I believe and my message is estate transfer has very little value to you. Let me repeat that. It's not your fault. You've just been inundated with marketing messaging, usually from the financial services industry, because that's all they can comprehend but estate transfer. Estate planning equals state transfer.
And here's the way it works. The word estate in the law means you're dead. Like I say that until you pass away, there's no estate. And so estate is actually the holding area, the legal construct, what the law calls assets of a dead asset owner. Repeat that and the estate is the assets of a dead asset owner because the golden rule of estate planning is you cannot take it with you.
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, fellow attorneys, are you ready? Are you ready? Let's arm this bomb. Now, here's the BoomX show, the laws of money.
I'm starting this YouTube channel and a year ago, I posted a review of Mama Bear forms, which is a legal document drafting application that Dave Ramsey recommends and I've got 3000 people watched that video.
And yesterday a guy posted something kind of snotty, kind of mean, it's funny how, with social media, you'll just say things right. But a year ago a guy asked me a question and as you well know, I had a busy year last year. And so I feel bad that I didn't get a chance to answer his question and I'm actually gonna up CC this video, if I post it on YouTube to him and apologize, here's the answer to your question and what he said was why do I even, I'm paraphrasing, but why do I even need a Last Will and Testament with all these transfer on death beneficiary designation forms that are available, right?
He could be correct. That's a good point, if his goal is estate transfer as compared to asset protection, like that's the big, big distinction. Now once again, I believe and my message is estate transfer has very little value to you. Let me repeat that. It's not your fault.
You've just been inundated with marketing messaging, usually from the financial services industry, because that's all they can comprehend, but estate transfer. Estate planning equals estate transfer. And here's the way it works. The word is state in the law means you're dead. Like I say that until you pass away, there's no estate.
And so a state is actually the holding area, the legal construct, what the law calls assets of a dead asset owner. Repeat that, and the estate is the assets of a dead asset owner because the golden rule of estate planning is you cannot take it with you. What that means is when you pass away, you leave everything that you've accumulated behind.
Now, America is obsessed with title, like who owns it? There's like litigation about who owns what, but essentially there's a lot of all property except for tangible personal property has title. And remember there's two broadcast categories of property. We've gone over this before. It's worth repeating, real property and personal property.
Real property has two subcategories real estate and real property. And real property is legal interest that attaches to real estate. Real estate is dirt. Real estate is the actual land, the raw land, the parcel, the easement that goes over it, the covenants that associate with it, all of those thing, air rights, mineral rights, that's all real property.
Real estate is dirt real property's legal interest that attached to it. Now the other type of property is personal property. There are two kinds, tangible like this, something that's present in the physical world. I can touch it and intangible. Now this person's question is dealing with intangible personal property.
So his question was why do I need a will at all if I can just go to my Schwab account, fill out the transfer on death, beneficiary designation form, right? And when I pass away that account will vest title in the beneficiary, my surviving spouse, one of my kids, a charity who, whomever I choose. And he's absolutely 100% correct about that.
And so if we look at this graph I just took this from, made it quickly. So there's not a lot to it, but it shows the three types of transfers. The three broad categories, the three ways property transfers when the asset owner dies. One way is the archaic way, and that's probate with the last will and Testament. Now probate comes from the Latin word, "Provo Provare," which means to prove, to clear title.
It's all about, okay, this parcel belong to Darol. He's dead. Who does it belong to now? Now a last will and Testament once again, dating back to 1066. That's when the modern way of transferring property was first originated way back then. A will in the mid medieval times was a written document that transfers land, real estate.
A Testament was a written piece of paper that transferred personal property. And so the law said, okay, let's just combine like modern law. Let's combine it Last Will and Testament. So it's a legal document presented to a court in which a personal representative or an executor or an executrix is appointed to transfer title once all the bills have been paid, once all the taxes have been paid, once all the court fees have been paid, when everything's paid, then the personal representative has authority to transfer title of all the probate assets to the beneficiary, right? The heirs actually.
