How to plan for estate planning
How To Structure An Estate Plan - Estate Planning Series Part 1
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Hi guys, Toby Mathis here and today we're going to be talking about estate
planning for wealthy families.
This is going to be a three part series
where we're covering basically the parameters.
The first part really going to be setting up your estate for success,
how we actually do things during our lifetime
and the way that we structure our affairs so that it makes it easier
to create a comprehensive estate plan that accomplishes the goals
that you want to accomplish.
Gets rid of all the nastiness and we'll talk about all these things
as we go on part.
Number two is going to be things that you should do while you're alive,
what you need to put into place during your lifetime.
What type of documents are needed during one's lifetime
to make sure that you have advocates and that you don't have an estate wasted
or taken advantage of, or otherwise?
Leave yourself at the mercy of a
either a court or somebody that does not
necessarily have your best interests at heart
or is not looking at what you want to accomplish.
If you want to do legacy planning,
it's just not appropriate to go in to conservatorship
or some of these things if you have the means to avoid them.
And so we'll show you how to avoid it.
We'll show you how to put things in place during your lifetime so that whatever
you want to carry out, whatever values you want to pass on, get carried on.
We'll get into that, too.
Number three is what happens when you pass.
It's after you're gone.
What did we put in place and how does it work
and what
works for wealthy families over time?
We have a really good roadmap in the United States
as to what works and what doesn't.
So, for example, a lot of you guys have heard about the Rockefellers
and the Vanderbilts and one family created
what we kind of talk about here, what we're gonna be the concepts here,
which is creating an entity usually in the form of a trust
that does not allow access to principle,
unfettered access, I should say, by your heirs.
In other words, it puts some clamps down in what ultimately occurs
over a long period of time, is it's in their best interest to do that.
Versus the Vanderbilts, where it was
much more freewheeling, where it was distributions out to folks.
And here we are to the wealthiest families at the time
and year two and three generations down the road.
And what do we have?
One of them is still worth billions of dollars has still grown its wealth.
The other one, there's not a single millionaire in the group.
They had a family reunion, not a single millionaire in the group.
How did they go from being one of their wealthiest families
to not being one of the wealthiest?
I should say, when I say not a single millionaire, if you know,
some of the heirs, like Anderson Cooper's obviously somebody who's a millionaire,
but it wasn't because of the fortune being passed down.
The fortune is gone.
You just have individuals now who are, you know, kind of at their own
the mercy of themselves as opposed to
in the Rockefeller case, you have really two main trusts
that continue to prosper to this day and are supporting
massive amounts of family, but more importantly,
supporting massive amount of full philanthropy
and values that the Rockefellers wanted to pass down to their kids.
So we'll talk about how this takes place in order to do this.
I want to start off with some kind of some norms
and some ideas that that are going to guide us here.
For example, something that I take to heart
which is it's about control, not ownership.
Control, not ownership.
That's an important concept.
I don't necessarily have to own something
but I should be able to control it in estate planning.
That's really, really important because you realize if I own everything
in my name,
I am going to be subject to all sorts of nasty transfer taxes
to estate taxes to state estate taxes to generation,
skipping taxes all sorts of stuff that gets piled on.
And it's a really large amount.
So for example, right now we have an estate
tax exclusion of just over $12 million.
Huge amount.
It's been as low as six 75, 675,000 since I've been an attorney.
And it could go back to any number, could go back down to a
to a million, it could go to 5 million, whatever it is,
it's this magical number that they say, Oh, we're not going to tax you
on the transfer of that from a federal tax standpoint.
States do their own thing.
Some states like things Oregon, it might be a million bucks threshold
and then you get taxed.
What do you get taxed if your state is worth more than that value?
It starts at 40% on the federal side and the state, it just varies
you even have an inheritance tax in some states.
So you have to be aware of these things that if I die
and I pass things on directly to people,
I get hit by these things, but I could avoid them.
And how do I avoid them?
It's by transferring ownership, true ownership out of my name.
Sometimes A good example is what if I put it into a charitable entity?
