
We're talking about you, your life and your money, and we talk about you right in front of you. It's a free call at 888-825-5225. Guys, we could use your help, and a bunch of you have been helping us, and we want to say thank you to those of you that have helped and thank you in advance to those of you that are going to. How can you help us? You can click subscribe on the platform.
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We either help you and you tell people, or we suck and we go out of business. So one of those two things is going to happen, right? So thanks for hanging out with us. We appreciate you very, very much. Open phones at 888-825-5225..
Missy's in Fort Wayne, Indiana. Hi, Missy, how are you?
Hi, Dave. So I was calling because I'm not sure if we should put our assets in a trust or just a will. We have rental properties and we just want to make sure that everything that we have we get to pass on to the kids and it doesn't get used up like in a nursing home or something like that if we were to end up there.
Okay. Well, to start with, let's just back up before we got to nursing homes and let's just say everyone needs a will.
Okay. If you're 18 years old, you need a will. A will directs things. sometimes it directs an existing trust. sometimes it creates a trust upon your death.
I have a bunch of LLC's for my rental properties and other things that I own. I use it for risk management more than estate planning, but I don't because I don't want any single entity to have too big a target on it, but for lawsuits purposes. Okay. So we spread our wealth around into different LLC's and we also have trusts. most of our trusts that we have are for estate planning purposes, but they're pretty complicated trusts because our estate is over 20 million.
Is your estate over 20 million?
No, I estimate our rental properties in total are about 900,000 and our home is about 140,000, and then in investments and stuff we have about 300,000 in like liquid.
cash. Excellent. Way to go. You're a millionaire. How old are you?
I'll be.
50 this year. How much of this did y'all inherit?
We really didn't inherit hardly anything. my parents are both gone. Oh, you did it the.
old fashioned way. You earned it.
Yes, yes. We have a small construction business.
Good for you. So number one thing you want to protect your estate from with a will is just outside influences like the government telling you what to do with your money. Instead your will. you know it is my will that this piece of property go to my child. That's where the name will comes from.
It is expressing what your will is, what your desire is. You follow me? Yes. You turn it into a written document what your desire is, and that's called a will. A last will.
the last thing I wished for, my last will, the thing I willed, was that you.
kiddos get this property. So that's the first thing. The second thing your wills and trusts are used for is to avoid estate tax, federal estate tax. Federal estate tax does not kick in until $20 million, so you don't have a federal estate tax problem. The third thing you're wanting it to do is to avoid nursing home, and I'm going to talk you out of that.
Because there's two types of nursing homes. There's nursing home that the government provides to people that are poor. It's called welfare.
Okay.
You don't want to live in subsidized housing, I assume.
No.
And you don't want to go to that nursing home either.
I do not.
So what you need is you need some money to pay for the nice restaurant instead of the junky restaurant.
Yes.
So that's you need a long term care plan and you can buy. at 60 years old, you can buy long term care insurance that will cover about 3 years worth of a nursing home stay and, by the way, the average nursing home stay in America is right at 2 years. Because usually, once you get there, you don't last long. That's true. Okay.
Statistically. Sorry, guys, but that's how it is. If you're heading over there today, sorry to hear this story. But that's the thing. So.
the second thing you can do, of course, is just to have some money to take care of you. A nursing home will cost somewhere today between $75,000 and $100,000, $110,000 a year, depending on how nice a home you want. Now, if you've got $2,000,000 and it's creating $150,000 a year of income without touching the $2,000,000 and you will have that before you get there then the income off of your assets will provide you a very nice nursing home.
Nursing homes don't come and take your assets. The only time that happens is if you've got $200,000 to your name and Papa goes into the nursing home and burns through the nest egg and then dies, and then Mama's sitting at home with no money. Yeah. But the nursing home didn't take your money. you gave it to them to provide care.
Okay. And so it's just like the restaurant doesn't take your money, you gave it to them to get food.
Yeah.
Was there another way? you were thinking of that, Missy? Well, she's trying to hide.
the assets to where she gets free nursing home from the government, right?
Well, I'm fine with paying for what I want, I just don't want to just leave nothing to my kids.
Yeah. Well, if all that your stuff does is take care of you and your kids, get nothing but a good example. that's okay. But it's better if you can set yourself up to do that. Now.
in my case, I'm 63, I don't have long term care insurance because I won't be going to a nursing home. Why? Because I have enough money to hire somebody to live in my house and take care.
of me. God bless that person who will be coming and taking care of me.
Dave Grumpy.
I'm thinking, Rachel's not signing up for this.
Because my daughter won't be coming.
to care for me. So I will have to hire someone, because my daughter will be the care for me.
That poor nurse. Grumpy old Dave. Come on!
We're going to have some great political discussions.
He gets grumpier the older he gets too. If you just go back a few years. Talk about a trust. that, because the will can inform the trust. You said that earlier.
An example would be. a simple one would be if you have a special needs child and you're going to leave money into a trust to take care of the special needs child. that's a special needs trust. That would only be formed upon your death. You wouldn't need to form that ahead of time as an example.
Or if you wanted to leave money and try to control when your kid's got some of the money, you could leave it into a family trust and say, until Junior grows up and goes to college and gets all B's or whatever, he doesn't get any money or whatever verification you want to put on it.
But in the will she can have for the rental properties in an LLC and upon her death, her husband's death, the LLC can be passed to the children. So that helps with the rental.
side. You just leave those assets to the person or people that you want them to go to. Our rental properties, when Sharon and I are both gone, we'll be going to the kids. Yeah.
But you don't need a formal trust to do that. in her case. It can be just through a standard will.
A will will take care of that. You need to go see an attorney and have a will drawn. And you need to do it within the next 30 days. Don't put this off. People put this off and it's not good.
I'm afraid I might die. You're going to die. You need a will. Everybody needs a will. We did research.
Nobody gets out alive. You need a will. This is the Ramsey Show.
Listen, tickets for the Live Like No One Else cruises are selling fast. This is the ultimate debt-free vacation and I can't wait to celebrate with all the folks who've worked their butts off and changed their family trees. We will be sailing through the blue waters of the Caribbean with the Ramsey personalities and other special guests. A bunch of cabin options are already sold out. So hurry and reserve yours with a $600 deposit today at RamseySolutions.com slash events.
Rachel Cruz, Ramsey, personality, nursing home care student. She's my co-host today. Open phones at 888-825-5225 has officially declared me to be a grouchy.
old, crotchety,
horrible patient. I might be the nicest old man on the planet. There are nice old men.
Get off my lawn.
Just get off my lawn.
At 92,.
I'll be down here doing the show.
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