Can You Have More Than One Trust at a Time? |Weekly Wednesday Wisdom Webinars

Certified Elder Law Attorney and Financial Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm.

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Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

On this week’s webinar, attorney and advisor Chris Berry of answers the below questions.

  • I am 80 and retired, can I contribute to a Health Savings Account as a tax-savings vehicle?
  • What is the best way to get started with you, if I want a comprehensive plan with all the associated legal documents? Do you recommend in-person visits or do you zoom calls with all your potential clients?
  • I have a Castle Trust, do Roth Conversions still make sense?
  • Does qualified accounts, IRA’s and 401k’s receive asset protection in Michigan outside of the Castle Trust?
  • If you want to put an IRA into Castle Trust, you have to pay taxes before?
  • Can you give your first impression of the Sanders Senate Bill reducing the Estate/Gift Tax Exemption?
  • Do you do the funding over a period of years to go into the higher tax bracket or in one year to pull it all out of the IRA and put it into Castle Trust?
  • I have a sister who could really use the Family Inheritance Trust, she lives in Florida, can you help her?
  • Can you have more than one Trust at a time?
  • Should I do a Roth or Life Insurance Retirement Plan, given that taxes may go up?
  • Are you an affordable lawyer or cream of the crop that people can’t afford? What is the usual fee range for a typical Estate Plan?
  • Can you explain IUL for long-term care? How does that work?
  • If a person has Index Universal Life for 30 years, then decides they do not need the Life Insurance, can they cash it out?
  • If you are looking for growth, would you recommend a Fixed Index Annuities or Brokerage Account?
  •  Do I ever recommend Lady Bird Deed and Payable on Death or the other ways to designate beneficiaries?
  • If I currently have a Fixed Index Annuity, can I move it to one of these without paying surrender charges?
  • Is there a study showing the difference in portfolio value investing in S&P versus Index Universal Life?
  • I know my Fixed Index Annuity does not give me the dividends just the price return, so it lags behind the S&P 500, is that true for Indexed Universal Life?


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Episode Transcript

Hey everyone it’s one o’clock we’ll go ahead and get started with our Weekly Wisdom Webinar bear with me as I just finished up a couple of last things, here all right so my name is Chris Berry, of course, we do these once a week every Wednesday and then if you can’t attend they’re always recorded. We ask that people submit questions ahead of time and I go ahead and answer the questions live, so it’s not really a structured presentation or anything like that plus if you do have questions as I’m going feel free to put that in the question-answer section and also feel free to put anything into the chat as well, the more interactive always the better. 

I really enjoy these and we always start with a positive focus, something positive that’s happened within the last week. If you want to put something into the chat something good to happen in the past week feel free to share that with me. I’ll share two things one is just personally my kids Ryan and Maddie. My son Ryan and my daughter Madison their soccer season is starting and I’m coaching both of their teams this year so I’m super excited to be able to do that I guess I have three things the second thing is I had a total hip replacement on March 9th and I’m down from a walker to now a cane so down from six legs to now three legs and everything is moving forward with that so that’s good I’m recovering well and then professionally I guess I have two things, one is I had an article published by Forbes. I’m talking about retirement income planning so that was pretty exciting and then the second book that I’ve written just sent that in a rough draft talking about creating a Retirement Legacy Blueprint. So making sure your money lasts as long as you do during retirement and then maximizing it as a legacy for the next generation so just submitted my first rough draft to hopefully get that published this year. So a lot of good things on my end and hopefully you have good things happening in your world as well and with that, I’ll go ahead and get started on all of this share my screen. I saw a question come over Brian we’ll go ahead and address that but we have a couple of questions to get to first so give me just a second as I hit this button I hit that button I hit this button hit that and then that and then half a second we should be saying there we go all right boom boom boom all right. 

So again we do these every week very important to understand that this is kind of general information so if you want to see how this applies to your own situation as always reach out to us via email book some time on my calendar give us a call we’ll go ahead and answer those questions this is kind of general advice based on kind of questions submitted so a good number of questions plus we had another question come in so go ahead and get started the first question as I’m 80 and retired can I contribute to health savings accounts as a tax savings vehicle? 

