As a part of the BoomX Academy, I conduct a live and absolutely free asset protection masterclasses. If you've ever wanted a 30,000 foot view of asset protection, especially as compared to estate planning, then you should attend. You can register by going to boomx.biz. This episode and the one that is to follow into parts are the first half in the second half of my most recent asset protection masterclass. 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 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 BoomX show the laws of money.
I started my career in 1996 as an attorney. And back then I knew nothing. Lawyers right out of law school man, they are dangerous because they're arrogance far exceeds their knowledge.
When you get a little older, it starts to flip a bit. And if you're curious how the law works. The law is the language of our society really. And most of the wealth that we have is really defined by law. I use the example of a retirement account. A retirement account and I don't care if it's an IRA, let's get some terminology down.
When we talk about retirement accounts, we're talking about all of those accounts related to a statute called ERISA, which has to do with employment, retirement benefits and risks authorizes more than one type of retirement account. And you all are likely familiar with it. You might have a 403 B teachers have 403 BS.
If you worked at Boeing, it was a 401k. And if you retired from Boeing or a different employer, it's likely you just rolled it over to an IRA. We call those types of accounts, qualified accounts, tax qualified. There's they're treated special by the law. And the thing that's special about retirement accounts is that they are taxed deferred.
Now, and to illustrate my point. Just imagine hypothetically that you retire from Boeing with a large 401k and you roll it over to a financial advisor. And start, let's say on January 1st 2022. January 1st, 2022 a retirement account and you purchase a mutual fund, just one mutual fund inside of the IRA.
Now you could have a brokerage account. That's what we call it, non-qualified in other words, it's not an IRA. It's not tax deferred. It's. Defined by the law, rather, it's just an account and you could buy on the same day, the same second, put the same $500,000 into the brokerage account, the non-qualified account as you did into the retirement account.
But we all know what's going to happen fast forward, 30 years, you retire at age 60 and live to be age 90. The retirement account is going to be worth far more than the brokerage account. I want to repeat that's exact same investment on day one, fast, forward 30 years. And the reason is because every year that the mutual fund and the brokerage account spits out a 1099 and you're paying tax on it.
And so it's eroding the return. Whereas with the retirement account, that's not the case. It grows tax deferred. Now I know you will be thinking. Yeah, but there, we have to take RMDs required minimum distributions after the secure act, before it was 70 and a half an ounce at 72 or so. And after that, we have to start taking RMDs.
And so Darol you're wrong. The account balance on the retirement account will be less. And I'm here to tell you that is not the case. If you only take RMD throughout your lifetime required, minimum distributions and uncandidly, most of my clients do that they have large accounts. They want to preserve it.
They want to protect it. They want to grow it and they are loath to take any more out so that they can take advantage of tax deferral. The problem is it's not a problem because you've accumulated great wealth. However when it comes to the estate plan, people make mistakes. If you only take the RMDs out throughout your life and have even a modest rate of return, you're mathematically guaranteed to have an account balance leftover at the end of your life, no matter how long you live.
Now, that asset was hard to come, you worked your entire life to save that for that nest egg to create it. And it did wonderful things, but you invested correctly. You only took RMDs so that it would finance your retirement. Now, Sandy, we're going to definitely talk about what happens when things go wrong during retirement, but for this part of the presentation, let's just envision something other than disaster during our lifetime.
Let's say we just die of old age. Now, really what asset protection is as compared to estate planning. It's simple. Really. Estate planning is about estate transfer. Have you ever received an email from me? And I'm going to send all of you an email when this is over. So you'll see what I'm talking about.
But so at the bottom of the email, it has my name and it says virtual only law firm. And then it says asset protection, not estate transfer. Like just, that's my message. Estate planning, it's just being forced fed on everybody. Just the financial advisors are talking about revocable living trusts and seminars are going around it and that's what you're being taught.
The radio shows about avoiding probate, however, estate planning, revocable living trust, and all of those message. The only thing estate planning does is it changes that title of an asset from the asset owner when the asset owner's dead.
