This episode of the BoomX Show Laws of Money podcast is about the most important trust in American jurisprudence. The Spousal Protection Tust this important trust is used for married people to protect their assets so that the assets inside of the trust do not count as an asset for Medicaid purposes and for estate tax purposes.
And what this means is that you can convert if properly executed assets that were once subject to spend down to assets that are not subject to spend down without a transfer penalty without look back periods without Medicaid liens ever applying more importantly for high net worth individuals. This trust can also act as estate tax savings trust.
If you are in one of many states that have estate tax, this is the episode for you. We break it down. We talk about its purpose, its advantages, how to implement it. And we answer questions from family leaders, open office hours at the BoomX Academy. We have a lot to do. 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 leveraged 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 boom 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.
Okay. We have a person that wants to join. She's actually has joined family leaders and she asked the following question, which I would like to cover in office hours. And then we can open up for discussion before I get into it.
I wanted to point out that we are publishing articles on the BoomX Academy website. The most recent one will be of interest to anyone who is married and curious about the ways in which we fund a spousal protection trust. In other words, actually any trust. Article is focusing on spousal protection trust but the majority of the article is and I got to warn you, it's a long article. It's not an article. It's an exclusive family leaders guide. And it starts by talking about what is the most important thing? The step-by-step portion of that legal guide applies to any trust married or not? It's just that this particular legal guide was in the context of a testamentary spousal protection trust, which we just discussed quite a bit in office hours and on the podcast and different places.
So if you want to check that out, of course you have to be a family leader, but if you go to your dashboard or just navigate to the articles exclusive guide, you'll see it right there and it's long. And it talks about all the different kinds of assets, tenancy in common, tendency in entirety, joint tenancy helps folks kind of get up to speed about some of those terminologies and encouraging them to do an inventory of their assets to determine if there is a joint account. How is it titled and how is it categorized? Remember the goal is to help people all over the country, not just in community property states.
And it talks about this legal guide also helps folks inventory, their non-qualified financial accounts in their retirement accounts. And then it goes into a more granular step-by-step process of using, for example, some of the headings in the article is how to use your certificate of trust.
What is a certificate of trust and why do the financial institutions want it? The answer is privacy. It talks about obtaining your taxpayer ID number talks about titling assets in the name of the trustee. Talks about cash accounts, stocks, bonds, mutual funds, stocks, options, personal affects any kind of asset that you can think of to include qualified tuition plans, 529 plans, life insurance plans and annuities.
And there's been a request for that for awhile. So we finally have that published. I think you'll be happy with it because it's pretty, pretty detailed. And once again, if you are a family leader, you can chase that down just by going to your dashboard, you'll see it listed or navigating to exclusive legal guides and we will continue to publish these legal guides as best we can. Be sensitive to the fact that legal guides are, have a lot more substance than just a simple fluffy article.
So they do take time to put out. Now, the new member has asked a question, which I would like to address. And that question is a question that I hear frequently we've talked about before, but she's asking it again. And so let's just take a few minutes. This is what she says. She's been listening to the podcast of the BoomX show laws of money podcast.
Once again, the boomx.biz is the URL for the BoomX show. It is the home of the BoomX show. And all the episodes you can find right here on that webpage, you can also find it on your smartphones podcast player. Some folks say, how do I listened to your episode? We'll just pull up your phone and find your podcast player, it's that simple.
So here's the question that is asked. The question is as follows, what happens once you have everything protected in a trust? Is it readily accessible to the surviving spouse or the person in charge of the estate? Now, concede that is a question that we've asked to before. And the question is what happens once you have everything protected in a trust?
Is it readily accessible to the surviving spouse or the person in charge of the estate? And those, that question is very, very open-ended. And one of the things that we've talked about is that a trust is meant to serve the beneficiary, that's its purpose. A secondary purpose is to ensure asset protection.
And so to some extent, there, there are some times conflicts between those two things and that's really what that questioning is orbit orbiting around. In other words, another way for me, like when I look at that question, I'm like, okay what is she really asking? Is everything protected in a trust?
Well, not in a trust. In particular, a spousal protection trust and a spousal protection trust or if you're single, we might use an irrevocable trust. We talk a lot about five-year transfer trust. Another type of trust is an intentionally defective grantor trust or Medicaid asset protection trust.
Those trusts are particular kinds of trusts that qualify under federal and state, but mostly federal safe harbor statutes. That's the point asset protection is about leveraging federal law for the most part to capture a safe harbor provision. A safe Harbor provision refers to a statute that says if assets are in this trust, then it does not count as an asset when calculating estate tax or when calculating Medicaid eligibility, or when determining whether a Medicaid lien can apply.
