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Nicole Wipp: Welcome to the smart planning. 101 podcast episode 21. I'm Nicole Wipp. And I'm your host.

Intro/Outro: Stay in control of your future, whether legally, financially, or with your health learn the latest strategies and best practices from national experts, help yourself. Help. Mom and dad make the right decisions.

Welcome to smart planning. 101 here's Nicole Wipp.

Nicole Wipp: Hello, smart planners. To the smart planning 101 podcast. And today I am continuing my two-part interview with attorney Daves Zumpano about irrevocable pure grants or trusts. Now in the previous episode 20, Dave gave a very comprehensive overview of the differences between the different types of trusts that we traditionally see out there.

So he talked about. Traditional irrevocable trusts, which are mainly tax trusts. He talked about revocable living trusts, which is what probably most people are familiar with. And then he contrasted it with this irrevocable pure grantor trust. He also got into very specific detail why this particular type of trust.

Works from the common law perspective. In this episode, what Dave is going to be discussing is really in more detail, how the trust works, who it's for, why people like it. And you know, why it's something that you should consider as part of your estate plan. At the end of this episode, Dave and I get into a little bit of a conversation regarding IRAs and trusts.

And so for those of you that are interested in IRAs, That's also going to be a little interesting conversation. So thank you very much for joining me today and hope you enjoy it.

Dave Zumpano: People have been habitually trained taxes, taxes, taxes, but again, it doesn't apply to anybody anymore. Well, that's 0.2%.

So for the 99.8% of Americans, we had to create a way for them to protect what was important to them. And still, give them some of the things they like. So the result was the IPUG trust. And here's what it does. The difference between this and the other two trusts is in the IPUG trough. Like the revokable trust, the person who created is in control of it.

They can be the trustee. Secondly, like the revocable trust, the person who creates the iPod can change it anytime they want. And thirdly, like the revokable trust, the trustee can retain. I'm sorry, the grantor or the person who creates the trust can maintain some benefits from it. Now, when you look at those three things, there's a caveat.

It sounds too good to be true. You're right. That does sound too good to be true. So let me tell you the one caveat. So there's one restriction in the iPod trust, and I'm going to say it twice cause people say what? Huh? So the only restriction in the IPUG trust, cause it's an irrevocable trust, but what's yours.

What's irrevocable is one thing. Okay. And you get to decide what that one thing is. So the one thing you can change is, you can control it. You can even benefit from it, but the one restriction is you must make irrevocable that thing, which the things to which you want to protect. I'll say it again. It must be irrevocable.

For those things that, which you want to protect. Let me give you an example. So I have a house, I have a car and I have a bank account, and let's say my house is worth 150,000. My bank account is worth a hundred thousand and my brokerage account is worth 125,000. Well, let's say that I want to protect my house, my bank account, my brokerage account from losses.

I want to protect them from the government. I want to protect them from long care costs, including the cost of a nursing home. Well, the rule is the general asset protection rule is whatever you can get your creditors and predators. So if you have a right to your house and you have a right to your brokerage account and your bank account, who else does everybody else see a revocable living trust?

You still have access to everything. So do your creditors and predators, the highly IPUG's different is we get to slice up what we have a right to. So for example, in the iPod, if I put my house in there and my brokerage account and my cash account, I have to give up the right to those things, but I don't have to give up the right to control it and I don't have to give up the right to benefit from it.

So let me give you an example. If I put my house in my irrevocable trust and I put my $125,000 brokerage account in my irrevocable trust and I put my hundred thousand dollar bank account and my irrevocable trust. I can still control it as the trustee and decide how we'll get them invested, what bank it goes [00:05:00] into, what house I own.

I can still make all those decisions.

And I could still keep the income from my bank account and my brokerage account, and I can still live in my house. Okay. But I must give up the right. So the principal, so I can't ever get the house back. I can never get my brokerage account back and I can never get my cashback, but I can still get the interest off the cash.

I can still get the dividends from the bank, from the brokerage account and I can still live in my house. So there, most people say, well, you know what, that's fine. I want to live in my house. I really don't need to sell it until I die. Most people say, well, you know what? I really don't need my brokerage account.