What if I have a family foundation?
It's not mine anymore.
It's out of my estate.
It's no longer subject to that type of taxation, and it's in a different realm
where perhaps my heirs could serve on the board, continue to get paid
but it's not something that they can take.
They're ex-spouses, they're lawsuits, you name it.
Bad business decisions cannot squander those funds.
So we'll talk about that.
If you do not own it, they cannot take it.
If you do not own it, they cannot take it that is a very important concept,
and that's what the wealthy folks in the United States truly embrace.
When you see a family that is successful, multiple generation,
nine times out of ten, it's because they realize that owning something
and giving it directly to your children is a negative thing.
In other words, if
I gave my daughter 100% of my estate, she took this estate,
and a lot of it's dependent on what's going on in her life.
What if she has a major auto accident?
Could they take those assets?
What if she gets divorced?
What if she has a business partnership that goes awry?
What if just fill in the blank?
What if she has a medical ailment?
What if she ends up on life support and has massive medical bills?
They could take anything in her realm.
So if you don't own it, you can't take it.
If I have heirs, no matter what occurs and they don't own,
I didn't just give them an outright distribution of the asset, it's safe.
If I give it to somebody, somebody can take it.
And that includes me.
Control is more important than ownership in our world,
and that is a very, very important concept.
So the other thing that I want to focus on
is planning for what is known.
There are certain things that we know is going to happen.
So for example, statistically speaking, I could say that
most Americans are going to go through some sort of lawsuit or interaction
with our wonderful civil legal system, either through divorces
or otherwise about five times during their life.
It's almost a guarantee
that you're going to have to deal with it when you die, for sure.
So we know that this stuff happens so why aren't you preparing for it?
We know that half the folks out there are going to need some sort of long
term care, some sort of assistance when they get older.
So why aren't we preparing for it?
So we are going to prepare for those things
and we're going to make sure that no one are estate
isn't just open season for any creditor should something happen to us.
Number two, we're going to make sure that it's
maintained well enough that it can be transferred easily as opposed to
stuff everywhere that ends up having to go through a court process like probate.
We want to avoid going to court to probate our estate.
We want to avoid having to go get a judge to sign off on change of ownership
in the way that we do that is through entities.
It's really simple, actually.
There's a solution.
It's a straight out there for everything that we're talking about.
There's a very simple solution.
So here we go.
We're going to go into 11 and see if I could do this right. 11.
Right.
Estate concepts that you really have to implement
and that you have to know to be successful in estate planning.
So we want to create a legacy.
This is how we do it.
Number one, you want to protect your assets for the future.
How do I protect my assets?
So if I am, I am a real estate investor, for example, and I'm a stock market
investor my stocks don't cause liability.
My real estate causes a ton of liability.
So how do I protect my assets for the future?
Well, there's two types of liabilities I have to be careful of.
There's the asset itself.
And let's say it's a house, a rental property
that could be an asset.
I want to make sure that I am safe from that asset
so that I sit now here and my spouse
sitting out here.
If something bad happens over here, let's say we have a big fire
and we end up with a massive liability
that it does not
come out here.
We want to make sure that we're cutting that and vice versa.
We want to make sure that if I am driving a car
and by the way,
let's be real, people always say, well, you just get insurance.
There's certain things that insurance is going to be a pittance for
so let's say that I'm driving a car
and I cause the the negligence.
I caused a car accident and it kills somebody who's a high income earner.
Let's say it's a brain surgeon.
They're 35 years old and they have 40 years of
at least $5 million plus a year.
Like, that's going to be a massive lawsuit.
I'm sorry, but it's not going to your your insurance is going cover it.
You might have some liability coverage or maybe this is a small percentage
chance of happening.
It still happens that I've actually seen it happen, not the neurosurgeon,
but I've seen massive liability of of wrongful death of young people,
from landlords, from property management,
from just hoops on businesses with millions
and millions of millions of dollars a liability.
And I've seen people's have their estates wiped out.
So when people say, oh, that never happens.
Yeah, it does.
It's rare but it does happen.
