Understanding Beneficiaries and Trusts – Episode 546 

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, we’re going to be diving into the weeds of specific insurance policy setups, trust setups, prosperous setups, beneficiaries, and trusts. Many people out there make this sound very complicated. So they confuse you so that you either get stuck or have to go to them. We’re opening the doors and saying, this is how it operates, and we’re going to teach you from that prosperity perspective. Kim, let’s hit it. Well, this is such a fun thing and really can be simplified. And yet at the same time, like I’m aware of some of our attorneys that literally do beneficiary classes. And so you can see the range of complexity in this space and beneficiary classes

[00:57] I thought that was a brilliant idea when I heard my attorney talk about doing that, very helpful and necessary. And I’ve absolutely had some clients call me when they became aware that they were not only a beneficiary, but also an executor to a parent’s will or trust or something like that, and literally be lost as to what their next steps are. And it is definitely one of those things that can be very scary and over the top and nowhere do you know where to start, et cetera. And so this is why we wrote the book Perpetual Wealth, because we would like to get families starting the conversation well before the event that causes the beneficiary to feel like, oh, my gosh, I’m in uncharted territory here.

[01:48] No beneficiary should go into anything with that kind of deer in the headlights look. Now, Spencer, I’m guessing that this question came from somewhere. What’s the context for us? So here’s the context in my research for this episode. I read a bunch of different posts and then I went down and I was looking at some of the trending topics, especially what was happening in the social sphere. And so I saw a video on Instagram and the guy was a, you know, a financial advisor and he’s teaching, hey, this is how the Rockefellers did it. And they created this beneficiary and trust and they had it so that it was set up so that it helped the next generation and the next generation. And what happens many times is those types of videos will get you to click.

[02:44] They’ll get you to watch. They may get you excited or they can get you confused. And so my goal was to say, no, let’s actually get some depth here and dispel what, you know, maybe hype, but also take away some of the call it the wizard of Oz, like the stuff that’s mysterious and find a place that’s going to be helpful rather than a sales pitch or rather than, hey, I’m so smart, uh, look at me. Yeah, yeah. Well, it is interesting. The word Rockefeller, which is clearly somebody’s last name has been tossed around a lot, and I happen to know through Garrett Gunderson that the Rockefeller family has not really okayed any of the use of their name in association with I’ve heard it around trusts. I’ve heard it around life insurance and I’ve heard it around LLCs and

[03:47] really what is meant when that name is brought up is a sustainable structure, a generationally spanning structure. In other words, two, three, four generations. And it’s very difficult, especially for us Americans to think that far in advance, I feel like I’m starting to get some clients to do that. It’s why we wrote the perpetual wealth book, because obviously the word perpetual indicates that there’s something ongoing there well beyond a single person’s lifetime. And so you end up with some of these words that get thrown around, like trusts, like LLCs, like beneficiaries, like executors, like even the word perpetual that make it sound, and this is what I believe your point was fancy and alluring, a little bit of click bait, and that’s

[04:42] all well and good if it gets you started on something. Inspiration is a good thing. Nevertheless, it can be overwhelming. And one of my lifetime goals is to simplify things enough so that people will take action. Because I don’t think there’s anything as sad as doing a whole bunch of reading and research and then not taking any action. And so I hear about some of these fairly complex environments with LLCs and trusts, et cetera, whereby this quote Rockefeller method is used to get money from one generation to the next. And frankly, it boils down to a pretty simple strategy, or I guess I should say it could boil down where a product is purchased that will do the job. Now is it, and I’ll talk about that in a minute.

[05:35] Is it appropriate to layer in complexity for some families? Absolutely. But the layering in of trusts, the layering in of LLCs are more complex capabilities that not every family is going to want to go through. So if somebody’s desirous of having a beneficiary, typically children, sometimes grandchildren, get money, the simplest, easiest, non-legal way to do that is through the purchase of life insurance. Life insurance that absolutely positively is going to be guaranteed to pay at a guaranteed event called death, whereby upon death, that money gets moved to the next generation. Tax-free, by the way, at least income tax-free. And right now, if your family’s wealth is under $12 million, federally,

[06:29] then it’s a state tax-free as well. And so if it’s over 12 million, then there are needs for the layers of complexity, like the LLCs and the trust. And it’s just not always necessary. And I think that alone is a really important distinction for people. Yes, absolutely. So when you’ve seen this, the years go on that we have different practitioners out there that are using that complexity to, we’ll call it fishing. They’ve got a really good distraction that’s trying to catch people, pull them in, but again, as you’re mentioning, you know the inside and out of this, you know, a family with less than $12 million wealth probably doesn’t need a ton of complexity. A person with more does. That’s where again, an advisor is able to help out, not just

[07:28] a practitioner, but an advisor. So let’s dive into that a little bit more because what our goal of this, of looking at the beneficiaries and to look at the trusts is to be able to say, okay, how can we piece this together so that families can A, take action and B, in another episode, the question was asked on Kim’s website, which is, are you optimistic of the future? So the second B to that is, so they can be optimistic. Absolutely. So it’s done in layers. And I really feel very strongly that the first layer could be term insurance. Like if there’s no money and not a lot of assets, term insurance will do the job. The next layer, then of course, is going to be whole life insurance. The next layer is going to be a will.