So, typically and again we’ve talked about this before but think of it is there’s really we’ve talked about three tax buckets but in reality, there’s four. And we’ll talk about why that fourth one is more of an issue these days but think of it as we have taxable accounts we have tax-deferred and then we have tax free taxable accounts would be like checking savings money market brokerage accounts tax-deferred are your typical IRAs 401ks for three b’s tax-free would be things like Roth IRAs and 401ks cash value life insurance health savings accounts 529s right and now here’s that fourth bucket that has become more of an issue recently and we will call this tax free plus because when we talk about the tax free bucket we’re talking about it being income or growth tax free but when we talk about tax free plus we’re talking about estate tax-free. And so one of the questions was getting into this idea that estate taxes might drop or the estate tax exemption might drop so everyone is so focused on Roth IRAs because Roths grow tax-free, but keep in mind Roths are not estate tax-free so if you leave a Roth account to the next generation understand that depending on where estate taxes go, those might be taxed at the estate level not at the income level but at the estate level so that’s where we’re looking at things like irrevocable life insurance trust so life insurance again IUL can be estate tax-free depending on how we set it up and there are also some charitable options as well now getting back to the question here. Can we do a health savings account which is a tax-free growth vehicle if I’m 80 and retired? Typically, health savings account you will not be able to contribute to those once you’re on medicare once you’re over the age of 65. So, if you’re looking at moving money from the tax-deferred accounts then typically the big ones we look at are Roths and IULs, okay 529s maybe make sense but really typically we’re looking at doing like Roth conversions which may or may not make sense and again the Roth conversion is not the end-all-be-all. 

There are other options to move the money to tax-free or tax-free plus, so again if you’re 80 and retired can you contribute to an HSA no instead I’d look to doing Roths maybe life insurance probably not life insurance just based on age so most likely would be a Roth if you are 80 and retired. A question that just came in let me just go ahead and answer this the question is. What is the best way to get started with you if you want a comprehensive plan? With all the associated legal documents do you recommend in-person visits or do you zoom calls with potential clients so the best way to get started is to contact our office give us a call or shoot us an email phone number is 844-885-4200 email just reply to one of the emails or the email that invited you onto this? And then what we do is we send out a short personal information form, it’s only about four pages just gathering some basic information and that’s really our starting point and then from there, we have a conversation a lot of times we’re doing zooms just like this. 

I’ve done two-three zooms today I think where you can be in the comfort of your own home we figure out where you’re at figure out where you wanna go and if there’s a gap we talk about how to close that gap. So just give our office a call and we can schedule a time that’s convenient to you to get started on this it’s a lot of questions where you ask me questions I ask you questions we figure out what are your goals we figure out the best strategies to help you achieve the goals and then we kind of pick the right tools maybe it’s a Castle Trust, maybe it’s a revocable trust creating that legal structure a lot of times that makes the most sense so hopefully that was helpful all right number two I have a Castle Trust. Do Roth conversions make sense so let’s talk about that Castle Trust again so typically we kind of have three types of trust that we do in our office we have a basic revocable living trust we have a revocable living trust we call it a legacy trust and then we have a Castle Trust so the revocable trust what it does avoids probate all right distributions legacy trust does that but protects the kids it protects your beneficiaries giving them the opportunity for a lifetime of asset protection Castle Trust does all of that plus protects you from two things one would be creditors or lawsuits the big one for a lot of my clients is long-term care costs so keep in mind each one of these kinds of builds on each other right so one of the things to think about with that Castle Trust is to understand that the Castle Trust to build in the protections it needs to own the asset? 