I haven't touched it in years. I just, I want to be able to change the investments and I want to be able to continue to get my dividends. Absolutely. You can do that on the IPUG trust and my bank accounts, you know what? I don't need my hundred thousand dollar CD. I do need to continue to get my interest, but I do want at least 50,000, or let's say 40,000 accessible in case I need money.

Fine. Then we wouldn't put the 40,000 in the irrevocable trust. Remember we only put in the irrevocable trust, those things, which you want to protect. So what we do, we would put your 40,000 whatever you want to leave available. We'd keep that in your revocable trust. So it's available. Again, it would be available to creditors as well and predators, but the rest of you would put into your irrevocable trust.

So if we go by this example that I put my house, that's worth 150 in my irrevocable trust. I put my $125,000 stock account, an irrevocable trust. And I put 60,000 of my cash in my irrevocable trust, and I leave 40,000 in my revocable trust. Now I've protected the brokerage. The house and the $60,000 in my bank account.

So why this is important is because what makes this trust unique is while I've put it in the irrevocable trust, I'm still in control of it. So I still decide I can take my money out of my bank and put it in another bank. Anytime I want. If I want to take my money from my bank and add it to my brokerage, I can, I want to sell my stocks or invest in something different.

I could do that any time I want why. Because I'm in control as the trustee of the trust. The trust now is the new owner, not me. So again, it's not Dave Zumpano, the owner is Dave Zumpano, trustee of the Dave Zumpano trust. Now it's the Dave Zumpano irrevocable trust. So now I control the accounts. I open them up at the brokerage, just open up in my name, except they say, well, what's the new name?

I say, Dave Zumpano, trustee is the DJZ irrevocable trust. Great. They open up the new account. Who's in control. Dave Zumpano is. So I get to decide the investments. I buy them and sell them. Now, can I take the money back? No, I could never take the original 1 25 back. Even if I liquidated and turn it into cash, I can't take it back, but I can always take the income from it if I choose to and I get the control and decide how it's invested similarly with a house.

If I put my house in an irrevocable trust, I get to live in it. But what if I don't want this house? Can I sell it? No, I can't sell it. The trust can. And who works for the trust? That's a trustee. Well, who's that's me. Okay. So I get to sell it as a trustee. So again, remember the house when I own it, I sell it.

But now that the trust owns it, the irrevocable trust only the trustee. And who's that trustee. Oh, that's me. So I could sell the house. Can I take the proceeds back? No. If I sold that house for 150,000, they're not going to write the check, to Dave Zumpano. They're gonna write the check, the Dave Zumpano, trustee of the DJZ irrevocable trust.

So then what do I do with it? Well, I go deposit it and the Dave Zumpano, comma, trustee of the DJZ irrevocable trust bank account, or brokerage account, whichever ones I've set up. And if I want a new house, what would I do? I would go buy it. Well, no, I wouldn't buy it to trust that he would buy it. Well, who's that's me.

So now when I go to buy the new house, who would buy it, Dave Zumpano, comma, trustee of the DJZ irrevocable trust, and they would use the bank account of Dave Zumpano, comma, trustee, the DJZ irrevocable trust, and that money comes out of the bank account. And the trust now owns the house. And again, I get to live in it. As the original guarantor. So I know I said a lot there, Nicole, but that's predominantly white people have really come to love IPUGs because they can still maintain control. They could still maintain some benefits and they could change in any time they want, so they could change their beneficiaries anytime they want, but they can never change it back to themselves.

But see, I think what people are most scared about this. So we'll make, I got to give it up. I can't get it. You're still in control of it. It's still in your name is still with your brokerage, still with your banker. Everything works the same. One thing that's going to be different is when they get their statement, it's not going to say their name.

It's not going to say, Dave Zumpano. It's going to say, Dave Zumpano, comma, trustee of the DJZ irrevocable trust. And that's the only difference I still control it. And what I did though, is I agree in this irrevocable trust. I remember I said, you must give up one. I gave up the right to get the principal back.

