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Nicole Wipp: Welcome to the smart planning 101 podcast, episode 24. I am Nicole Wipp, and I'm your host.

Intro:  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. Welcome back to the smart planning 101 podcast today. I am going to continue my discussion of revokable living. But before I get started with that, I really want to thank all of you that have left wonderful reviews and have sent me messages and all the people that have downloaded and listened to all the episodes because we're at episode 24.

And I actually can't believe I have 24 episodes out already. And I can't believe how many people have so many nice things to say. I'm including attorneys actually, which is really a pleasant surprise that I've gotten such great feedback from other attorneys about the podcast. So thank you very much.

I really wanted to express that gratitude to you before I even got started today. So today I promised that I would discuss some of the things about revocable living, trusts some of the options and features, so to speak that people aren't even aware that exist or that aren't often presented to them about things that they can do related to the revocable living trust.

And in my experience, most of the time people come into my office and they just think they want this sort of basic document that they think everybody else has. But when they really understand the things that can be done for my client demographic, particularly they want these features and options. They want these protections for their loved ones.

And so not everybody does. And that's okay if you're the type of person that doesn't care about these things. Then that's fine. That's your business. But I will just say that there's a lot of people that do care about these things. And so if this is something that's interesting to you, you want to know that you can do it, but the point is you need to know that you can do it and you need to know that it's actually going to get done because the next problem is that very often people believe that these things have been taken care of when in fact they have not.

And so this is just something that you're going to have to really get solid on. With your attorney or with another attorney, because you don't want to be under the assumption that something's going to happen only to have your family find out that is exactly not the case, which is very often what happens.

So what are these things that can be done well before I even get to that, let me explain to you the concept that I like, how I like to illustrate this for people, which is that first of all, There's a gap in time. Okay. Between when you die and when your children or other loved ones are going to receive the things that you want to leave to them.

Now, the problem with that gap in time is that it can become a gulf in time where your assets flow into that. It becomes a gulf and it never reaches the people that you love. And for the most part, the reason that this happens are due to things that are happening in their lives, not things that are under your control.

Now, sometimes these things are under their control and sometimes they are not under their control. And the problem is when we're planning today, we don't know. We don't know whether they're going to be in that situation or not at the time of your death or after the time of your death. And guess what?

They don't know what either now, sometimes clients will say to me, well, I don't really care. You know, like that was my. Grown and they're smart and they're just going to have to worry about it themselves, which, Hey, I actually totally respect that as a mentality because I agree when you raise your children to adulthood, they need to stand on their own two feet.

That's just part of the deal, however when it comes to your money and what you want to have done with it and how you feel about it, you're entitled to feel about it however you want. But when it comes to this issue, Your children can't protect themselves against some of these things, or at least they can't protect your money from some of these things.

So you need to understand that because if you care about protecting your money from these things, you have to understand that they can't do it for you, or they can't do it for themselves even is really the point. Let's talk first about the things that are really important during your life. So the first thing is that the revocable living trust, if it's properly funded, and if you don't understand what I mean by properly funded, please go back and listen to episode 23, where I.

Funding the trust. But if your trust is properly funded [00:05:00] during your life, and now something happens to you and you become disabled, or, you know, you get to be elderly and now somebody needs to take over. Somebody needs to take control of the finances. Somebody needs to start writing out the bills, doing things for you on your behalf, the person that you name as your successor trustee.

Now we also have to assume in this instance, when I'm talking about the person, we aren't necessarily talking about your spouse. Okay. Because you cannot assume that your spouse is going to be there at the time of your life, that you're going to need somebody else to take control. And so please you know, let's disregard the spouse for the purposes of this conversation.

Life isn't like the notebook, you know, that movie, the notebook where mom gets Alzheimer's and dad lives in the facility with her, and then they die in each other's arms. I mean, actually, she even had Alzheimer's in that, but the point is that they died together simultaneously in each other's arms.

Well, that's just not real life. Don't die like they do in the notebook. And so one or the other spouse is more likely than not going to pass before the other. And so when the remaining spouse is there and now somebody else needs to take over, it's not going to be the spouse. Okay. The revocable living trust, if it's been properly funded, Is a mechanism that allows for the easiest transition of that power, because one of the things that we sometimes see in these instances is that even if you have an excellent power of attorney, the best power of attorney, the most up-to-date power of attorney.

