Hi there. Do you worry about retirement, your retirement assets, your family's wealth, protecting that nest egg from high unreimbursed medical expenses, unnecessary taxation, and even loss from bad decisions? If so, this is the episode for you. This episode 34 of the BoomX show laws and money podcast focuses on the concept of asset protection and two important trust the spousal protection trust and the retirement account trust.
That's right. A retirement account trust. A Trust that is the beneficiary of your retirement account so that we can gain back asset protection that was taken from us by the United States Supreme court decision Clark versus Rameker. And becomes more important after the secure act, which was enacted in January 2020.
Don't worry if you've not heard of this before I explain it all in this episode, the second half of the asset protection masterclass that is taught monthly by the BoomX Academy. You can learn more by going to boomx.biz. That's boomx.biz. We have a lot to talk about. Let's get started.
Welcome, BoomXers. Let's throw out the old playbook. It's time to tear down the traditional way of looking at your life and money. And leverage the laws of money to our advantage. That's right. There are laws of money and those who learn and leverage the laws of money win. And sometimes win big. Stay tuned as asset protection, attorney Darol Tuttle, educator, and leader of the BoomX nation shows us how. Beginners, investors, entrepreneurs, fellow attorneys, are you ready? Are you ready? Let's arm this bomb. Now, here's the boom X show, the laws of money.
If you are new to the concept of asset protection, that's okay, most people are. Estate planning, we know all so well. We are inundated by messaging related to estate planning, which is really nothing more than estate transfer and by estate transfer, I mean passing wealth from a deceased asset owner to a living heir. That's it? The value proposition is low because the benefit of a state planning that is estate transfer occurs after you have died, which doesn't do much for you other than living part of your life with peace of mind, asset protection, of course has a different focus.
We use all of the legal documents, legal strategies, proven methods and manner of estate transfer. Last will and Testament, trusts, powers of attorney, property agreements, property memorandums on and on in asset protection that we use and estate planning. Look at it as circles on a piece of paper, the middle circle is estate transfer, a larger circle that encompasses all of estate planning would be asset protection.
Now asset protections focus is to protect wealth preserve the value of assets of the family during the lifetime of the family leader, of the retiree, of you. Now concede that has a greater value proposition for you because during your lifetime, you benefit from protecting wealth. It is not just growing wealth, it is also protecting wealth.
The asset protection masterclass are taught monthly. We have all kinds of resources on the BoomX academy website to include four family leaders. And the cost of family leader membership is astounding. It's $1 for the first month, so you can test drive it and only $44 a month thereafter.
But if you enroll as a family leader at boomX, you will be automatically enrolled in not one but three different courses. The first is the BoomX show companion course. The next is the asset protection masterclass, which has materials that I have offered during the live sessions. You will be invited to attend asset protection master classes every month for free, you will be able to ask me questions in live sessions called office hours every week.
In addition, you will be enrolled in the Nestegg course. Another advantage of family leader membership is that you will be able to draft your very first asset protection document. The limited power of attorney with an irrevocable trust, which is the bread and butter of asset protection. That may not mean a lot to you, listen to the podcast.
I encourage you to go to boomx.biz, learn more and see if it's right for you. You will save thousands of dollars in attorney's fees and receive the same high quality work product, but more importantly, walk away with far more knowledge on how to implement the plan.
Now, this episode 34 is the second part of asset protection masterclass that I conducted in May, 2022. If you hear me make reference to Washington state, do not worry. I make reference to Washington state because that particular master class was focused on the attendees in that masterclass rather were Washingtonians the asset protection principles that we teach are grounded in federal law and apply an all 50 states.
If there is an exception from one state to another, I will make reference to it. If you have questions, you can attend the weekly office hours and ask that question and we will clarify. Now, as I discussed estate tax ,the great reference for you is town tax foundation.org.
It lists and analyze the tax profiles of each of the 50 states. I point out in this asset protection masterclass that you will hear in just a few minutes, that Washington state is one of the worst tax jurisdictions in the county. You can go to tax foundation.org, poke around and you'll see listings of all of the 50 states rankings rather from the most tax friendly to the most tax hostile and by hostile, I mean, hostile to our pocket books, but I try to encourage attendees and listeners of the BoomX show laws of money podcast is to think about the financial responsibility, to understand some basic concepts in the law to protect wealth. Now let's dive in and pick up where we left off on the second part of the asset protection masterclass.