And who does it happen to
the wealthiest people
because they have the deep pocket, so it's worth going after them.
So how do we protect this
from that
liability that's called outside liability affecting your assets,
inside liability of your assets affecting you.
And then let's say you have money sitting in a safe.
You want to make sure that neither of these
could cause us to lose that.
And it's actually fairly simple to put a plan together.
Number one, there's something called security through obscurity.
It's putting your your your assets
in a structure where your name's not on a public record.
And believe it or not, we can remove your name off of your home.
We can move your name off of all your rental properties.
We can even remove your name off of your brokerage account
so that you control it but you don't own the asset.
You own the entity that owns the asset.
And what that allows us to do is hit number two, which is consolidating
all of our assets. Let's say that I have
just one, two, three, four, five, dot dot.
I have 50 pieces of real estate.
I have a ton of residential real estate.
I can have it all flowing up.
It could be a series of losses, it could be land Trust, LLC is it
could be limited partnerships.
I don't really care, but I could have one holding entity that controls it all.
Make this a partnership
and there's some reasons to do that for a lending standpoint if I want to lever it.
But at the end of the day, I could have a singular holding entity
for all my real estate consolidate it very easy.
And then if I pass, if I like, for example, I pass away.
You can say I'm just eliminating everybody now right?
I pass away. My wife has a really easy
transfer.
A I'm holding that in a trust.
I'm going to use a living trust on this my wife becomes is already a trustee.
So there's an LLC that owns a bunch of other LLC.
Is that on the real estate and it could be an LLC, LP
or whatever you decide, and there could even be a let land trust
that flowing into this, that could be a Wyoming statutory trust flowing into this
whatever it is, we have a singular holding entity that's held by my trust.
So if something happens to me, it's really simple.
My wife just steps in as the manager of that entity.
And if something happens to my wife in the trust, it just denotes
the new trustee and we'll get to that of who we pick on these types of things.
But it would just be somebody else is designated to step in and handle
that asset on the pet for for our estate for our cash.
These are non risk assets, stocks, bonds,
your brokerage accounts in general, savings accounts, etc.
If there are larger accounts, chances are you're going to be holding them
in a limited liability company and it could be a disregarded
limited liability company, an
LLC for tax purposes, meaning that there's no tax return do on an annual basis.
It's really simple. Your name's not on it.
The reason that we use those, by the way, is because
I like jurisdictions where your name's not attached.
And then even if somebody's got a judgment against you,
they cannot liquidate the asset, they cannot force a distribution
they cannot manage the asset.
They literally have a lean against it and that's it.
And those ones nobody gets because they're not worth anything
and they might end up paying the tax.
So as a matter of course, that force is a settlement.
And I'll give you an example.
$32 million claim settled for less than 2 million.
That's what it does.
It takes a claim.
And this was dead to rights liability.
But because there's no guarantee of getting paid and it could be 50
years, 100 years never getting paid, there's no guarantee of getting paid.
If you're the plaintiff, you're willing to take a much smaller amount now
and it forces settlement so I like consolidating my estate
so that it's really easy to transfer things.
And I'm going to give you a visual
let's say that
we're going to go to Europe and we're going to spend
six months traveling around Europe.
And you have to bring your belongings, you have to bring,
you know, your luggage and all this fun stuff.
Right.
Could you imagine not having luggage and just bringing your
your clothing and your toiletries and whatever else
you bring in your computer, maybe some work stuff.
Could you imagine just carrying that in your arms?
Could you imagine what that would be like walking around Europe
with all your years, your underwear falling on the on the sidewalk?
Right
The whole idea is that you're not ever going to do that.
You would never walk, right?
You would actually put it in a piece of luggage
and you might wield that luggage.
You might be a large piece of luggage. You might be a small piece of luggage.
But whatever the case, you're
going to take all those individual items and you're going to place them in luggage.
That's what you do with an a state plan.
Our luggage
would be probably a living trust, which can be a dynasty trust.
It's the same term a trust is a legal document
that you create where you are the grantor, you're the trustee,
and you're the beneficiary during your lifetime.