[08:25] And that would ideally be on both adults. So you could say wills plural. And then the next layer is going to be a revocable living trust. Now I’m not an attorney. So if you have questions about that, I can get you to an attorney and we have simple attorneys and more complex attorneys. The next layer is typically either an irrevocable living trust or, and sometimes, and, and you can tell as you add layers, it gets more complex, a family limited partnership. And then the next layer is something that’s often referred to as a dynasty trust and they have different marketing names, but now you’re in there in that space above the $12 million mark, typically not always, but that space is definitely not for everybody.

[09:16] But look at all those layers that are for everybody. Now, one myth that I want to bring up is that a lot of people think that a revocable living trust is either going to help them with tax protection or asset protection. It does neither. All it does a very valuable thing, but all it does is get assets moved from one generation to the next, easier than a will by itself. And most attorneys will do a family living trust or a revocable living trust, those terms are interchangeable with wills, with medical powers of attorneys with living wills, which is the pull the plug document as a package. And that enables a very complete, very thorough approach for probably 95% of America, the revocable living trust package.

[10:17] And then as stated, if it’s appropriate, you up that ante with a family limited partnership. And that’s all that needs to be said. Now, if you are seeking asset protection, then a liability umbrella is the easiest first step, and these are purchased from your car and home insurance agent and should be done in the amount of your gross worth, not net worth gross worth. So let’s say you have $2 million of your net worth, and you have a home with a mortgage on it of a million dollars. Well, that means your gross worth is $3 million. So that is the amount that you would want for a liability umbrella and a $3 million liability umbrella is maybe five, six, $700 a year. That is your asset protection.

[11:12] Now, in terms of tax protection, that’s a whole nother discussion, but I just want it to be very clear for people that a revocable living trust is not about tax protection in any way. Yeah. Here’s the amazing thing that just happened. And I got to witness this. This was cool. What you did is you simplified so many of these elements that really, you may have to read a 50 page book to get to, or listen to a bunch of podcasts or read a bunch of articles or have a long drawn out, maybe not so fun meeting you simplify that. And the only way that a person is able to, as you went through the layers and the steps and simplified the complexity, the only way that a person is able to do that is if they were a master, if that domain, we’ve seen

[12:09] that happen time and time again. I’m sure you’ve seen it. When you talk with a master in their craft, they make the complex sound easy or I should say understandable. The unsophisticated want to make the complex sound more difficult. So Kim, that was very helpful. Uh, and so now we take those elements. You’ve been very clear at what is going to be helpful for taxes. What is not going to be helpful for taxes. You’ve made it clear of what buckets people can step in on maybe their wealth scale. Um, the next question is, can these elements be adjusted with time? Absolutely. That’s the actual definition of the word revocable and the term living trust indicates that as well, I believe. So a revocable living trust can absolutely be developed as you

[13:13] progress, adjusted, improved, uh, updated, et cetera. And it should be, I would say every five to seven years, or if there’s a major event in your family, like a birth or a death or a marriage or something like that. And then the whole point of the layers is the ability to upgrade and grow with the capability. Because in most cases, even the most complex estate plan is still going to have at its foundation, a revocable living trust. So yes, that changeable nature is very, very important. Okay. So there’s, uh, one other element to that, which is this you’ve mentioned on other podcasts that, uh, you’ve met with prospects and or even a new client. And sometimes people will drag their feet or, uh, dragging the

[14:05] feet means by deciding to do it, or they didn’t set up life insurance, you know, at, at a appropriate age, whatever that could be. And then in a medical event happens and they can no longer qualify or a death happens with the trust situation right now. If you’re listening to this, you have today, but if you or your spouse were to pass away, you’re setting up a completely different scenario where it’s going to be more complicated. So now is the time that we have to do things. So well said. Yes. I have resources. So if people are curious, I’ve got attorneys that are simple attorneys that are capable of the more complex when appropriate and, uh, one in the middle, if that’s a good match for somebody as well, happy to send those

[14:57] resources out, connect people to somebody that’s proven, that does good work that I’m in touch with, that understands our work as well. Just email hello at prosperity thinkers.com. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit prosperity thinkers.com.