Now, what scares most people going, well now, what if I need that brokerage money? What if I need that bank account? And I said, well, what would you need it for? [00:10:00] Well, what if I wanna pay for my daughter's wedding? What if I want to pay for my grandkid's education? Well, this is the beautiful part of it. They can get the money anytime you want.

There are beneficiaries of the trust. You can make anybody in the world, the beneficiary except you, so you can give it to anybody you want. Anytime. You just can't give it back to you. And they said, well, what if I need it? I said, well, then you don't put it in. If you need it, you only put money into that. You want to protect it in your revocable trust.

Nicole Wipp: I always tell people it's yours just in case money that goes in there.

Dave Zumpano: Yeah.

Nicole Wipp: It's money that you don't ever intend on spending. It's the money that you had always said. I, you know, you saved it. It's, you're just you just saved it. That's what people do. They saved it.

Dave Zumpano: Yeah. Well, they worked, they shut the lights off behind each other, to save that few extra pennies. But now they've got all this money and they put in their irrevocable trust and they're afraid they're going to need it someday. Well, most clients don't need it for themselves. They need it for their kids or someone else. Well, you can give it to them anytime you want the rest of your life.

There's no restriction that restriction is you can never give it back to you because if you can give it back to you if you can get it to it, who else can get to it? All of your creditors and predators. Now, let me tell you a caveat. If you agree to keep the income from the interest from the, from the bank account and the dividends from the stock account, you agree to keep that.

That's great. You continue to get it, but if you ever go in a nursing home or if you ever get sued, That also would be available to your creditors and predators. It's very simple, whatever you keep a right to your creditors and predators have a right to, but for a lot of cases, we don't care. Let them get the income.

We don't want to take the income away from you. That's your security, that's your estate plan to make sure you have enough financial needs to meet your enough financial resources to meet your needs. And so part of that income is critical in doing that, but the beauty of this planning, and I think when people in their late eighties that do this and they love it, they go, oh my gosh, I never.

You could do this. It doesn't seem, it seems like we're missing something. Well, it's just because they've been, people have been trained this certain way over the years and it takes a new way to look at it. And again that's what we focus on as an IPUG attorneys.

Nicole Wipp: Well, and another thing that people tend to have a little concern about.

And so I'd like you to address this, Dave is yes, you can make your children or your grandchildren, the beneficiaries. But they don't have a right to reach in and take. You only, they get if you give to them because that's because you have control.

Dave Zumpano: That's a great distinction. Yeah. So there's two, two things I want to clarify in any trust, whether it's revokable or irrevokable there's three key things.

One is the person who creates the trust. One is the person who benefits from the trust. And the third is the person who manages the. So the person who creates it is the grantor, the person who benefits from it is the beneficiary, and the person who manages it is the trustee now in a revocable trust, the guarantor is the trustee, and the beneficiary in an IPUG trust.

The guarantor can be the trustee and can be the income beneficiary. And is the grand tour. So in an iPod trust, a beneficiary never ever gets rights to anything unless the trustee says so. And unless the trust provides that they can have access to it. So when we create an IPUG, we set the terms in which the money would be available to your family. And that's only after your needs have been met. So again, it all plays into your rules. You get to decide, you know, whether you want to pay for grandkid's education, whether you want to pay for your daughter's wedding, help your kids buy a home. All those things. You can write into the instructions of the trust to allow your trustee to do that.

Now, the trick is the trust allows all these things to happen, but it's at the discretion of the trustee as to whether it happens or not. So who's the trustee. Again, what makes these trusts so unique is you are so you're in total control, how the provisions are carried out and that's the key distinction.

No one can ever do anything. None of your kids ever have a right. And none of your grandkids ever, right? No one has a right until you say they do. And that's usually after you're incapacitated or after you were deceased. But other than that, you are in full control until you can no longer be. And when you're still alive, but incapacitated, Your trust will set the rules as to how the money is managed for your benefit.

And then for the benefit of your family and loved ones. So you're right. No one could ever come in, Nicole. It's all about the trustee and who that is and setting the rules up for them to follow.