We have a problem aren't we? Like all property has to have title and you can't take it with you. That's the golden rule of estate planning. You can't take it with you. So we have to change the title to a living person. That's what estate transfer is about estate planning. Now that is a value proposition for sure. It is important to make sure that the government doesn't take more tax than they're owed.
It is important that we transfer without stress, without anxiety, without a bunch of mumbo jumbo to our children. So they get it, not the government that's a value proposition. However, the focus of asset protection is different. Estate planning doesn't really benefit you while you're alive, because the value proposition kicks in when you pass away, and for me, it's early in my career.
I started out general practice, and then quickly went into estate planning. And for the first 10 years of my practice, that's what I did. The client would pay me a bunch of money and I would draft a living trust or a will and say, okay, here's your paperwork. Now, go off and die. No, one's going to read the documents until your dead.
And then your wife and then your kids will inherit without effort. Now you have peace of mind during your lifetime because you know that's going to happen and they are going to be happy and have a stress free transition of wealth. However, about 10 years into my practice, my clients, now they're aging and now they're starting to pass away.
And now I'm seeing how the last phase of retirement goes. The first phase is the fun phase. We do a lot of golf. We go on a lot of trips. The second phase of retirement starts around age 70, 75, and people become a little bit more sedentary, settling in. And then the last phase, in your eighties or so is like medical more trips to the doctor.
And then I hope we don't have a broken hip and I hope we don't develop dementia, all these things because during that third phase, that's where things go wrong. If you're, if you retire. And become do I have enough money to finance my retirement? If I live to be 90 outliving my money, it would be bad.
Now, if you get the spreadsheet and if you get a financial advisor who maps all of that out, they will show you the spreadsheet will show you how much cash is coming in, how your assets are growing, how you're spending it. And we'll tell you that you have enough money till age 90. Unless something goes wrong with your health.
That's what derails retirement like that's like the Monte Carlo scenario that ruins everything. Now, it used to be 10, 15 years ago. I would have to persuade people that there was a legitimate risk of long-term care costs. It doesn't seem like I need to persuade people that much anymore. Like Sandy made the comment in her question.
She said she's trying to be proactive about how to protect against healthcare costs. Now, Sandy is a client of mine. I've known her for quite a while. I can tell you that she, I consider her to be younger than most of my clients. So it's amazing that she's she sees it. She knows. It's okay.
She probably had a parent that the people that are really convinced about the threat of retirement wealth due to unreimbursed medical costs are people who had a family experience. It's usually a parent and they see, oh my God, my mom ended up paying $8,000 a month and lost almost everything.
And that's not what my dad wanted. He had passed away four or five years ago. He didn't know anything about, there was no long-term care insurance. They didn't have a spousal protection trust in their will. They had done no planning and then disaster hit and it was too late. And for those people who still they're not being proactive. They're not, they're attending the webinars, but they're not ever implementing any of the asset protection trusts that we talk about so frequently that work. I think it's because you can tell me at the end, when we do Q and A what, why you think it is. But to me, I think it's because it's still in most people's mind a remote possibility.
Like they intellectually know, oh, there's this threat. But they think the odds really are my favor, which is not the case. If you're a female and over 65 years old, you have more than a 50% chance of spending some time in a care community. So like I used to say on the BoomX Show on Como all the time, I don't know about you, but man, if I had a 50% chance of getting in a car wreck, every time I drove to Portland Oregon.
I would take the train that odd, those are the way to high. And so the probability of losing wealth to long-term care costs is pretty high. If you still need convincing, you don't need to get on Google and do anything more than typing these words assisted living facilities near me. Just that phrase.
And in less than one second, you will say page after page of assisted living facilities within 5, 10, 15, 15 miles from your location. You'll be stunned by how many there are I think. Now the thing is all of those assisted living facilities. Most of them are publicly traded companies and they have a duty to the shareholder which means that their fall, like their capacity is over 90%.
And the only reason that's not a hundred percent is because of the frequency of residents passing away. And, you can Google the care costs. If you're interested, I can tell you a great way, how you can have a very reliable information about nursing homes, assisted living facilities, adult, family homes, home care in your zip code updated annually.