And then if something happens to you, there's provisions that kick in.
Something happens to me.
Half the estate locks away
for the benefit of my spouse and my descendants,
and voila, somebody is there to manage.
It would be my spouse.
Something happens to my spouse.
Her half gets locked for the benefit of descendants, gets combined with my half,
and voila, we have a singular trust for the benefit of my descendants.
For a minimum, in my case of 365 years.
In your case, it could be whatever.
And we could decant it, make it forever.
So it makes it really, really simple
to have a comprehensive plan.
And, you know, it could be for health, education, maintenance,
support of your kids.
Or your descendants, which could be again, descendants, could be your lineal
descendants, it could be brothers, sisters, all that fun stuff.
But we generally speaking, it's going to be bloodline
down in adopted kids being included unless you want to exclude them.
But like you could be very, very specific, hey, it's my children and my children's
children and my children's children their children's children.
So my children's children's children should like just multiple generations.
And it could be something that is set up that covers
health, education, maintenance to support.
It's called hems.
And that's what bank trustees and professional trustees
are used to dealing with.
It means stuff that you're not going to be homeless.
You're always going to have a vehicle.
If you want to go to college,
you're going to have college funds, things like that,
and then you can be a little more
imaginative and say, Hey, if you want to invest, I'll match things
or I'll loan money out of the trust at a low interest rate.
Whatever the case, you could put other provisions in there
to encourage certain types of behavior,
but nobody owns it.
So if that kid is really bad with money or has a broken picker
as and they keep picking the wrong spouse, it doesn't mean
that assets going to get taken away
so we put these things in place.
We protect our assets, we consolidate them,
and we make it very simple so that everything passes on.
It's just I'm carrying luggage.
I'm carrying luggage along with me during my lifetime.
That's the living trust is that roll on luggage.
I can open it at any time and take anything out of it that I want.
When I pass away.
There's written instructions as to who gets to pull the luggage
and handle the luggage and who opens it up and how much they take out of it.
That's all living trust is.
Don't make it more complicated.
It becomes irrevocable when you pass away and by the way,
if you have a mixed marriage, you know, hey, kids from previous marriage,
things like that, you need to have a living trust
so you don't disinherit somebody is going to get disinherited
if we don't put together an estate plan on that type of thing.
Now, number three, incapacity.
Incapacity nation planning and end of life, it's absolutely going to happen.
One of those two things or two of those two things, 100% certainty
you're either going to pass away without ever being incapacitated
or you're going to get incapacitated and pass away.
It's about a 50 50 shot as to incapacitation,
especially if you get over
60, you're going to need some sort of long term assistance period.
So it's critical, critical that even if that occurs,
like let's say that I have to go into a nursing home
or residential
assisted living or whatever accommodation allows me.
Like in some cases you have no choice.
You have memory care I'm sorry, you're going to be in some sort of 20
47 facility because nobody can care.
I had a father that went through this, my dad went through this,
had Sundowners violent at night.
There's no way somebody can watch him, has to go into a facility
so that there's nurses and even then he would attack and stuff like that.
He would get discombobulated.
It's a horrible disease, by the way.
But it, it but there's no way you're keeping that person at home.
And rather than sit there and hope and wish and pretend
you're going to say,
hey, if this type of thing happens, let's make sure we have a plan for it.
My personal preference is that you insure for it
and you can
insure for it with either a long term care plan,
you can insure for it by getting insurance like life insurance,
which will probably be our our fourth step here.
But you can have access to a good indexed, universal life
or whole life plan that you'll have a rider on it
where you can access that death benefit during your your during your life
to cover those expenses so you're not depleting your state
but we know it's going to happen.
So we're going to have to cover incapacitation planning.
And the end of life. End of life.
You're going to use a living trust.
Do not use just a will.
Now, here's the punchline.
When you do a living trust, you still have a will.
But we call it a poor over will in a poor of our will point to the trust
as the sole beneficiary of your estate it actually makes it extremely simple.
If something happens.