Fully loaded with all the latest legal bells and whistles. There are times that banks and other financial institutions will not play ball with the power of attorney. And all I can tell you is in that certain states, that is not legally required, they do not have to. And so sometimes the only way to get the bank and or the other.

Institution to cooperate is to get a court order, which, you know, that's just the whole ball of wax that nobody wants to get involved in. So even with the best power of attorney in the world, sometimes you can have issues, but most of the time when somebody has been properly named as a successor trustee, and now the successor trustee comes in to take control with a properly funded trust, that issue doesn't come into play.

So that's one of the benefits of the revocable living trust during your life, as it ensures a smooth transition. At the time you need it. The other thing is if you get remarried, so now it's your trust or mom and dad's trust. And one of them gets remarried and I'll tell you right now, people always say to me, I'm never getting remarried.

I'm not getting remarried. There's no way I'm getting remarried. That is not going to happen. Not going to happen, not going to happen. I hear this every single day. And okay. I, 100% believe that you believe that, and that's fine if you never get remarried, but this is what I know. I know that statistically people do get remarried and the reason they get remarried most of the time is because, especially if you've been married a long time, some of the people that come in to see me have been married 30, 40, 50 years.

That's a long time to be married to tell you. I love it. I love it. When people have been married that long, because as you, we all know, that's just. The way it is in this world anymore. But you've had a companion, you had a companion for 30, 40, 50 years. It doesn't even matter. Even if you had a companion for 10 years, you had a companion.

And when people get married later in life, it's really about companionship. It's not about the things that it was about in our youth. When we're young about having kids and being attracted to somebody on a level and all those things. Youth is about a marriage is about it's different later it's companionship, but nobody begrudges their spouse of that.

Very few people will say I don't care if my spouse, wants companionship. They should never get remarried. Very few people will say that. Although some people well, and nobody wants that for their parents, either for the most part, but we don't want to have happened is because somebody gets remarried that now.

The risk happens that the assets get transferred to the new spouse. And now the new spouse inherits and their kids inherit not yours. So you've been married 30, 40, 50 years, and you have kids together and now you pass away, your spouse gets remarried. And through and, I have to tell you these things don't happen because anybody's actually consciously thinking about them happening.

99% of the time, the reason that that whole thing about the new spouse inheriting and then the kids inheriting happens is because people haven't even thought it through. And then that becomes the legal default of what happens. So what I'm saying is, as you can set up your revocable living trust during your life, during your spouse's life, where in the event that they get remarried, The assets can't be diverted to the new spouse and the new spouse's children.

And that is something that can be very powerful because I think that pretty much anybody listening to this podcast episode is going to know somebody that, that happened to where mom and dad were married and dad died and mom got remarried and dad and his kids got everything or the other way around. It happens all the time.

[00:10:00] And so you want to protect your assets from remarrying. Even if you don't think you're going to get remarried, why play around with it? Just be safe instead of sorry, because then later, if you do want to get remarried, it's taken care of, and you don't need to worry about it, remarriage is definitely something you should have on your radar.

Now let's talk about death because I talked about the gap in time and that money flowing into the gap and away from the children, grandchildren, or other loved ones as a result of the gap becoming golf. So what are the kinds of things that I'm talking about in this instance? We're talking about lots of different things and some of them are due to what.

Call your kids on stupidity. And then some of them are just due to bad things happen to good people. So it could be either. Or, and like I said, at the beginning, sometimes we just have no idea of which is which, and which it's going to be so we're just preparing for the worst than hoping for the best when we talk about these things, okay, what's the first thing.

This is the biggest one. This is one of the ones that almost every parent that comes into my office. And then I know that other attorneys deal with is concerned about for their children. And that is the potential for them, your children to get divorced because in the event that your. You leave an inheritance to your child and then they get divorced.

It is a high likelihood that the spouse will receive part of that inheritance. If not half of that inheritance in a divorce settlement. Now I have people argue with me about this all the time. Cause they're going to say I live in a separate property state and separate property rules say that that's my kids and the spouse.

Can't. And, or, there's other legal rules of those other legal provisions that make that, that's not gonna happen? And I have to laugh when people say that to me because you know what, as a statement, that's probably accurate as a generalized statement, but there is the law and then there's what happens.