There's there's even an app on your phone. If you want to be morbid, just get the like look. I think I looked up nursing homes in Seattle. When I did the BoomX Show, on Como, it was $114,000 a year in Seattle for a private room in a nursing home. And I looked it up about a year and a half ago, and it was 135,000.
And so inflation is there's a higher inflation rate in the long-term care industry. Then there isn't that like the general numbers. And right now we're seeing inflation what 7.8%. So just, do the math, like we're talking about a substantial amount of money.
If something goes wrong in old age and it is what asset protection does as compared to estate planning. Estate planning doesn't kick in until you're dead asset protection, has a different question. And the question that asks asset per se, protection asks and tries to answer is can we reach out and grab safe harbors asset protection, safe harbors in the law that guaranteed that our wealth will not be lost to number one, unreimbursed medical expenses, long-term care costs. Number two, unnecessary taxation, and then even three, can we use asset protection trust to protect against mistakes, family mistakes financial mistakes, stock market risks. I'm gonna.
Now this, my friend is not trying to depress you the stock market.
So we are looking at, are we looking at Dow Jones or let's look at the S&P 500 index. Here we go. Okay. So yesterday the stock market lost 0.5, 7%. Five day loss is 0.3, 2%. One month is negative 8%. Three months is negative 8%, year today is 14% loss in an S & P 500 which, that's not really fun.
Now I want you to look at these numbers at the very top. So it says my watch list says, watch list performance, watch lists versus S&P 500. Then it says at S&P 500 one-year return. And then it says risk, moderately low based on average beta of stocks. So I have stocks that I'm have my eye on and the stocks that I've chosen from one year I'm outperforming the S&P 500 by 6.5, 6%.
And my one-year return is in the green, whereas S & P five hundreds return is in the red. And one of the things I try to teach people is like we can lose money because we pay $10,000 a month on long-term care. We can also lose money because we're making mistakes when it comes to the management of our investments, not that Google number of mutual money managers who out perform the S & P 500.
And it's it changes every year, but the numbers are like 90% of money managers are below the S & P 500 and take higher risk than moderately low risk. Now you might think to yourself Darol, what does that really have to do with asset protection? One of the things it has to do with asset protection is this simple fact that the mistakes that we make as to the management of our assets is what I've noticed is one family member, one spouse is into an understands better than the other spouse, how money works.
And so they're the ones that talk to the financial advisor. They're the ones that chose the stocks. They're the ones who have the spreadsheet and know where everything is. And when there's no continuity plan, no asset protection plan that risk that, those assets that, that the S&P 500 mutual fund that you have needs to be liquidated to pay for care costs is much higher.
That's one thing that goes wrong. The second thing that goes wrong is when that spouse passes away, the one that knows about stocks. The surviving spouse is screwed. Now, I've just seen it happen so many times as an elder law attorney. I have been at the table countless times and it seems like statistically, it is true that men have a shorter life expectancy than women.
Concede that and then just based on, it's starting to change certainly, but my observation is that most of my clients, they die more frequently in their eighties than they do in their sixties and that generation was then the men are the ones that manage the money. And so widows don't really know what to do. And then money starts flying out the door from mistake, stock, market risks. They're not making adjustments and there's no plan. Now, just think about the concept of a trust. Now, a trust holds personal assets.
Just like a limited liability company or an S corporation holds business assets. And you really need to understand if you understand the benefits of a trust, which we'll talk about here in a minute, the benefits of a trust. But you have any kind of business activity or any kind of business like rental properties, commercial real estate is that's where most people screw it up. So they have commercial real estate, but they don't have it in a limited liability company. So there's no asset protection for those assets at all. And in fact, if something goes wrong and there's a lawsuit against the rental property, like a slip and fall, for example, especially in a commercial real estate, all of the assets are at risk.
A judgment holder can reach in and grab your personal assets. And you'd be forced to file for bankruptcy. And the only thing bankruptcy will protect is your retirement account and your personal residence up to a certain amount that's the concept of asset protection.