Nicole Wipp: And one of the things I like to talk to people about Dave is that this is just like anything else that you engage in terms of planning, it's like a risk-benefit analysis.

So what is the benefit of protecting, you know, 200, 300, 500? Million dollars, whatever thousand dollars, a million dollars compared to the risk of losing it at, in my area, for example, at least $8,500 a month. If you go into [00:15:00] the nursing home, like what are, you know, what is the risk-benefit analysis?

Because that's part of the decision-making that people need to make when they're considering this is there is risks to failing, too.

Dave Zumpano: Well, here's the thing there's risks to plan and there's risk, not the plan. So if we look at, if we look at the overall goal, what's the goal of the client. In my experience, working with clients, they usually say, Dave comes down to three things.

Number one, I want to stay in control. Number one thing, clients have told me over the years, number two, they say, I don't ever want to become a burden in my level. And then number three, they say, I want to keep it simple, which usually means they don't want to pay a lot of money. But the sad part is when they focus on how much money it costs, they lose the essence of everything.

Because when they tend to save money upfront, they lose a lot later on because they haven't done the planning. In my experience about 50% of the people in nursing homes are there because they physically need to be, there's no other way. You can care for them. The other 50% are there because they failed to plan in today's environment.

You really don't have to go to a nursing home. There's a lot of ways to stay home, but most people fail to plan in advance to take advantage of those things. So one of the things I say, Nicole, is this, the risk is this. They've worked their whole life. And they've accumulated this money. They can put it in a revocable living trust, which will avoid probate, but it doesn't assure that it will be protected if they get sued, they get in a car accident, some fall on the property, or if they go in a nursing home and need some other long-term care costs.

Now, the interesting thing about the iPod trust is that it is Medicaid compliant. So we use these trusts all the time in getting our clients eligible for Medicaid. That is the government to pay for long-term care. Now, what's the risk. If you don't use an IPUG, the risk is you're going to lose your principal, that you've worked your whole life for.

We've had a lot of clients who come to us when mom and dad are already in the nursing home, and they've already had been paying the nursing home for a year or two and lost hundreds of thousands of dollars. The sad part is it didn't have to be that way. That even if you get to us a lawyer with purpose, The day you go in a nursing home, we could traditionally still save 60 to 90% of your assets.

That's if you've got those the day you go into a nursing home. Now, again, the risk is if you don't do IPUG type planning that whatever you have will be lost to a nursing home or other creditor predator. Okay. The other thing is it could be lost by your children's waste. A lot of times, you know, we work hard.

The older generation worked hard to save money, but their kids are spenders. And so they worked their whole life to accumulate whatever a lot of money is to them. It could be a hundred thousand, 200, 300, it could be a million or more, but whatever it is, you've accumulated. I've seen so many scenarios where these parents work their whole lives and then say, oh, I want to give it to my kids.

And they give it to the kids. And the first thing the kids do go and buy a fancy car, which the parent never would have done. And then they spend money. They divorced their spouses and they get three other spouses and then end up losing it to them, you know, and the worst-case scenario is, you know, you've worked your life for this money and then actually destroyed your children.

So that's another huge risk that people fail to see is that their kids aren't prepared to inherit this money. They don't have, if they never learned how to save money, they've never learned how to manage money. Then your whole lifetime of savings. Could not only be lost, but more importantly, you can actually hurt your children.

I've had people whose kids have these little habits of maybe smoking a little weed on the weekend. Now they get all this money from mom and dad and ended up doing crack and heroin and the things that they could never afford before. So again, these are things, these are real big risks to your loved ones. But with proper planning you can make sure it's there for your children protected from all their creditors and predators, but also in those few circumstances where you're a little afraid of your kids, you could protect it from your kids as well while still making it available to them.

As liberally as possible. So I think the risk is both ways. Obviously, the risk, if you put your money in is you give up the right to it forever. But I think what happens is once people understand, you're not really giving up anything because you haven't touched it anyway. So what I would say to people, if you have a bank account or a brokerage account, or your house that you've owned for a number of years, and you've never touched it, so many people own their homes, 20, 30 years or more, what do you care?