So it needs to be the owner of the asset so it needs to own your homeowner that second piece of the property owns that business you might have but then it needs to own the investment accounts. And so getting back to what we’re talking about up here if we’re looking at minimizing taxes we kind of do have a two-step process first how much to move right how much do we move out of those pre-tax accounts. Okay and we look at your tax brackets right now if you’re like a lot of our clients maybe a hundred thousand dollars worth of income in retirement that puts you in the 22 tax bracket, we fill that up with about eighty thousand dollars we can move and then moving it to the next level. A lot of times we might want to get into the next tax bracket which is 24 percent. So I was sitting down with a family last night or yesterday they had about a hundred thousand dollars of income we talked about potentially moving two hundred twenty thousand out of those pre-tax accounts to something tax-free because we know their 22 tax brackets going up to 25 whenever the tax cuts and jobs act ends. 

So we calculate how much to move in that situation they had two hundred and twenty thousand dollars now the kind of Susie Ormond the very general recommendation is just to do a Roth conversion right and that’s where I get into the kind of these levels of like planning that you can have. So at the most basic level, you have your vendors like your vanguards of the world your fidelities of the world even on the estate planning side we see just your basic estate planning attorneys, you walk in there you get a revocable trust they send you on your way on the investment world. It’s like the fidelities okay you’re looking for a mutual fund they give you a mutual fund vanguards they give you an investment account that’s low fee right but it’s more for do-it-yourselfers and then a step up from there would be kind of your investments or your broker-dealers I don’t want to get into naming names, but these are kind of financial professionals who just talk to you about your investments and they’ll say hey I recommend you do a Roth conversion but they don’t really give you any tax planning advice. 

They don’t give you any real holistic advice and then what we’re talking about is really holistic comprehensive advice, that’s taking into account legal financial and tax planning right and so the basic answer that you’re going to get from these people if you’re concerned about taxes does a Roth conversion right and I’m not anti-Roth conversion, I’m just saying there are other options that may be a better fit for you right and so understand that the, if you have an asset protection trust, understand that we can only invest non-qualified funds or say cash value life insurance what that means is your pre-tax IRA or your Roths are going to be outside of that Castle Trust because they’re qualified accounts they have to be in your name. So, like the family I was sitting with yesterday instead of doing a Roth conversion because that money is not going to be protected we’re moving that money or we’re looking to move that money into and out of the IRA or the 401k. 

The pre-tax accounts what we’re moving it into is a brokerage account that’s invested inside of the trust as well as we talked about doing cash failure life insurance that’s invested inside of the trust so in their situation a Roth IRA a Roth conversion didn’t make sense and again it’s there’s like basic answers that are kind of general advice when you go online or you talk to kind of a vendor or someone who’s going to just talk to you at a very basic level Roth conversion makes a ton of sense and I’m not saying not to do Roth conversions but I’m saying there’s other things to consider other things to think about so if you do have an asset protection trust maybe do a Roth conversion if you think you’re going to use that money soon but if you’re really looking at protecting the money maybe we look at in terms of legacy planning like life insurance inside of the trust that you could access in the future or even a just a brokerage account that’s invested inside of the trust versus the Roth conversion so again Roth conversions are great it’s a starting point. 

But it’s not the magic wand, it’s not perfect for anyone, and really anything that we’re talking about again you need to see how it applies to your own specific situation and that’s why really this is what we’re talking about is how does this any decisions we make how does it affect you from a legal financial and tax standpoint. Not just what is the best rate of return I can get but what is the best move overall because all these pieces are connected a couple of follow-up questions so a brokerage account inside of the Castle Trust is still an IRA no an IRA is an individual retirement account that has a very specific tax qualification. 

So keep in mind that like you might like XYZ mutual fund that’s inside of your IRA we could do XYZ mutual fund inside of the Castle Trust, okay an IRA is like a wrapper okay it’s a pre-tax wrapper okay so if you really like whatever investment you have in your IRA we take it out of the IRA we pay the tax and then we invest in the same exact thing, but now it’s owned by the Castle Trust and you can have it invested at the same exact place so if you’re dead set on using Schwab or TF Ameritrade or Vanguard we could have A – an account that’s now owned by the trust that’s asset protected that’s a brokerage account but now it’s outside of the wrapper of the IRA, which is important because the IRA anything you pull out of there is taxed and then B – now it’s invested inside of the trust and it’s protected here’s a question – will you claim income and pay tax on the investments inside of the Castle Trust? 