The next way property titles is operation of law. And that's just like my broad, like way of saying it. And it's kind of all those miscellaneous things. So we can transfer into a living trust property. And the way living trust work is okay. Look I don't wanna go to a probate because that's a court procedure and I'm afraid of court and I don't wanna pay any fees.
And so what I can do is all the property that I want to give to my family before I die, I can transfer into a trust and I can be the trust maker during my lifetime. I can be the trustee during my lifetime, and I can even be the beneficiary during my lifetime.
Now, we have talked about asset protection as compared to rstate transfer over and over and over again, the distinction is this, asset protection is about retitling assets during your lifetime, so that a creditor cannot reach that asset. It's also positioning wealth when you die in trust so that creditors of the beneficiaries cannot reach the asset in particular Medicaid, tax agencies in some case, like when we create a credit shelter trust that avoids unnecessary estate tax, really what we've done is we've used an authorized trust to double our credit amount.
But for that trust, we would, estate tax, in many cases. The law actually has this gift of saying like, look, you can use a credit shelter trust, double your credit amount and avoid $160,000 in estate tax. That is asset protection right? Now, while you are alive, you can transfer wealth into a Medicaid asset protection trust.
And that asset is preserved. Now, a living trust offers no asset protect. None, zero. The only thing a living trust does is estate transfer. And so the concept being, okay, so Darol transferred property into, let's say, his home into the living trust. Darol's dead. However, under probate law, there's not a problem with title because even though Darol is dead, technically the trust owned the asset, not Darol.
Therefore title is good. The only thing that needs to happen is the designated trustee comes in, which would probably be my oldest or my son. He steps in as a trustee, then he can pay all the bills, liquidate the home and then pay it out to the beneficiaries, which would be himself and his sister. I have two kids now that is a transaction that does not require probate at all.
The last way, sometimes, if you think about a life insurance policy, that's in that category actually, because a life insurance policy is a contract. You deposit up money into the account, make premiums either a term or whole life policy. When you pass away, the life insurance policy pays to the beneficiary.
It's like a living trust. It's like by contract or by nuances in probate law. We do not have to get permission from a judge to transfer assets and retitle them into the name of the qualified heir. Now, concede that a living trust doesn't do me any good. Like I create the living trust. I transfer my property into the living trust and it is a way to have a, I mean like, living trust have a purpose, but it's an estate transfer purpose.
I have to die. I'm dead. And then the living heirs receive the asset without a probate, without stress. That does have value, but it doesn't really benefit me during my lifetime, because if I get sick, let's say I'm single, which I am and develop Dementia. A living trust is not gonna help at all.
Like it is an available asset and Ohio, and Washington state and probably some other states by now. Any property in a living trust is not considered an exempt asset and must be spent down before Medicaid offers any benefits. If the personal residence had been left out of the living trust, right.
And I needed Medicaid. The personal residence would be exempt, would not count as an asset would not be subject to spend down. If you transferred into a living trust, it is now non-exempt in Washington and probably some other states, is non-exempt and technique would be, need to be spent down or transferred out of the living trust.
And so in that case, it's a great example of, okay. Oh, we wanna avoid probate at death and we wanna get assets to the heirs as quickly as we can. Will you just shot yourself in the foot? Because now you've rendered an asset that was exempt to a non-exempt status.
Now this person's question focused on TOD, which means transfer on death. And that's really operation of law. But what happened was the financial services industry kind of hijacked estate planning. And in order to make life convenient for them, I don't even know how it happened but over the years, it became lawful to create an account, have some rules about the account, have an agreement about the account and then either think of it as tenancy with right of survivorship, tenancy in the entirety. Tenants in common does not matter, but designate who the property, who the account will go to on your death.
And so if you think about a retirement account, you have a primary beneficiary and secondary beneficiary. When you pass away, if you name your spouse as the beneficiary of the account then she automatically inherits it. Like she has the retirement account. If it's a brokerage account, a checking account, You can just roll it over seamlessly so that person owns the account.