Who owns it? You have the right to live there. Why do you care if it's owned by your trust or by you have it protected, put it in the irrevocable trust? You still get to live there, but now it's no longer owned by you. So it can't be lost to your creditors and predators and nursing homes. Let's look at your brokerage.

A lot of clients have a brokerage account. The reason why they have a little bit of wealth is because they've been putting it away in their brokerage account for a number of years and it's been growing. They never touched the principal. They liked their dividends. Well, again, you never touch your principal.

Why would you want to leave that exposed to your creditors and predators? So if you don't touch your principal, but you do use your dividends, then the irrevocable IPUG would be absolutely perfect for you because. You get to do whatever you want. You can change your investments. Anytime you want. You don't have to give up your rights to the dividends.

You're only giving up your rights to the underlying principle. You're not giving up your rights to change what it owns you to change from a stock to a bond or a mutual fund to a bank, to a CD. You can do whatever you want with the investment [00:20:00] strategy, but you can never say. Dave Zumpano and want my money back.

Write me a check. Well, why would I want it? I don't need it. I need it to be invested. So I continue to get my dividends. And if I do want to do something for my loved ones, it's there for me because remember they're a beneficiary. The risk is if you do need assets you have a vital life. You don't know if you're ever gonna have enough money.

I don't recommend you put those types of assets that you need for your everyday life security. I wouldn't put those in an iPod. Those would go in your revocable trust so that you have access to them to live on. If you really need them to live on what goes into an IPUG are the assets that you don't need.

But you like to live off of, so your house, your stocks, your bonds, and sometimes your CDs, you know, things, you know, you're never going to touch the money, but you don't have the income or the dividends from them. So the risk is once you do it, you obviously lose access to that. You don't lose control and you don't lose the right to give it to other people, your family included.

So that's the risk is you can never get it back again, but most people don't need it because if they need the long-term care, Medicaid would pay. And if they need it for other things, They would keep that in their revocable trust. So that's probably the greatest risk is that you would put money in there that you ultimately need, that you didn't think you're going to need.

And that case there are some unique ways we can get it out. We call it a ripcord if we have to, but we don't talk about that in general. That would be a case-by-case scenario. We would share with the client if they were really concerned about that.

Nicole Wipp: And for the people that are engaging in this type of planning to them, that the risks that you just talk about gauging in the planning are very much outweighed by the risks of losing their lifetime of savings to all these other things. And so for them, the risk of losing the money. In, there is much more of a concern at the end of the day.

Dave Zumpano: Here's what I would say, Nicole. I would say I wouldn't say that as a conclusion. I would say that's what most clients tell us because remember I've had some clients that just don't care if they lose it all.

So you know what, it's not going to be appropriate for them. You know, they really don't care. Whether the money's lost. When I have a lot of people say, I don't care if my kids get it. I don't care if my nephews get it. Well, if you don't care then that's not the right plan for you. A revocable living trusts and estate plan would be important so that it's there for you.

If you become disabled and you have someone managing it the way you want, but the asset protection the IPUG piece is really there for people who do want the protection from creditors and predators, nursing homes, long-term care costs but still want the flexibility to control it, change it, manage it and benefit their families and levels.

Nicole Wipp: Dave, can, we don't have time to discuss this today, but I do want to make the distinction that one of the assets that we cannot put into a trust like this or any other, it would be a tax-deferred asset, such as an IRA. Correct?

Dave Zumpano: Here's what I would say incorrect. Yes, we can absolutely put tax-deferred IRAs and similar type holdings in these trusts.

The caveat is, but not until after you die. And that, and again, with a recent Supreme court case where I'm Clark v. Rameker, which was decided in June of 2014 actually last Friday, June the 13th IRAs and 401ks. And you like when you pass them on to your loved ones are not protected from their creditors and predators.

So we use IPUG trust all the time. Now this shack a lot of people this decision from the US Supreme court, but also lawyers with purpose knew this. We've always planned this way for over the last 10 years, that's why we always make the trust, the beneficiary of the IRA. Now we could protect the IRAs and it's tax neutral.