And the statutes are very particular. They say, if you follow these rules and set the trust up this way, then it is creditor protected. And also these trusts are creditor protected against civilians. We spend a lot of time talking about asset protection against unnecessary estate tax. We spent a lot of time talking about asset protection against Medicaid liens, spend downs and transfer penalties and look back periods.
Yes, but all of these trusts also protect assets against judgment holders. For example this week as, which is a June something or rather 2022. The Johnny Depp trial concluded and Johnny Depp one cause of action in defamation against his former spouse, Amanda heard. And so now Amanda heard is facing the eminent imposition of a judgment against her. I think that amount, I haven't really followed the Johnny Depp trial, but of course everybody likes Johnny Depp. So you can't live on the planet earth without knowing something about this particular trial, which has been as entertaining to the world as perhaps the OJ Simpson trial was, I hate to use the word entertaining because that was a trial of murder.
This is just a trial in civil court, a lawsuit for defamation, but so now there's a judgment against Amanda heard. Had she correctly transferred assets in a timely way that did not count as fraudulent transfer into a trust of a certain variety, then it would be impossible or difficult for the judgment to attach to those assets.
This is especially true when there's a trust set up for the benefit of Amanda heard, for example, that was funded by another person. So if the parents set up a trust for Amanda before they passed away and specifically said that judgments cannot attach to this money, then it is absolutely guaranteed 100% asset protected.
And so the question being asked is, are the assets really protected? Like it sounds too good to be true. And the answer is if it's an asset protection trust, then yes, absolutely. That's the entire point, especially a spousal protection trust. Once again, a spousal protection trust is established by the, in the last will and Testament of both spouses. When the first spouse dies, the inheritance for the surviving spouse is transferred into the trust after and pursuant to a probate. Now, the federal law requires that. Federal law requires that it is a will and it is probated. And so it's in estate asset that moves into the trust.
I had just pointed out that there is an extensive legal guide on how to fund the trust and like the steps that you take to move the assets into the trust. So it qualifies under federal statute. And so the answer to her question is, yes, it really is protected. Then she goes on and ask, is it readily accessible to the surviving spouse or the person in charge of the estate?
And so let's go through that question, let's break that down into two parts. Is it readily accessible to the surviving spouse? A trust has three job descriptions, three entities involved in a trust. The first is the trust maker. Now, in this case, a spousal protection trust is made by the Will of the deceased spouse.
So that's why it's irrevocable. It's irrevocable cause the guy that made it is dead. So for the most part, he's out of the picture. Now, the entity that's funding it is the person that represents the estate. This is called a personal representative. This is a term in probate, probate law only the medieval word for personal representative is executor, the female, executrix.
So you've all heard those terms and that person is responsible for marching the will through the probate and probates should take no more than four months. And then the probate is closed. And remember that the entire point of a probate is when an asset owner dies, title to the asset is clouded in a sense, because you can't take it with it.
Dead people cannot own property. And so the law, as soon as the asset owners, heart stops beating the law says okay. What the asset owner does, we're going to put that into illegal holding area. That holding area is called the estate. It's a very particular term that's relevant to probate law. Estate, assets of the deceased asset owner.
Now, that person is a personal representative. The surviving spouse is not allowed to be the personal representative in the probate. Because he, or she would exercise too much control. That's the entire point is that this, these are the assets of the spouse who's now dead. It's analogous directly analogous to my comment about Amanda Heard.
If her parents had created a trust for her benefit, that's there money. And so that they create a trust that says, look Johnny Depp can never get it even if he has a judgment, the law says that's right, because it's the parent's money. The trustee will make payments to Amanda for certain things but that does not mean that if she files for bankruptcy, if she gets a divorce, if she get sued and loses a judgment in defamation that there is an attachment of those assets. That's a trust asset, not Amanda's personal assets. We're doing the same thing with spousal protection trust in a community property state. It's an undivided equal share, but the second one spouse dies. The community is severed. And the assets of the first spouse to die, those assets become estate assets that are separate from the surviving spouse. If we do that correctly and move those assets into a spousal protection trust under the Will, then it can not be touched. And the surviving spouse is the beneficiary, which means I'm just thinking about that word.
It sounds like benefit. Doesn't it? The surviving spouse benefits from the trust. Now, the difference between a General Needs Trust and a Special Needs Trust is the surviving spouse has a lot more access and can even be her own trustee in some general needs spousal support trusts. In order for the assets to be, to seize estate tax credit and to be unavailable for Medicaid, the rule is very clear that the surviving spouse is not the trustee and she may exercise no control over the trust assets.