Now, if your goal is estate transfer, like I'm dead. I don't care. I'm just gonna give it all to this person, surviving spouse, kids, or charity. That is a great way to do it. Some states I put a, for the YouTube video, I'll put a list of the states. I don't have 'em right off the top of my head, but many, many states have transfer on death deeds.
Remember real estate can only transfer by deed, that's it. And so in a probate a personal representative is appointed. If there's real estate of any kind personal residents, recreational property, commercial property, the personal representative has the authority to record what's called a personal representative deed, meaning, hey, I want the personal residence to go outright to my wife.
Well, personal representative will just record a new deed that says. Darol's spouse owns it 100%, but it has to be by deed. Many states now have transfer on death deeds, which is a deed that you record while you are alive. It's very bizarre while you're alive, you record this deed that says, look, I want my son to own my personal residence, but not now.
Only when I pass away. And so it's just there giving notice to the world that this thing is gonna happen upon death. And then son can just present a death certificate and then new title will vested his name. That's great because we avoided probate, right? Like we didn't even have to have a Last Will Testament because all we owned was a checking account and the personal residence, a home, that's it. Those two assets, while the checking account can vest with the third category transfer on death. I just have to fill out a beneficiary designation form. Just like the beneficiary designation form, we can do a transfer on death deed so title automatically vests.
Now y'all that are on this call, please open up your mics because I'm gonna ask. Karen, I'm gonna ask first, Karen. No, no, she gotta, she panicked I panic her, right. Okay. I'm gonna ask Susan. Susan, yes. Tell our listening audience, what is major flaw in transferring everything automatically at death to the surviving spouse?
You could be subject to estate tax. True. What else?
I don't know. How many times have we talked about spousal protection trust? Oh, oh yeah. See, I like it because what that means is like, well, you're like, well, yeah, of course. I mean, I think it's just become like so ingrained in you. Okay. Shannon's new to the club. Have you heard me talk it yet? Shannon about spousal protection trust?
Yeah. The first thing that comes to mind in that situation would be then that opens up your spouse to be subject to Medical bills, you know, Medicare where they, that spouse now will have to spend everything down. I feel like I wish I had a sound effect of ding, ding, ding, ding, ding, ding. You know that game show when you get the answer right thing like that. That's exactly right.
This person that asks question might be single. And so you're not gonna worry about a spousal protection trust if you're single. However, if you're married, you need to understand that sometimes automatically vesting title in the surviving spouse is the biggest mistake you will ever make.
Because as soon as it vests in her name, like statistically, women outlive men and therefore most of the long term care services are being provided to women, to widows. 70% of all nursing home residents are female. I think that statistic is soft. That's the last one I read was 70%. Every time I've gone to a skilled nursing facility seem like more like 90%, two thirds of Alzheimer's patients are female.
The silver tsunami is what we use to describe the fact that the baby boom generation and some of the X gen guys now are all aging at the same time. And so they're like, there's this big demand for long term care services, but it's not gender neutral. It's gender biased, most people who and statistically when, I think it's like a 40% pay cut. So when husband dies, women suffer a 40% decrease in monthly income, something to that effect. And then once they fall and break a hip or get sick, or just become to the point where they just need help because of age now they're paying 5, 6, 7, 8, 9, 10,000 bucks a month in care costs that can only go on for so long.
Now, federal law has a great, not total solution, but a great resource, a great it's like a gift and here's the way it works. Federal law says, look, you, husband does not have to give everything to the wife outright because if she does it's subject to Medicaid, spend down five year, look back period, transfer penalties.
Rather you can transfer the inheritance of the wife into a 42 USC trust. This very specific trust. The assets inside of the trust are protected against creditors for the spouse to include Medicaid. The assets in that trust are specifically made for Medicaid. That's what it does.
Now, unfortunately, I don't even think it's a disadvantage, but, people have been so ingrained with avoid probate, avoid probate, avoid probate. Well, probate is required because that trust has to be created by a Last Will and Testament. That's just what Congress said. We don't get to argue with that. It has to be in a Will. You have to have a Will.
