Step 3

Darol February 5, 2023

You identified your money model and assembled your team, now it is time to draft your legal documents. As daunting as that may seem, you have already done most of the work. The assessment you completed in Step 1 created your planning profile. When you sent through it, choices were ruled out based on prior answers, and the assessment asked you other questions to drill down on specific areas. All of this ended up in not only the identification of your money model, but the legal documents and provisions within the documents.

Fact Patterns

Legal solutions are very specific and limited in number. Let's take the case of a couple who live in Washington state. Washington state is one of twelve states that has its own estate tax. Of the twelve, only two others have portability, meaning a spouse's estate tax credit can "port" to the surviving spouse. The assessment asked those who live in one of these states if their current net worth exceeded the current estate tax exemption. If the answer is "yes", the money model is asset protection because this couple wants to avoid unnecessary taxation, i.e., asset protection.

The asssessment went onto asked about long-term care. If this same couple indicated that they cared about the well-being of their surviving spouse, and viewed it as important to protect theirs spouse's inheritance from Medicaid spend-downs, penalties, and liens, then we know that this couple must have a will. Federal law authorizes a trust that protects the inheritance of the surviving spouse. However, this trust must be created by a will.

Often, people believe that there are as many choices in estate and asset protection planning as other consumer choices. There is only one way a couple can double an estate tax exemption if they live in a state that does not authorize portability. It is called a Credit Shelter Trust, which is funded with an amount equal to the credit. There is also one way to draft the trust. One. And, guess what? There is also only one trust that federal law authorizes for Medicaid protection.

That was not so difficult, was it? A few questions told us what unique challenges this couple had. Some do not even know their home state has an inheritance tax. With two simple question, "where do you live?' and "is your net worth greater than the state-specific amount we know that they have a taxable estate and need a credit shelter trust. We also know they will pay $160,000 in unnecessary tax without it.

Fact patterns

Single	Money Model, Documents, and Provisions
Single, estate is not taxable, has family support system, long-term care insurance, one child who is not a minor, not disabled, and no intent to disinherit, with no predeceased children. No concerns about child's financial responsibility.	Estate Transfer Transfer-on-Death Deed, Powers of Attorney
Single, estate is taxable, concerns about long-term care. Over age 65.	Asset Protection. Medicaid Asset Protection Trust. Powers of Attorney with a contingent transfer provision. Health Care power of attorney must have "a maintain me in residence" provision.
Same as #2 but owns a personal residence with no mortgage valued at $550,000. No other real estate.	Asset Protection. Transfer-on-Death Deed for the home. Same Powers of Attorney
Same as #2 but a child she wants to disinherit, and worries about the other kids fighting, and financial irresponsibility.	Asset Protection. Can't use a Deed. Must use a will to disinherit and spendthrift trust for kids.
Married, estate is not taxable, not concerned about long-term care costs before or after the death of the first spouse to die. Real estate in Washington and states that have a transfer on death deed statute. Two kids who are responsible.	Estate Transfer Transfer on Death Deeds. Powers of attorney.
Same as #4 but property is located in a state that does not have a transfer on death deed statute and concerns about giving kids estate outright.	Estate Transfer Living Trust, Powers of Attorney. Subtrust within the living trust that holds the inheritance of kids, trustee makes distributions for maintenance, education, support, and health and creditors cannot reach the assets. While this is an asset protection trust for kids, it can be set up in a living trust, which in and of itself is used for simple estate transfer to avoid probate.
Misc.
Disabled child	Must use a Supplemental Needs Trust
Couple has kids form prior marriage, i.e., different heirs	Must use a support trust and if it is a taxable estate, must use a QTIP Trust
If surviving spouse in a taxable estate case is not a US Citizen	Must use a QTIP with QGPT language
If worry about current debt	A will is the only way to permanently bar creditors
Worry about a will dispute and ongoing conflict	Trust protector

Your Next Step

There are unique solutions to problems faced by most people. The fact patterns above are not exhaustive but close. If you own a business, the business documents should lay out a business owner successcion plan. That is not addressed by the fact patterns listed above. Complex holdings, or property owned by joint tenants are not common, complicated, and require specific solutions that are neither estate transfer of asset protection specific. For everyone else, estate and asset protection plans are built this way.

There are three ways to build your plan. 1) an attorney can draft your documents for you; 2) you can do it yourself, and 3) you can use the BoomX Drafting App.

Categories: Roadmap

Darol

Attorney. Podcster.

How to Create a Bullet-Proof Family Bank and Why

In this episode, we will be talking about ways to create the family bank, why it’s important, the benefits and the job descriptions attached to the family bank, which is an irrevocable non-grantor trust, which will protect your assets.

Ria October 19, 2021

How to Protect Your Wealth in a Time of Crisis

This episode marks the first of 30 daily episodes to help listeners build a true asset protection system. Published on the same date the host’s home state issued a quarantine, stay at home order, the episode describes the emphasis on publication of reliable information rather than perfectly produced podcast episodes.

Learn how medieval lawyers devised the first asset protection trust to save the estates of England during the bubonic plague and how this legal construct still exists today.