We're pointing to that living trust saying
this is the arbiter of all matters in my estate.
And so
instead of going to probate court and saying, here's all the assets,
remember, we have all of our clothing that we're carrying around with us.
If I do not have a living trust, I do not have luggage, I'm bringing it all
and I'm dumping it to the court saying,
who gets the underwear, who gets the T-shirt, who gets the pants?
And it's all being inventoried in front of the court.
It's all a public record.
It's expensive, it's time consuming.
In some states, there's statutory amounts that they have to pay.
And like in California, I think it's 8% start
and then it goes down depending on how large the estate is.
But it starts off where the personal representative is getting a set amount,
percentage of the value of that estate and the lawyers getting a set.
It could be hundreds of thousands of dollars for a larger estate
or you could do a living trust and avoid it.
I mean, think about that for about 2.3 seconds.
And a living trust is not a public record and a living trusts
allows us to create a legacy.
Why the heck would you do it?
Well,
it just guarantees that I'm going to give the entire
estate to somebody and the judge is going to sign off on it.
I prefer to avoid that.
I want to trust.
I want that to be my luggage and instead of having each piece,
each item of clothing and my toiletries and everything else that I can do,
the thing about toiletries, right?
I always look at toiletries is being your rental properties
because they could explode and get all over you are their clothes, right?
So like it's like it's like having shaving cream right in your luggage,
but without putting a plastic bag
around it or putting it in a in a in a toiletry container,
you would never do that because if you're on the plane in the then
the shaving cream explodes. It ruins all your clothing.
Right That's no different than this guy sitting in your state.
It's being carried around by your living trust.
I got my LLC in my luggage I want to make sure that
if something happens that it stays inside that container
and then the luggage is just
my living trust, saying, here's when you can take items out
and we want to avoid having court involvement
so to the extent humanly possible, we want to
and we don't want to have our, ah, affairs put in a public record.
So what we're going to do is a living trust and we're going to
pour over Will that says the sole beneficiary of my estate
is that living trust so that if I leave some clothing
at home that I didn't take with me on my trip to Europe, right.
It's going to go back into the luggage.
It's going to get put in there afterwards.
I can do that.
And then I can have written instructions as to who gets to raid the luggage,
who in and under what circumstances do you take things out
that's so important?
If we do that correctly, we can prevent
all sorts of nasty, nasty things that occur.
Point number four, we know we're going to pass away.
I don't care how valuable your estate is if you're listening to this
and you're of modest means or you're just getting started, here's the truth.
This body here, I can ensure
I could
put a half million dollar, $1,000,000 policy,
whatever I can qualify for, and I could just have term, cheap term
and guess what happens when I die?
If I died untimely and before I was able to make my fortune, guess what happens?
That money could be dumped into an estate.
And let's say that my values are,
Hey, I really want my children to travel.
I want them to do mission work.
I want them to better society.
I could put that in my living trust.
You know what I could say?
It's really important to travel.
My trust will pay for a reasonable trip, reasonable accommodations
outside of the United States for seven to 14 days a year.
If you're a beneficiary, you have the right
to come to our trustee and say, I would like a trip.
And the trustee is directed to pay that, to allow them to travel the world,
make me a better world citizen. Right?
You get to see what's going on around the world.
You can even put other conditions on.
You can say, but you can't go to the same country twice.
You can't go to Paris every year.
You got to travel you get to choose that.
And even if I don't have a ton of money, life insurance dumps in and covers it.
If I pass away before I make a fortune
anybody
can create a really cool legacy plan for their kids.
What if education is super important?
Like on my dad's side, he was the first person to go to college
and his whole family, he was like, grandma.
I had 14 brothers and sisters, grandpa.
I had like 13 brothers and sisters.
It was like a huge family they all left to work in the fields, literally.
My grandma, I think was fifth grade,
so education was something that was important to my dad, right?
That that might be something.
Where had he actually done this?
I wish he had he could have created an estate plan that said
Hey, education's really important to me.
If you go to college,
there's absolutely funds here for a qualified four year degree.