The answer is, it depends on the assets inside of or the investments inside of the trust if we’re to do it inside of an IUL it’s completely tax-free if we’re to do it in a brokerage account. You might have capital gains maybe but there are ways that we can structure it so it doesn’t have any type of tax impact and there’s a variety of reasons or a variety of ways that we can do that one we can look at things that are still tax-deferred that get a step up in basis upon death. So, Joe to answer your question maybe but if taxes are a concern, the first thing is to understand it’s not going to be tax or ordinary income tax rates. So if you put in a million dollars into the Castle Trust and then you pull out that million dollars zero tax on that okay the only potential tax would be on gains but there’s still ways that we can mitigate that so if being completely tax-free is still important we can still do that inside of a Castle Trust, it’s just that we do it inside of the wrapper of the trust versus inside of the wrapper of IRA or in your name.

Another question – do qualified accounts IRAs and 401ks receive any asset protection in Michigan outside of a Castle Trust? They are protected so these are your IRAs your 401ks they are protected from creditors your IRAs are protected up to a million dollars and change your 401ks have no limit on the creditor or bankruptcy protection but there is zero asset protection from long-term care so if you were to need a nursing home or Medicaid keep in mind and this is why a lot of people look to move money out of those iris 401ks long-term care could eat up those accounts right? 

So, again people are moving money out of those IRAs for two reasons one they’re not protected from long-term care to taxes going up in the future. Okay so no your qualified accounts are not protected from long-term care costs in Michigan they are protected from bankruptcies not protected from long-term care costs all right number three so that is number two number three can you give your first impression of the sanders senate bill reducing estate and gift tax exemptions. 

Yep so I don’t like to I don’t like to spend too much time on proposals. Well, one more question before I get into it if you want to put an IRA new Castle Trust you have to pay taxes before so yes so anytime you move money out of IRAs you’re going to have to pay tax. We call this the always tax bucket and here’s the thing we know taxes are going up in the future so just from a tax standpoint I have a lot of clients where we’re moving money out of the IRA paying the taxes. Now it’s like ripping off a band-aid you don’t want to do it but it’s going to save you further pain in the future. So you pay the tax on the IRA it makes typically good sense from a tax perspective and then second now we can get in the Castle Trust where it’s protected okay all right. So number three so we have this estate tax proposal. One thing I like about this I think it’s only 19 pages versus the last coronavirus relief act which was 5000 pages.

But I don’t like spending too much time on proposals especially if it doesn’t really have everyone’s support but there is a proposal right now and the main thing is with regards to estate and gift taxes and this really is especially if you’re concerned about these things this is a huge huge huge opportunity. Okay if you have an estate tax issue and this is a huge opportunity and it’s a window of opportunity. So here’s the thing right now we have an estate tax exemption that’s called the unified credit and it looks at estate taxes as well as your lifetime gift taxes. So how much you gift away right now this exemption is at 11 million dollars. So over your lifetime, you can gift up to 11 million dollars without paying any gift taxes, and then when you die whatever you leave to the next generation as long as the amount you’ve gifted plus what you leave to the next generation passes with zero estate tax zero gift taxes. You still have to worry about income taxes like pre-tax IRAs and 401ks. But we have this exemption now when the tax cuts and jobs act expires which is scheduled for 2025 could be sooner could be extended. This amount is dropping down to 5 million dollars and then Bernie sanders. This came in the senate recently wants to even lower it to three and a half million dollars. All right so the first thing to think about is okay if I add up the value of my home my pre-tax account my raw fire rates again Roths are not estate tax-exempt add up the value of all of this my life insurance. If it’s not in it islet irrevocable life insurance trust if it’s not over add all of that up if it’s more than 11 million dollars.