Ria March 25, 2020

What A Rooster, A Beach And Earthquakes Taught Me About Resilience, What Is Important And Investing

What would you do if, suddenly, you could not buy food. And you were afraid to sleep inside your home. Your neighbors decided to leave. A man who lived a block away committed suicide? How would you plan for the future if you just lost your job?

A swarm is what geologists call the grouping of earthquakes that have hit Guanica, Puerto Rico. Swarm is as good a name as any to describe over a thousand earthquakes in such a small area, many above 5.0 and at least two above 6.0. While there has not been a “big one”, a single massive quake to bring sudden and dramatic devastation, the constant month-long shaking of the homes, road, stores and spirits of Guanica has been even more cruel if not as renowned.

This tragedy is also headquartered in the one place on earth I intended to call home. I had spent impactful moments there. Playa Santa, just outside of Guanica, was the location of a lovely apartment with a view of the Caribbean. The landlord had my deposit in escrow and only my signature on a lease awaited. I had gone to a remote beach every other day to clean the plastic from it. I yelled at Playa Santan roosters that just had to wake at the playful satanic hour of 4 am. A lot had happened in such a short-time in Guanica and Playa Santa, the launch of this very podcast as one example, that I just had to tell the story of my time there and the friends who still struggle there.

As if on cue, however, the episode does succeed in laying out an investment idea. Really, this idea is an investment method. I first heard of it from a client about a year ago. I keep this method tucked away until the very last moments of the podcast.

Ria January 28, 2020

The 2020 Secure Act and the Three Money Models To Help You Work Around It

This episode is a legal update with a higher view of planning to include three necessary philosophies of wealth planning to help you make the appropriate decisions. The episode describes the 2020 Secure Act but in the context of estate planning law, dating back to British medieval common law, three other important legal changes in the preceding five years and the new reality of planning with retirement accounts. This episode introduces you to idea of “workarounds”. Yes, that’s right! We can mitigate the negative impacts of the SECURE Act.

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act, which is effective January 1, 2020. The SECURE Act has several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts. However, one provision of SECURE nullifies all of the benefits of the act and is a threat to your family’s generational wealth. That is a bold statement, I realize. I stand by it.

The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals. However, proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances are imperative to ensure your goals are accomplished and your beneficiaries are properly planned for.

Most people do not care enough to spend time let alone money on taking specific actions to adjust their plan, if they have one, to account for the changes brought to us courtesy of SECURE. Perhaps, there is nothing wrong with this attitude. If you view SECURE from the perspective of the government, it makes sense. Too much money is being protected for the benefit of families and not taxed. The government and even the economy is better off to get that money back into circulation.

However, I doubt that people decide to pay unnecessary taxes, fees and stand idly by as wealth is lost because they are on the government’s side. During most of my career, I thought this attitude, that action should not be taken to avoid a financial loss, was just a mental hiccup, a cognitive bias that prevents some people from making correct decisions about wealth. However, as I have grown in my profession, I now see that it is more related to one, of three, philosophies about wealth. Unfortunately, the attitude that is passive about protecting wealth is the traditional and, therefore, prevalent model. The reasons it is traditional is all about human longevity. Throughout all of human history, humans have lived short lives. In the Middle Ages, when probate and trust law invented, men lived, on average, to be just twenty-five years. That average age was not doubled until the early 1900s, over a thousand years later. However, in the last century, the average life expectancy of an American male has almost doubled again. Biologically, there are more opportunities and different challenges than the current perspective of the Law even realizes.

The law is reactive, not proactive. As such, the traditional model has only sought to pass wealth from an asset owner to the next generation because the asset owner would live a short life as would the next generation. Life has been so difficult in terms of survival, the Law has simply left it at that. As such,

There are three models in planning, the traditional model is estate planning and views life and, therefore, wealth, as short. The other two models do not. I will refer to these models often and you should always think in their terms because the model you choose will require actions specific to that planning model. If you view the purpose of your money as a simple, outright transfer to the next generation, then estate planning is your swim lane. SECURE Act is not a threat because the estate planning model is not focused on the protection of wealth beyond just your lifetime. However, if you view wealth as the means by which you plan to empower your family for more than your life plus ten years, then one of the two other models are applicable to you.

THE THREE MODELS OF PLANNING

Estate Planning

The objective of estate planning is estate transfer. The word “estate” is a legal term that refers only to the assets once owned by a now deceased person. The Law is reactive, not proactive. Therefore, traditional estate planning limits its objective to the transfer of assets of a person to either a spouse or the next generation in a limited way.

Asset Protection

The objective of asset protection is different. Asset protection, as I define it, includes all of estate planning but has the focus is on the protection of assets while the assert owner, his or her spouse are still alive. The trigger event for estate planning is the death of the asset owner. The trigger event of asset protection is now!

Generational Family Wealth Planning

The objective of family wealth is to strengthen a family around a set of core values and a vision for the future. The assets of a successful family finances the family using all of the tools of estate planning and asset protection but the time horizon is seven generations. There is an entire course dedicated to the devices you used to this model.

Ria February 6, 2020

Your Next Step

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