Okay. And I think all of you that are listening, know what I'm talking about? Just because the law says something does not mean it does not mean that's what happens. And I can tell you this with absolute certainty as somebody that has practiced in the area of family divorce, merit, matrimonial law, and why it's there's the law.

And here's what happens is because we have this little thing in this world called settlement. And when we're in the settlement, The law is not really what we're talking about. We're just trying to settle a case. And so yeah, the law plays into it. What the legal rules are plays into it, but everything goes on the table at settlement and includes this includes yours.

And so you don't want to be under the assumption that just because the law says something that's going to be, how it actually plays out legally because I can tell you with certainty that definitely is not how it plays out and it doesn't, it has a factor and plays a role. Almost all divorce settlements that I've been a part of.

And I know many other attorneys have been a part of and it has to do with a multitude of reasons. I could probably do a whole podcast episode just on this topic. And but the point is that you don't want to make the assumption that just because the law says something that, that is in fact what's going to happen because it's just not really, unfortunately, the way the world works.

And so if you want to ensure. In the event that your child gets divorced. And we all know that we have at least a 50% divorce rate in this country. And for second marriages, it's higher. It's like 60 to 70% that you want to make sure that your money goes to your children and to your grandchildren and not to the divorcing spouse.

Then you can by virtue of setting up your revocable living trust in the right way, keep that spouse, that divorcing spouse out of the picture, but you have to set it up properly. Okay, the next one is. Issues related to bankruptcy and creditors. So now we have situations where children get into financial trouble and this we see and have seen, played out quite a bit since 2008 in the economy and the recession.

Where people that didn't even expect to be in financial trouble, found themselves in very deep financial trouble. People that had always actually tried to live their lives within a financially or fiscally responsible manner now you know, going through bankruptcies and foreclosures and losing their homes and things like that.

And so these are major issues. And so you just need to understand that when you leave money directly to children or you give it to them outright, Or you give it to them via beneficiary designation or any of these other types of things. If you don't set up your trust properly to avoid a situation where if somebody has a creditor or [00:15:00] bankruptcy issue, then your money will be 100% subject to that lawsuit,  creditor, or bankruptcy issue. And so yes, you can protect the money and you can set up the trust in a way that keeps the money away from those things, but you got to do it. And one of the reasons why this is especially important is the most recent decision by the us Supreme court in a case called Clark V Rameker, which was a decision that related to inherited IRAs and bankruptcy.

And I'm going to have a podcast episode. In fact, the very next podcast episode, that's released episode 25. We'll go into detail about this Clark V Rameker and inherited IRAs issue. But if you leave an IRA to a child that has any creditor or bankruptcy issues, That money can be seized in the bankruptcy or creditor.

And that's just at the end of the day, the most important point about that. This is just a great illustration. And for many people, most of your wealth is tied up in your tax-deferred assets, like your IRAs, your 401ks, your 4 0 3 BS. So if you don't set up a trust in a proper way to hold those funds after your death and protect them from your children's credit or bankruptcy issues, then it could highly, in fact, it will be subject to those issues if they have them at that time. And even if we don't foresee those things, right this moment, it can happen to almost anybody because we saw that during the recession. The next thing is bad spending habits or bad money management habits.

And so here, I'm not just talking about bankruptcy and creditors and lawsuits and things like that, because of course, those are pretty extreme things, but here I'm talking more about just your children and possibly their. Or even your grandchildren's propensity for spending money and, lack of financial savvy, lack of understanding of how money works, not having a full understanding of the importance of saving for the future.

And I bring all this up because of course, I'm in my forties. And I know that most of the people of my generation are very fiscally irresponsible, and certainly, people that are younger than myself are. And I can also tell you just from being an attorney that deals very heavily with people's finances that even people in their fifties, and sometimes sixties have behaved in this way as well.

Because even though those are the generations that have tended to be a little bit better when it comes to money, not always the case. And so if you have somebody that is fiscally irresponsible, or just not very good with money, period, it doesn't even need to be that there, you know, just some people are not good with money.

You give them a dollar, they spend three, you know, and that's a lot of people. So you can set up rules in your trust that prevent them from going out and blowing the whole thing immediately. And so that's sometimes a very big desire of many people that are wishing to do thorough trust planning.