It has to go through probate. If you do, the gift is this single best asset protection trust in American Juris prudence? Five year lookback period does not, the only way you can make a transfer without a penalty and after death is with this trust to avoid Medicaid spend down. That's the only way just follow that rule, put a spousal protection trust in your last will Testament.
Understand that you're gonna go through probate and get away from this concept of avoiding probate with transfer on death deeds, because you may not want it to vest automatically in the name of the beneficiary. Now that's also true for kids. Sometimes my clients like, well, my clients have wealth.
They're like, I'm not sure I wanna give my kid a $500,000 outright or $2 million outright or whatever. I mean, I love my kids, but I worked hard for it and I know my kids. Audi dealership's gonna make out like a Bandito the day after I, they get their money. And so when you do a transfer on death transfer, you're just sitting here, go. You might as well just name the Audi dealership it's like, look, anyway, you see my point. It's the only way to create a trust. Yeah, it's called a Dynasty Trust. So even if we're transferring to the second generation, oftentimes we want to create a trust. Now you can do that in the living trust, but with the benefit of the spousal protection trust, you should just put it in Will.
Otherwise, you're just giving all your wealth away with no strings attachment, no anything. Another thing about transfer on death deeds, you're asking for trouble. I think you're asking for trouble on a transfer on death deed because just imagine I want my cabin in the woods to go to my four children.
So I'm gonna execute a deed, title's gonna vest in their name. So guess what happens when I die?. My four kids are equal tenants, have an equal share in the cabin, in the and like I had no rules about it. Did I? I didn't say every other month, like on rotating monthly basis, you can go to the cabin.
So what happens is one weekend, all four kids show up with all their kids. There's just conflict. One kid is in Alabama. The other three kids are in Washington. The kid in Alabama never gets to go to the cabin cuz they live so far away. So he resents the fact that the three other kids are joining the cabin in the woods.
So what does he want? He wants to be cashed out. And then they say, that's not what dad said. You're stuck. Then the guy in Alabama dies and he has eight kids. Three of them moved to Washington and now you've got. How many, that would be three plus eight. Now you've got 10, 11, 12, 13, 14 as the original kids die and leave it to their family.
You might have 23 tenants of this cabin and it just doesn't work. A better way to do it would be to transfer it into a testamentary trust that says, look, here's the rules, or just cash it out completely and give the kids cash. But you can't do that with the transfer on death deed. The transfer on death deed just vest title equally, or however you wanna structure it, but probably equally.
And for the most part, you're almost begging for a problem with the family by doing it that way. Now there are times where it works and it works well if you're single and there's one heir and you want the fam get back to work like you can't do a spousal protection trust of your single. So really my message about spousal protection trust, that is the one thing that married couples need, period. Unless that's your super, super high net worth but even a 2 million state can be ravaged by long-term care costs, concede that. If you're single well, you could do a transfer on death deed. It depends on the family. You can even use a transfer on death deed to bypass a spouse.
So just imagine second spouse, a second wife, your kids are from the first marriage. You've got a cabin in Arizona, got the family residence that you and your wife live in Washington, you set up a spousal protection trust for spouse. But there's no reason to put the cabin in Arizona into the spousal protection trust like that spouse is not going to Arizona even now to enjoy the cabin. The kids grew up going to the cabin, and even though it could go in the spousal protection trust it's just gonna sit there and roll over to kids anyway. So you could bypass, you could give the assets that you want to into the spousal protection trust for the benefit of the spouse, and then use transfer on death deed to avoid probate and leave the cabin specifically to the boys, the kids in Arizona.
See how that works? And so you've got these different channels, these different mechanism, each asset transfers in a different way. And so as you plan your estate, as you plan your retirement, you gotta think, okay, look spousal protection trust. Yes. I definitely want that. It's gonna have to go through probate.
Are there assets that I want to channel outside of this spousal protection trust? If so, beneficiary designation form. Okay, that's it. I don't know how long I talked. What about 28 minutes? Hopefully that'll be a great YouTube video and hopefully the person that asks that question a year ago, watches the video and gives me the thumbs up.
Thanks for listening to another episode of the BoomX 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 smartphones podcast player.
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