We need to consider estate taxes. If it’s more than five million dollars we really need to consider it. If it’s more than three and a half million we really really really need to consider. What is your estate tax plan and here’s the thing? So we have this window of opportunity and we have a private letter ruling from the IRS because there is a question. Because we know this estate tax exemption is dropping down to five million and maybe even three and a half million. And it’s not just estate taxes it’s also gift taxes. So what happens if you gift million dollars right now but then the estate tax exemption drops down to five million in the future. Have you lost all of that well what they’ve said what the IRS said is that when you gift so let’s say it’s going to drop down to five into three and a half?

So let’s say you had an 11 million dollar estate. Could you gift six million dollars right now what happens when the estate tax exemption drops to five million? Well, what they’ve said is that money that you’ve gifted would be free and clear and already out of your estate. So they’d grandfather that in. So I had a discussion with clients just ballpark things they had six million dollars right and now with this estate tax exemption potentially dropping to three and a half million in the future. What we talked about is they could gift say 2.5 million right now we would put this into what’s called a family inheritance trust. So it’s out of your estate they could still control it and then they could control the spigot where if they wanted while they’re alive and well. If they wanted to get this money to the kids they could do it but what we did by doing this now before the estate tax exemption drops we’ve removed three million dollars from their estate.

So that if that estate tax exemption does drop down into the future we’re grandfathered in. So if you do have an estate that’s greater than say three and a half million dollars this might be some strategy. Just one potential strategy we might want to look at based on the fact that this new bill that’s proposed is going to take that 11 million dollar exemption. And now it’s going to potentially lower to three and a half million. And so there are some things we want to do now to take advantage of this window of opportunity. More advanced and complicated but if you do have an estate adding up the value of your IRAs. Your 401ks your real estate your Roth accounts if it is greater than three and a half million dollars based on this proposal we might want to consider doing some things this year because this could be in effect as soon as next year. So that’s that opportunity and window of opportunity that I’m talking about.

The question came in do you do the funding over a period of years to go into the higher tax bracket or in one year to pull it all out of the IRA and put it into Castle Trust. So again this is where we get into the art and the science and the arts. The first is how much do we move second is where do we put it and really it starts with what your goals are. I have like a client’s husband and wife. Wife’s diagnosed with dementia super concerned about long-term care. We liquidated the whole IRA in one year granted. We paid more taxes but we wanted to get in the Castle Trust to start that five-year clock. I have a lot of clients who just retired and so we’re going to do the pull the money out of the IRA over a series of years as we’re funding the trust. So right off the bat, they have 25 in the trust 75 out, and then the goal is in five years they have a majority in the trust and a minority outside the trust. So Vicky to answer your question it really depends on what your goals are.

That’s kind of where some of the counseling comes into play of what your situation is. Another comment I have a sister who could really use the family inheritance trust her net worth is we won’t get into it but she lives in Florida. Can you help her the answer is yes so one of my colleagues is actually licensed in Florida and he’s in Michigan with me so we can do estate planning for clients who are out of state? So yeah more than happy to help and again what we would do is start with just that initial conversation to figure out what are the goals and minimizing estate taxes is one of the goals. We’ll talk about that and then we’ll develop the best strategies. This is just one of the strategies and then we’d pick the right tool so maybe that family inheritance trust is the tool that we choose. But again we’d walk them through first what are the goals. Let’s pick the right strategies maybe there’s a charitable interest that might change some of the tools we might use and then we pick the right tools. Can you have more than one trust at a time, yes you can! So you might have your basic revocable trust.