Another issue that plays into that. But for slightly different reasons are when you have beneficiaries or loved ones that are either too young, too old, or are disabled. And so when they're too young, too old or too disabled, then they are usually unable to manage money on their own and where they may have been able to, at one point, if they're too old or if they may be able to, into the future, if they're too young but this at the time of when they're going to receive from you, they're not going to be the person that is really going to be the best money management, person.

And so the great thing about a revocable living trust and any other trusts that you set up properly for that matter, it is that it's going to be able to set up the money in a way that you can protect from all those other things that I just discussed. But also we'll be able to ensure that the person that you want.

Managing your money on behalf of that individual is in fact the one, because when you don't set it up in the way that you say, who gets to manage it, then it's going to be, whoever happens to be the person in charge of that time. And we often find that for example, in the case of minors, Maybe it's your son's ex-wife, and she's going to be the one that's going to manage your money.

And maybe that's not what you want, or if it's somebody that's too old, maybe it's your sister-in-law who you think is a horrible money manager and you don't want to be leaving money for your brother. In a way that the sister-in-law's going to get ahold of it and or that she's just going to waste it.

She's not going to be good with it, or you don't trust her, whatever. It doesn't matter. What the reason is just that the person that they would have picked, or that is ultimately in charge of that person is not a person that you want to be in charge of your money on that person's behalf. And so you can set it up in a way that it's the person that you want and when it's your money, why not?

It's your money. You can say who gets to get it. And under the conditions that they get to get it. And that's your choice. So these are the kinds of [00:20:00] things that you can plan for. Another thing that I just would like to bring up as a side issue is if you have somebody in your life that has any type of addiction because what we know from statistics is that a person that receives an inheritance that has an addiction, statistically not only.

Blows through the money. And that's usually what people say when I ask, what do you think happens? But a lot of times that they die because they're able to feed their addiction to the extent that they overindulge and now they die. And so this kind of, this is an addiction is a different type of a disability, so to speak.

And you may not want to cut somebody out. Of your estate plan altogether, but you may recognize that they cannot and should not be handling money on their own for the reason of the addiction period. And you love them very much, but you know, that they're they just should not have that money. And so you can still leave money to them, but you need to have somebody else managing it on their behalf potentially.

Okay. So these are the kinds of things that you can do and a revocable living trust. One of the reasons I wanted to do this episode is that I have found that people really are not aware that these types of things can be done or even worse. People think that they were done and they weren't. And so you need to understand that.

You want to be clear on what you're getting and what you're not getting when you are setting up a revocable living trust because what you're not getting is sometimes just as important as what you are getting. And it's sometimes for some people it's just not as simple as just giving the money away at your death.

Maybe you want to make sure that the money is given away in a safe and effective manner in a way that protects people we aren't doing anything to punish your beneficiaries by setting things up in this way, this is never about punishment. It's always about protection. And so if you want those kinds of things if this is a goal that you, as a parent or an aunt or an uncle, or just whoever that is a person that loves another person and wants to give money to them, if this is a goal, Of yours.

And it's something that you would like to achieve. You just need to know that you're getting it or not getting it and that you, in fact, chose to receive or not receive these specific provisions in your trust. But what we see more often than not is that people are under a lot of misconceptions about what they have and.

Completely really don't even know what it is that they have in their trust and what their trust is actually going to do for them and for their beneficiaries. So these are questions that you have, I, of course, really strongly recommend that you seek the advice of a qualified attorney that actually does this type of work because when you are trying to Deal with somebody that just sort of does what I call fill in the blank lawyering.

You're not getting what we're talking about here. Nine times out of 10, if somebody has asked you the questions about this, or they are willing to have this conversation with you, or they're just saying, oh, well, you should just give the money to them. And don't worry about this. And if it's something that's important to you, then this isn't the kind of person that you want setting up your plan because that's not.

They're either don't understand how to do it, or they don't want to do it, or they don't have the legal expertise to do it. There's a million reasons why this was going to happen. But at the end of the day, you're not getting what you want and you can, it's actually totally within your reach. It's just that you just need to do it.

And so it's just something to be aware of and something that if it's important to you, that you get set up, I hope this helps and I hope it gave you some food for thought. If you have any questions, please contact me at smartplanning101.Com and as always, thank you very much for listening.

Have a great day.

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Outro: The information contained within this podcast does not constitute legal or financial advice. It's for general informational purposes alone, for advice specific to your situation, consult with your legal or financial professional.