However, the trustee who has a fiduciary duty to the beneficiary and the trust lays out what the trustee can and cannot do. And it's basically make payments to support and maintain the comfort and maintenance of the surviving spouse. So basically it's a bill payer. The trustee is paying the surviving spouse's bills to the extent that does not disqualify him or her from Medicaid, if they were on Medicaid.
And there's just this entity that's taking care of everything for the spouse. It is possible to make payments directly to the surviving spouse, if she's not on Medicaid. And if she if it does not disqualify her from Medicaid. And so the trust agreements often say the trustee has discretion to make payments to the surviving spouse on condition that it does not impact negatively any kind of federal benefits.
And so it is available, so to answer that question, is it readily accessible to the surviving spouse? She is not allowed to compensate hey. I want to go to the casino and need some cash that, that dog ain't going to hunt, but the trustee make payments for even a vacation, actually, technically the trustee could hire somebody to take the surviving spouse to the casino, assuming that was a lawful activity in the state, in which the surviving spouse resided. And a trip to Vegas because recreation is not an activity that Medicaid pays for.
It's not inhibiting Medicaid, it's not hurting her long-term care, assuming it's not hurting her health and i t improves her enjoyment of life. So recreation is authorized. Remember also too, that it's only half of the estate, or it's only the assets of the first spouse to die. If you live in a state, that's not a community property state, and the surviving spouse still has all of his or her money. She still has her accounts. She still has her retirement accounts. She has half of the estate that she owns herself. She still has social security or pension or rental income depositing into our checking account. And so she has a lot of control and she has a lot of fluidity and liquidity rather in her estate on her side of the ledger. Then the other thing is it readily accessible to the person in charge of the estate? That, that question, it shows a confusion about the difference between a trust and an estate. There's actually a course in law school called trusts and estates. And lawyers often say I'm gonna trust an estate attorney.
Well, a trust means a legal instrument and basically a contract between a trustee and a beneficiary that goes on for up to a lifetime plus 21 years, or up to statutorily, some states say 150 years. And you can have Dynasty Trust so that when one trust ends, another trust begins. So you could set up trust that exists in perpetuity and estate is the assets that's in a legal holding area in a probate.
So it's assets of a deceased owner that is owned by essentially as being administered by a court. And that's a temporary, hopefully short term one, a four months at a minimum time period. And an executor or personal representative is responsible to reporting to the court of the estate on an ongoing basis. Then the trust is created and there's no court supervision directly one way or the other. The trustee has a legal duty to the beneficiary. And it's up to the beneficiary to sue the trustee if there's a breach of fiduciary duty. That's why I don't recommend family members should act as trustee because you're putting that child I5 in a way, because now they have this heavy, legal burden and duty to their siblings or another family member. And they may not have the skillset to pull it off. In fact, it would be unusual if they did. Right. And that is a fast and furious answer to a very, very specific questions from a new member.
And I hope I asked it correctly. What's great about the BoomX Academy is that she can begin to attend office hours and ask me directly and she can also message me if she has any questions. And so now I have done a great job of answering that question, I think, but I will open it up to questions.
I do intend you can tell and tend to use my answer as the next podcast episode. And so you can listen to this again and again, and again, and again, if you want to. Steve, welcome to office hours, what do you think? That was a great answer to a great question. And yeah, I'll probably listen to that a number of times.
And I think I'm pretty good with the spouse protection trust and it's pretty straightforward. Yeah. I mean, it takes a while to get used to, but once you hear it enough, it's not that complicated. Yeah. And I'm, and I'm moving towards not having you know, like you say, not having a family member as a trustee, so yeah. It takes, but he'll still have to, go through go to probate, right? You still have to initiate probate, but then he'll call a probate lawyer up to. Yeah, the kids, a lot of people say Darol, can you help my son? If he's a personal representative or if he is a trustee and the answer is yes, except that hopefully I'll be retired by then.
And he probably has a golfing buddy or something that's a lawyer, or he'll use somebody that he knows. That's why it's so important to emphasize that these trusts are, a Last Will and Testament is good in all 50 states, it goes back to common law and has a very particular format in all 50 states.
And its spousal protection trust is federal law. And so any lawyer in any state of reasonable competency, I wouldn't go to a personal injury attorney or a bankruptcy attorney to handle it, but I probably had attorney who can walk it through and little expense and little stress. And some people are like folks have been inundated with messaging about how bad probate is.
And so they just, I don't want spousal protection charges cause I had to go to probate. There's a lot of advantages to probate. First of all you're having somebody march it through the court system, so there's finality. Creditors are permanently barred when the probate is over. That's not the case with the living trust like assets that are not passing through the probate.