Now I have said to you,concede this, unnecessary taxation is another problem, right? If you think about it, Washington state, I don't want to get in politics, but let's just face it, Washington state,
it's a blue state. It's just tax obsessed. Washington, one of the worst it's I think it's ranked tax foundation ranks at 36 worst 50 being the lowest, the worst. Washington is one of the worst states to be in, in terms of tax. Tax, tax, tax. And I don't know about you, but I someone said to me your address is Ensenada.
Are you coveting? I've never. Is that a verb? Are you coveting in Ensanada or are you still in Washington? I'm coveting in Ensenada. Ensenada is in Puerto Rico and one of the silver linings to COVID if there is any, if there is like, if you want to try to put a positive spin on it is before COVID people over 65 generally did not believe that they could conduct business through the internet. Right. And I had offices in rent and Tacoma and Seattle and Spokane, and I spent a lot of time on I-5 and it was horrible because clients would drive an hour and a half to have a 45 minute meeting with me and then get stuck in I-5 traffic and spend two hours to get home. And we just, did we just put up with that back then.
Now you think about it. And everything, a lot of people just, aren't going back to brick and mortar, those days are over. And so I live in Ensonata Puerto Rico now, and that's why my face is red because I went fishing on the Caribbean and I forgot suntan lotion. I'll not make that mistake again, sunburn, but another reason I'm in Puerto Rico is because Puerto Rico does not have a capital gains tax and a property tax. And so Puerto Rico is the best jurisdiction you can be in, in terms of taxation. And there are a lot of Americans, 15,000 Americans have moved to Puerto Rico because they're saving on tax and as taxes going up in the continental US, they're going down in Puerto Rico.
And I don't know about you, but I just reached a point where man, I'm tired of working so hard and having so much of it go out of my pocket. Now, I'm pointing this out to you because Washington just enacted a capital gains tax of 7% on assets sold other than real estate with a $250,000 exemption.
And I've got a lot of clients who have stock portfolios that are in the millions. And so now we've got to look out for that. One of the exceptions in the code is irrevocable trust. So right there, that's an example of a safe harbor. You can transfer assets that would be taxed upon selling in this new capital gain tax into an irrevocable trust.
And they cannot be taxed by Washington state. So that is an example of an asset protection trust authorized under a law, but Washington also has an estate tax. In addition, it's depressing, isn't it? In addition to federal tax, now federal tax, you can pass over $11 million with no problem in Washington, you can pass just $2 million with no problem.
Beyond 2 million, 2 million and up you're taxed at a rate as high as 20%, 20%. And I don't know about you, but 20%, that's a big haircut right? Now, then the question is how would a trust work to reduce tax Darol in estate tax? Very simple. The mistake people make is husband and wife have, let's say 4 million, $4 million. Husband passes away and he just has a simple will or a revocable living trust and everything passes to wife.
When she passes away, she only gets one, $2 million credit. That's it. And so when she passes away, first 2 million is tax-free. The next 2 million is taxed and then tax would be depending on how high, about 350K. That's a lot of money, $350,000. There's a lot of money to pay to Washington because you're over that credit amount.
Now, if we had a spousal protection trust, the same one that cannot be reached by a Medicaid lien, the same trust that is not subject to spend down can also protect and preserve and capture the credit of the first spouse to die. If you give it everything outright to the surviving spouse, you lose it.
If you put it in a trust, you keep it. So when the spouse passes away, then that trust this trust is below 2 million. Her side of the ledger is below 2 million, no tax. It's like a simple thing to do. You'll be stunned how many people just don't do it. And so spousal protection trust is a tax saving trust on steroids because it's a Medicaid asset protection.
So spousal protection trust. Once you fund it, the five-year lookback period for Medicaid does not apply. Transfer penalties do not apply. The infamous Medicaid lien, you can not, Medicaid cannot lien a spousal protection trust. It's 100% protected. And so for Washingtonians, I'm just trying to get the message out that the value proposition for asset protection is pretty significant.
And what we're talking about is saving the estate against high, long-term care costs against spend down and also estate tax, Washington state estate tax. And even hopefully the capital gains tax in Washington will be stricken down as unconstitutional. That is likely, however, right now, when Washington can pass the tax, you know how they are, they find another way to do it.