Or two year degree or whatever you put it in there, accredited US institutions.
And then your trustee says, Hey, this is really important.
Hey, any beneficiary so great, great, great, great, great grandkids, right?
We're multiple generations down the line.
Here's money there.
And you say, But what if he didn't have a bunch of money?
And sure, yourself
that's why life insurance is so important and life insurance is important.
Really, there's three things.
Number one, it will fund your estate plan for sure.
It can also fund, buy, sell agreements and things like that with with partners.
If you have other businesses together, that's a topic for another day.
But life insurance, if you have passing away
and you know what's going to happen, you can have permanent life insurance.
You could get life insurance that covers that sort of thing.
Or if you're just getting started, you can have term insurance really cheap
so that if something happens unexpected along the way,
your legacy is still important.
Number
two, it gives us access to cash tax free
when we have the right type of insurance for doing our you owes a whole life
then when I am in retirement, I have access to tax free money.
I can borrow against that policy.
I don't even have to pay it back. When I die, it gets paid back.
So I have a nice income stream when I die in number three,
I have access to the death benefit
and the cash value if I become disabled or if I have medical needs or if I
if there's something there that is going to be expensive
rather than liquidate my estate rather than sell off my assets
there's something there to cover that.
So life insurance actually is a critical component
to most higher end estate plans.
There's other things like, hey, if I'm giving to charity,
if I'm giving a lot of assets over, let's say I'm doing a charity remainder trust,
I have a family foundation or I have a family public cherry,
any of those things that I'm taking money out of the estate,
you may say, but I'm going to insure myself
because I'm going to get a bunch of tax benefits for those maybe I'm
taking the tax benefit and I'm investing it into life insurance
so that I'm replacing the value of whatever I gave away out of my estate
and putting it back when I pass away in life.
Insurance proceeds are not taxable, so I could have whatever it is.
Let's say that I'm giving a ton of money to a family foundation.
I give several million dollars.
I have tax savings, let's say, of a million bucks,
and I use that million dollars to fund a very large
life insurance plan.
Now, when I pass away, not only do this my family foundation,
right, with cash, but also I have a ton of money in my estate still
and that's how this stuff works.
And if you're not doing it, you're leaving money on the table.
So I'm going to say that's good enough for part one.
That gives us an idea of how we would set up our state to be successful.
Right?
We have our living trust.
We have our entity structure.
We have an asset protection structure that's preventing the
our assets from from coming in and taking our personal assets away
and also isolating those assets and protecting them
so that if I do something, they cannot take that away.
Because remember, we're we're creating a legacy.
This is going to go on for hundreds of years.
I got to make sure someone doesn't come in and take it so that if I'm 80
and I cause a car accident, that I didn't just ruin everything that I created.
Right.
I can do that with this type of structure.
And I'm putting
it all together and making sure that I have good insurance.
I'm using my insurance wisely for the three reasons I was giving you
I created a nice consolidated estate.
I've created my luggage that I'm going to carry it around with.
I protected the items, and now I can freely travel right.
I say figuratively around the world, but allows you to travel around the world
from an economic standpoint and not care
about what happens if something happens to you, it's going to happen.
100% certainty.
We're all going to pass away. We're all mortal.
So we may as well plan for it.
And there's a good chance something might come along and there might be disability.
We've covered that, too.
What a great start to creating a legacy.
All right. That's the end of part one.
Part two is coming up.
And what we're going to address on part
two is what to do while you're alive for your estate plan.
And we're going to get into specifics about planning for your businesses
by sales, who should be your trustees, all that stuff,
the specifics of the living trusts, what type of provisions we use.
We'll get into those.
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I could tell you I've been doing this for 25 years and when I first started
living trusts were the realm of the ultra wealthy,
and attorneys would routinely turn away lower income folks.
And I don't need to say lower income
the bottom 80% 90% all it's only for the wealthy.
That is not true.
There was so much bad information out there.
There's still this. And so we're combating it.
This is how we do it as we share good information
and good estate planning so that somebody can create a legacy.
I don't care who you are,
you can create a legacy to
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