There's no adverse tax consequences, but yeah, so I would just distinguish what you said and say, not during your lifetime, we can't put them in during your lifetime. But we can, and it's essential after your death to put them in so that they're not lost to your spouse's Medicaid or lawsuits as well as your children or other beneficiaries.

So great distinction. And again, with this Clark V. Rameker decision that just came down. You know, I think this is even more critical now for people to do this planning. And I would also say Nicole, that the idea of being able to protect your IRA after death is not limited to the IPUG. We in lawyers with purpose have been doing it for years with a revocable living trust as well because the revocable living trust, while you're alive, is open.

But when you die, we can close the box and make it work. Just like an IPUG. So you don't, if you don't want to create the IPUG during life, we can do a revocable living trust that converts to an IPUG, at death protects the IRA and all the other assets as well.

Nicole Wipp: So this is going to be a great conversation that I'm hoping that you and I are going to be able to have related to IRAs because so many of.

Our clients and the people out there, a bulk of their wealth or a good portion of their wealth is tied up in tax-deferred assets. So how do we protect that? And that's a, really, this is a critical component of doing that because this conversation that sometimes people have with theirs. Financial advisor, where they get told, oh, I put your beneficiary designations.

You're all set. That really isn't necessarily true. And that's where we're going with this new conversation that I'm hoping that we're going to be able to have.

[00:25:00] Dave Zumpano: Here's what I'll do, Nicole. And if you want to have another call, I'd love to have a call on this very topic. And what we'll do is I'll show you what we've been doing for over 10 years and lawyers with purpose.

When it comes to planning for qualified funds and that the teaser I'll give you is that there's an outside strategy and an inside strategy, which means there's a strategy of planning we do inside the trust. And then there's a strategy of planning we do with the IRA itself in between these insights strategies and outside strategy, we create a whole plethora of opportunities for the survivors to make the decision.

After mom or dad died, not having to make those decisions now, but by creating the strategy, but you can't have all those options if you don't set it up before they pass. And so we'll talk about what are some of the key things you would have to identify and how you would plan for those when you're using a revocable living trust or an IRA?

That'd be a great topic for another call, don't you think?

Nicole Wipp: Absolutely Dave and thank you so much for coming in and talking to us today about the IPUG trust and really clarifying what the purpose is and how it differs from a regular, what I call a regular irrevocable trust because I really think that people get confused on that and that forces them to say no when it might be something that they might want to say yes to if they really understood it.

So thank you very much for coming in and talking about this today.

Dave Zumpano: You have a wonderful day and I hope whoever's listening. I got a little benefit from what I call simple talks. Normal talks instead of lawyers talk.

Nicole Wipp: Yeah, absolutely. Take care.

This concludes part two of my interview with Dave Zumpano related to irrevocable trusts, in particular, the irrevocable pure grantor trust. Once again, if you miss part one, please visit smart planning. One oh one.com forward slash 20. To access that episode. If you'd like to ask a question related to an irrevocable trust, revocable living trust.

Or any of the topics that we discuss here on the smart planning 101 podcast, please visit smartplanning101.Com and click on the little button that says, ask a question you can upload, or just ask a question into your computer. It will record your voice and it will send that question to me.

Once I get your question, I will answer the questions provided that they're appropriate questions. For the smart planning 101 podcast, or I'll get an expert to answer the question and we will play it as a separate episode on our podcasts. So please always ask any questions. There really is. No question.

You know, we hear this all the time. It's a cliche, but it's true. There is no dumb question because if it's a question that you don't really feel comfortable, that you know, the answer to, or that you'd like to have clarified or possibly even just have a different perspective on, then it's a question.

Discussing also, as soon as I concluded this interview with Dave Zumpano, he did agree to come back and discuss with me the issue related to inherited IRAs and the use of IRAs in trusts. And how that sort of issue about you cannot put an IRA or your own IRA. Into a trust during your life, but you can transfer an inherited IRA into a trust after death and protected in that way.

That's a really great topic and he did a great comeback. So we're going to be looking for that episode in July. So stay tuned. To read the show notes. From this episode, please visit smartplanning101.com/21. Thanks for listening!

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