If we move the commercial real estate into an LLC, then that's a bulletproof silo that is protected and no creditor can reach outside of that, LLC. And you've got to run it like a business. Now, just think about that same concept, but with a truck. Let's move our assets either now or on a contingent basis in the future into a trust so that it can be managed.
Now, one of the things that will happen is if you draft it carefully and if you spend time with her with an attorney who has spent a lot of time thinking about the stock market and has spent a lot of time watching the adjustments, has thought about inflation, how inflation works and then has noticed these trends of mistakes.
As a family leader, you can, I'm getting excited. Just a slow down as a family leader, you can write into your trust what the financial plan is. You can have a way so that when you pass away, the transition to your surviving spouse is number one has to happen. It's mandatory. Number two is continuing all the knowledge that you had and putting down all the rules so that she's not left holding the bag with assets that she doesn't understand.
And then when she passes away, it's the same thing with the kids. Right? Now, a question that you should be asking is, okay, Darol, I get the concept, but I don't understand the difference between trust. Like that's a common question. Everybody is talking about revocable living trust.
The type of trust that we want is a type of trust that a creditor cannot reach. Let me repeat that. Suppose husband passes away and wife, his surviving spouse, and then she falls and breaks a hip. Right? Now, generally there's not a lot Medicaid rules will do to protect the assets of a widow when she makes the application, all of the planning has to occur before then.
Now if you're married, like people say Darol just get to the point. What do I need? Okay. If you're married. You must have a spousal protection trust in your will and you cannot have a revocable living trust. Now, if I drafted your estate plan before about 2019, Then you need to set an appointment with me and we need to make some adjustments.
Why? Because there's been changes in the law and there's been three significant changes. One is revocable living trust used to be fine. Now they're not considered a protected asset that revocable living trust have they lost their safe harbor protection. It's based on a change in the law, not my fault. We have to make an adjustment, but we in, if you're married a spousal protection trust is what you need and here's how it works.
It's going to demonstrate for you exactly what I'm talking about. Now, I want you to imagine a family thinks ahead. Husband and wife goes in, hires me. What I would do is revoke our living trust and then redraft a last will and Testament. And in the last will and Testament for both spouses, it would say when the first spouse dies, the estate of the first spouse will not, I repeat, not go to the surviving spouse outright because once she owns it outright, then what happens? She owns it. When she falls and breaks a hip. She's got to spend that down to $2,000. Everything that she inherited it's locked. But if we created a spousal protection trust in the will, then the inheritance for the wife would go into this bulletproof silo and under federal law, I'm going to repeat this spousal protection trust is authorized. It's a safe harbor under federal law, the highest type of law. Okay, the constitution and then God and federal law. Number three, right? Three federal law says if husband creates a will, has to be in his will. So you have to do a probate, which we don't care about. That's fine.
Spousal protection inside the probate creates the spousal protection trusts, the assets are transferred in and the spousal protection trust pays the surviving spouse's bills like it's for her benefit. But that amount does not need to be spent down to $2,000 it is completely protected.
And so she will be eligible for assistance and benefits and waiver programs and all this stuff far earlier than she would otherwise in that act, the assets that are left inside of that trust enhanced her quality of life gives her the retirement that she deserves. And then you're going to have something left over to give to kids.
Asset protection has an enormous proposition. Spousal protection trust is thick Bulletproof silo inside of the will assets go there. Nobody can touch it. And let's hold that thought whenever we dive into the nuances of tax and have been talking about asset protection for 30 minutes, then it's time to just take a break.
I will publish the next episode number 34, season two of the BoomX show laws of money next week. And it will contain the second half of the asset protection masterclass. If you want to attend a master class, they are free. Just simply go to boomx.biz. And sign up for a free account, BoomX citizen, absolutely free account.
For those who do register, they will be automatically enrolled in the BoomX show companion course and the asset protection masterclass, which includes additional content prerecorded sessions of my asset protection masterclasses. And then you can register for one of the live sessions. That's boomx.biz. Once again, that's www.boomx.biz.