And so my messaging is look for these safe harbors and just think what are the three threats? Unreimbursed, medical expenses, unnecessary taxation, and then family mismanagement. Now what's cool about a trust is that, you know how you hire somebody to hire a financial advisor and they fire up their software and they spit out a really nice 24 page graph rich thing that maps out every year, your retirement cashflow.
And you look at it and inevitably at the end of the presentation, there's a suggestion that you hire the financial advisor and buy a mutual fund or annuity. The general view is that those retirement roadmaps or a sales tool. Hook the client at a webinar where you feed a mistake, having come into the office, give them the free retirement roadmap and they will buy something from you basically.
And which is fine except that I've noticed that my clients don't refer to the retirement roadmap. Even six months after they had it, they'll say, oh yeah, I had it. And they said I was going to be worth 9 million in retirement. And I don't even know where that is anymore. And then I say how did your mutual fund do last year?
I have no idea, Darol. I'm like why don't, you know, I don't know. I just, it's not, the account statements come in and I'm just not very interested in. The reason that happens is because you haven't really thought about what the purpose of your money is. Like, you know, I'm in retirement and you're worried that you're not going to have enough, but as long as you feel like you do have enough, you're not really paying attention.
And what's cool about wealth is if you envision it as something more than just money, a lot of possibilities open up. And one of the possibilities is like, okay, if you think about it, if you're 80 years old and have an estate of a couple million bucks, how do I put this without saying like a jerk?
Even me. Okay. So I'm 58. Let's just face it, man. There are fewer days ahead than behind for me. And if I don't put sunscreen on, it's definitely going to be the gates and my wealth will go to my children and really it's going to benefit them as much as me, if not more because I only have 20 more, 25 more years of life left.
And if you're 70, you've got 15 more years of life. And if you're 80, you have four more years of life left, statistically. I always say that the average life expectancy for American male is 84, for woman's 87. And I have, it seems to be spot on because I have a lot of clients sign at 84 and 87 male and female.
However, if you over age 65, you have a one in five chance of reaching 90. And the bad news is that one in 10 chance of reaching 95, which doesn't sound very fun to me, but that's up for you to decide. Now at that point, if you think about it, you're just the title holder of the asset. You're not the only owner, really.
If you think about it, my kids have a greater interest in this money than I do because at 75, really your retirement nest egg is just sitting. I want you to really embrace this concept at a certain point in your life in retirement, your retirement assets, that's what I call the nest egg.
And then nest egg is sitting there for a rainy day. That's what it's there for. You're not really drawing on anymore. You've stopped buying and selling homes. You're not traveling as much as you used to, if you are, it's definitely you're living within your means and comfortably so. That next egg is just sitting there and the only thing it will do is either pay for medical care or pass to your kids, that's its purpose.
And if you kind of just thought, okay, well this is silly. Like the super wealthy in the, in this country have for centuries in the world, for centuries have been acknowledging the frailty of their own life and to reduce estate tax liability have been creating tax savings, trust and making gifts into them so that their estate becomes smaller and it's passing to their children earlier.
It's going to go there anyway, right? And so. Why don't we think about a way to include our spouse and include our children and say, look, this is what's going to happen. When mom and dad pass away, someone's going to be the trustee. It might be, you might be a professional trustee, and this is what I want to have happen.
I would like this wealth to survive to the third generation. And so I am not going to give a lump sum distribution to my kids. What happens if you give, create a trust for your children and you die younger than you thought. And the trust said I'm going to give half of the inheritance to my kid when my kid hits 25 and the other half, when the kid reaches 30.
Twenty-five and thirty. And let's suppose you have a million dollar state. So $500,000 to a 25 year old. I see it all the time. Don't look at me like it doesn't happen because it does. And another 500,000 at age 30. I can tell you what happens. The Audi dealership makes out like a bandido when the kid hits 30 or 25, I mean, I guess the a RA is $200,000, so it's probably the Audi dealership and whatever.
A really nice vacation. It's just squandered. I've been shocked at how even the kids that were taught to be financially responsible, just blow inheritance money because it's a windfall to them like that they didn't have an emotional attachment to it. They didn't, there was no vision for it. Now with a trust that goes beyond their lifetime, you can create a vision that is shared with them that they emotionally buy into that has a multiplier effect. Give them pensions. Instead of a lump sum.