They're opening themselves up to claims from potential creditors for a long time period. And so embrace and when you're hearing messaging mostly from financial advisors, you haven't gotten to law school. You have no legal training when they say, revocable living trust, or they're just trying to sell something really? I think, not to be too cynical about it, but Susan, there's that thing that you wanted right there. And I saw it and I started reading it and I said, oh, I'll never get through all this before this call, because it is long. It is long. I know. And it's based upon work product. So it's what clients get, have gotten in the past.
I do have a question. I'm sure that I should already know the answer. But I don't know. It just popped in my mind. When you said the surviving spouse still has all their own assets. So how do they divide that? Like your checking account or whatever. We're not talking about IRAs. We're talking about accounts that you had together.
Well in a noncommunity property state, all the assets have title. And it, there would be a checking account in husband's name, perhaps, and there's a checking account in wife's name so, you know. And those accounts most likely will make the mistake of sending those accounts up as joint tenants with right of survivorship.
And there's joint tenancy, there's tenants in the entirety and tenants in common. Now the difference between those three things. Let's talk about the most common, tendency in common and joint accounts. Let's suppose you had non spouses. So if they owned real estate together. The question is what happens to the deceased tenants share of the real estate when there's a death?
Tenancy in common means that he or she can leave his or her share to anyone they want to. And the disadvantage to that is now the surviving tenant has a new business partner as a new joint. And it's probably a family member, but it creates a problem tenancy in common. And so to get away from that, this idea of right of survivorship developed, and that means when the first asset owner dies, the title this automatically in the other joint tenant.
Now that's commonly more commonly used with married people. So even in a noncommunity property state, they're setting up joint accounts with right of survivorship. That's the default. That's what the banks are just doing. And people don't even really realize it. Now you can tell what the problem is.
The problem is that those assets vest automatically in the surviving spouse and you just blew making a spousal protection trust election. Because she took it. And so now it's subject to spend down. Now it's part of the estate in those states that have estate tax, it may increase their estate tax liability.
And so what we want to get away from is this joint tenancy was right as survivorship thing. That's why we have the guide. That's why it talks about all the, like there's that your comment was it's a long legal guide. It's long because we talk about tenancy in common. Like I'm making that point.
We talk about right of survivorship and why we don't want to use that. Now you live in a state. Washington has a great statute called super-will, which allows a personal representative to reach out and grab assets even if it has a beneficiary designation, that's contrary to the Will. That's very helpful.
Most states don't have that provision. In fact, I just read an Idaho statute that says even if the will contradicts the conveyance, the conveyance governs that's bad. That's bad. That's why we do inventories of assets. Now on, in a community property state, it's in a sense more difficult because it does not matter how the asset is titled. See the difference?
In a noncommunity property state. You just look at the title. If it's an asset that has the husband's name on it, it's his estate. If he died first, but in a community property state, it's 50/50. And so if you have one husband that stayed home, and another spouse that worked at Boeing and they have a retirement account of 2 million and the stay-at-home spouse has nothing.
The stay at home spouse still owns 50% of that multi-million dollar IRA. That's why, if you try to transfer. Let's say you woke up one day and you wanted to give your IRA to charity, right? The custodian, the plan administrator says you got, you have to have your survive, your spouse sign off on this because she owns 50%.
And so at the first death, in a community property state, it's a little tricky because the personal representative has to figure out, okay, I just need 50% of the assets on one side of the ledger and 50% of the assets on the other side, which gives you a flexibility because you can move the personal residence to the surviving spouse, which is preferable and the certificate of deposit to the estate side.
Now sometimes, and Susan, sometimes I've even seen deeds, especially in taxable estates where it's 23.4% of the value of the personal residence is in the spousal protection trust. And the remainder is deeded to surviving spouse outright. So you see these weird deeds with these weird percentages, right?
That's permissible. And the reason they're doing that is they're trying to get 50% on one side of the ledger, the estate side, and the other 50% economic value on the surviving spouse's side. And you just got to, it's more art than Science,
And I think we'll wrap it up right there. This is episode 35 of the BoomX show, laws of money podcast. And we have talked about the spousal protection trust taken from office hours, which are offered each and every week live for members of BoomX Academy, who are family leaders. You can learn more about the BoomX citizen free membership and the family leaders membership level by going to boomx.biz.
The articles, monthly meetings, office hours, guides exclusively go guides or just some of the benefits available to family leaders so they can learn to grow and protect their family's wealth. Once again, that's boomx.biz.
