On this episode of The Long View, Jonathan Clements, influential personal finance journalist, founder, and editor of HumbleDollar, discusses his recent cancer diagnosis, his experience working on HumbleDollar, and what has brought him the most joy in his life.
Here are a few highlights from Clements’ conversation with Morningstar’s Christine Benz.
Accelerating Giving to Children Nearing End of Life
Christine Benz: You’ve written that you’ve been accelerating your giving to your children. Can you talk about that? And it sounds like that it has something to do with Pennsylvania, but maybe share your broad mindset on that idea.
Jonathan Clements: So, I have been giving more to my kids. I’ve also been funding 529 plans for my two grandsons. And part of it is for tax reasons. There is an inheritance tax in Pennsylvania. My wife Elaine can receive the money without worrying about that inheritance tax, but my kids will pay 4.5% on every dollar they receive from me. But if I give it to them now and I manage to live another year, the inheritance tax does not apply. And so, the biggest gift I’ve made this year is to my daughter Hannah. She lives nearby and when she bought her house nine years ago, I wrote a private mortgage for her, and that private mortgage was a little over $300,000. I forgave that loan a couple of months ago. And as long as I live till July 2025, she will not have to pay inheritance tax on the $300,000. So, I’m hoping I last that long, and she will dodge that tax. It also just makes things simpler—easier to hand over the money now than to do it upon death. All those financial paperwork loose ends have been tied up at this point.
Why You Should Streamline Your Investment Accounts as You Approach End of Life
Benz: You mentioned that even prior to this diagnosis, you had been in this mode of trying to streamline and skinny down your number of accounts and so forth. It sounds like you have accelerated that process too. Can you talk about that?
Clements: Certainly. For instance, I used to have, prior to my diagnosis, four credit cards. I’ve taken that down to two. I may actually take it down to just one. Meanwhile, Elaine has a credit card. She made me an authorized user. So that will give me a second backup credit card if something goes awry. Similarly, I’ve reduced the number of bank accounts in recent years. But post-diagnosis, I’ve been trying to take this even further. I’ve been throwing out financial papers. Our shredder is on the verge of exhaustion with everything that I’ve been pushing through it. I used to have tax returns going back to 1986. I now only have seven years of tax returns and supporting materials. So, I’ve been making adjustments like that.
It is surprising to me what a mess I would have bequeathed if I had gone on to the next bus. I’m glad I have the time to sort this out for my family. But you would be surprised what a hassle it is to close out these credit card accounts, to close out these bank accounts, to deal with all this paperwork after somebody has died. So, it’s much better if the person involved can get it done while they’re still alive. And my goal is to do as much of that as I can. I really consider as much as giving the money to my kids and to Elaine is important, I also believe the bequeathing them a well-organized estate is equally important.
Designating Powers of Attorney
Benz: One thing that surprised me was that you wrote that you didn’t have powers of attorney designated until quite recently. Can you talk about that? Why that was something that you kind of dragged your feet on or is it inexplicable?
Clements: That’s very kind, Christine. I’m not sure it’s inexplicable. I simply did not get it done. Part of the reason I hadn’t got it done earlier was because I moved states four years ago from New York to Pennsylvania. I moved down here in part to be closer to my daughter and grandsons. I have had a will for years. I have been pretty clear about my intentions with my kids, but I never did get the financial power of attorney. I did not get the healthcare power of attorney. Yeah, it’s a case of the, what is it—the cobbler’s children have no shoes. Well, the cobbler himself didn’t have any shoes.
How Inertia Plays a Role in Our Investing Decisions
Benz: I have things like that in my own financial profile. Do you think that maybe we don’t talk enough about that sort of inertia? Because I think we all have these things that—maybe some people have every box ticked. But we talk about all these other behavioral foibles, but it strikes me that some of these matters of inertia are the most powerful behavioral force, and we hardly talk about them at all.
Clements: It’s true. It’s so much easier to sit still than to move. Sometimes, of course, sitting still is the right thing to do. When it comes to your portfolio, if you’re reasonably well diversified and you have a reasonably low-cost collection of investments, then sitting still is a great thing to do. But when it comes to things like estate planning, making sure that you make adjustments along the way, when you move state, when you have children, when you get divorced, whatever it is, clearly that’s important. And a lot of people just don’t make those adjustments.
I would say that the other thing that we don’t do nearly enough is talk to our families about things like estate planning and about our financial affairs. Two days after I got my diagnosis, I sat down with my kids, with Elaine, and I talked about my estate. And it was all very clear to me. I thought it was very easy to understand, really. I don’t have that complicated a portfolio. My beneficiary designations, my will, they are all very simple. And yet, what followed were countless conversations with my two kids and with Elaine about what was involved to those of us who are financial nerds, things like Roth versus traditional IRA, beneficiary designations, what goes through probate, and so on and so on. All seems very straightforward. But to people who don’t make a living paying attention to this stuff, it can be pretty damn complicated, and you won’t be able to explain it all in a single hourlong conversation. For people to fully understand what’s going on, it takes multiple conversations. And so, I would encourage you to talk to your family about your finances and then plan on talking to them again and again about it because that’s the only way they’re really going to come to understand what’s going on.