You want to help them about you don't want to spoil them. It's not meant for I worked hard for it and whatnot. Now, one of the updates that occurred in the law was in 2019 President Trump signed the secure act. It became effective in 2020, and then COVID hit the secure act, dealt a death blow, not a death blow that's overstatement.
Secure act was a part of the end of the year appropriations fiscal balancing part of the budget, which that's when Congress says, oh man, we spent too much and we're not going to pass a big fancy statute and argue about it, but we got to make the budget needs to balance. And so they start cooking the books.
And one of the ways they did it was they reduced the payout of retirement accounts to kids at that next generation. It used to be their inherited. A lifetime of our required minimum distributions. Well, Congress reduced that to 10 years and unfortunately that happened right around the same time that Clark versus Remicade was issued.
And Clark versus Remicade is a Supreme court case us Supreme court case that Clark versus Radmacher was the United States Supreme court opinion that. Before the Supreme court became a political faction. That was a kind of a snotty comment. But for the most part, the Supreme court now decides cases on the politics of the justices rather than precedent.
But back then the Supreme court still had integrity. And the question before the court on Clark versus Remicade was what. It is an inherited IRA, bankruptcy protected. In other words, if a kid inherits an IRA and then files for bankruptcy, can the bankruptcy trustee who liquidate the IRA and pay the creditors before Clark?
The answer was no after Clark answers. Yes. So the Supreme court took asset protection in a bankruptcy scenario. From the, from an IRA. And it's oh my God, that's horrible. Because the number one reason for bankruptcy petition is cancer. It's not financial irresponsibility, it's medical, like medical unreimbursed, medical expenses.
People become sick when they're young, too. And so really the trust that our bankruptcy protected credit or protected. That's asset protection too. And so I'll be happy to do is designate a trust to be the beneficiary or owner, depending on how, what words you want to use, but the beneficiary of the retirement account.
When we do that, we get right back to asset protection before Clark versus Rameker was an active, because it's in trust. It's not something it's not an asset of the kid. And so now we have a pot of money set up an asset protection trust, just like a spousal protection trust, really. But that is protected, no Medicaid liens can apply, no creditor can reach the money inside of that thing.
Then we can, we're still going to have to do pay out over 10 years into the trust, but it accumulates in the trust. And then we can invest inside of the trust with tax deferred, tax free and tax efficient investments. And that's it.
That concludes the majority, not all of it, but when the majority of the second part of the asset protection masterclass.
The asset protection masterclass, all of them always conclude with 20 to 30 minutes of Q and A, and there were great questions. There's always great questions from the attendees on various topics related to asset protection, retirement planning, long-term care planning, even tax planning, uncommon question when that came up several times, actually in the Q and a session of that asset master protection class was rental properties.
Should I transfer rental properties into a business entity, such as a limited liability company, of course the answer is yes, not only because it offers asset protection and insulation between a lawsuit judgment and your personal assets, but more importantly, run it like a business and you can create a business retirement plan inside of the limited liability company.
One powerful retirement plan is the defined compensation pension plan as compared to a 401k defined contribution and many retirees own rental properties. And they just simply own it outright and they pay income tax on rents. Rents under the rents and royalties category.
And that's just falling. It's just foolish because you're not properly leveraging tax deductions. And more importantly, you are limiting yourself to the annual contributions in a retirement account of only an IRA as compared to a larger contributions that you could make inside of a plan and that's a complicated topic, but just some of the things that people are curious about, if you own rental property, you might want to think about looking into that.
You can learn more about this podcast at boomx.biz. That is the home of the boom X show. All the past episodes are there. You can also sign up as a free member. And I will enroll you in the companion course, which is enhanced content for some of the episodes. And then of course you will be enrolled in the asset protection masterclass, which is a handout that the master class handout and recordings of sessions and written content that helps you understand some of these principles.
That's it for this episode. Thank you so much for listening. I hope to see you around the BoomX academy community. Thanks for listening to another episode of the Boom X show laws of money podcast, where asset protection attorney Darol Tuttle breaks down the complicated rules of estate, retirement and even long-term care planning.
You can listen to past episodes of the BoomX show by going to boomxshow.com or subscribing right from your smart phones podcasts. To take a deeper dive, join as a free member in the BoomX academy, and you'll be automatically enrolled in the show's companion courses where you can find enhanced content and many of the shows important episodes.
Enroll now by visiting boomxacademy.com. That's boomxacademy.com.