Then you might have a family inheritance trust. You might have an irrevocable life insurance trust. Maybe we have a Castle Trust. Maybe you have a child with special needs we would set up. Maybe a third-party special needs trust. So I’m not a big fan of adding complexity unless we need to. So yes we can have different trusts or multiple trusts but first again we’d have to figure out what is your goal what are the strategies and then pick the best tools and maybe based on what your goals are. We might have multiple trusts so this family inheritance trust would be typically another trust on top of whatever other basic estate planning we might do. All right that brings me to number four plowing right whoops nope that’s not what I wanted to do we want to talk about number four. Number four should I do a Roth or a lerp given my taxes might go up. So lerp this is an acronym created by a friend and colleague of mine stands for life insurance retirement plan. Whoops, life insurance retirement plan really all this is is IUL it’s cash value life insurance. And again we talked about if you’re looking at pulling money out of the IRAs. Where do we want to put it typically we have kind of two main options. We look at doing Roth conversions or we might do cash value life insurance. So as we pull money out of the IRAs if we’re looking at something tax-free we might go, Roth, we might go IUL also we might just go plain investment account as well okay and it really just depends on what your goals are. I would say Roth typically if you want income right away or sooner.

IUL would be income more of a death benefit also this could be long-term care benefits as well plus it could be estate tax-free a brokerage account or investment accounts advantage. Here it’s very liquid can be in the trust just like IUL can be in the trust. So again it’s let’s figure out what your goals are and then pick the strategy and tools but a lot of times it’s some combination of both. So I have some clients that like let’s say we’re moving a hundred thousand dollars out a year maybe a hundred thousand goes to Roth and a hundred thousand dollars fifty thousand goes to Roth fifty 000 IUL. It really just depends on what your plans are. Here’s a question are you an affordable lawyer or cream of the crop that people can’t afford. What is the usual fee range for a typical estate plan? Really it depends and so we have different plans based on what you’re looking at doing. I would say we’re comfortably expensive but that said it’s not tied to the size of your estate or your net worth or anything like that. It’s really just about what your goals are. So we have plans starting at maybe a grand to over ten thousand dollars and it just depends on what your goals are it’s not tied to your estate or your assets. I’ve had clients that had a home and fifty thousand dollars and they wanted to set up an asset protection plan. I’ve had clients that have two and a half million dollars and they just want to avoid probate and do a simple will-based estate plan going outright to the kids. So we work with clients kind of wherever they are but that said I would say that we’re comfortably expensive in the sense that we’re not just going to give you some cookie-cutter type plan.

We want to figure out what are your goals figure out the best strategy and then pick the right tool. If your number one concern is price working with us isn’t going to be the best option. You can go online, go to legal zoom and download trust for probably fifty dollars right. But if you value protecting everything that you’ve worked so hard for and you want to work partner with someone who will help protect that from probate or long-term care costs or lawsuits or taxes then we might be a good fit. But if the price is your number one concern I’ll probably say we’re not going to be the best fit because we’re not looking to be the cheapest out there. We’re looking to make sure our clients achieve their goals. Another question can you explain IUL for long-term care how does that work. Yeah, so when we’re setting up an IUL policy and again I don’t like to get too much into specific tools because I don’t want it to come off as like I’m trying to sell you on something. But that said this is a complicated tool so when we’re talking about IUL kind of think of it as a pie okay and depending on how we structure it can provide different benefits depending on what your goals are. But typically when we’re looking at this pie it can be split up into different things. So one would be income so tax-free income, Okay, so, if you want tax-free income in retirement we can structure the IUL so it can provide tax-free income.

Also, it could be set up as a legacy play right. If you look at your investments and everything you’ve accumulated and say hey you know what there’s going to be some portion that I’m not just going to need during my retirement and I want to leave more money to my kids or grandkids. Then just kind of thinking big picture every dollar you put into this could be two dollars of tax-free death benefits to the kids or beneficiaries right where we get the leverage of life insurance right. So yeah we could do Roth conversions and now you have a hundred thousand dollar Roth going to the kids which are tax-free but depending on your age and health. And again this isn’t just for young kids this is I have clients who are 65 70 and older doing this. If we can leave instead of a hundred thousand dollars a million dollars to the kids inside of a Roth. But instead, now it could be two million tax-free that could also be a state tax-free. We’re creating some leverage there so it could be a legacy plan or we could also add in long-term care benefits. And so typically what happens is that long-term care benefit or death benefit could double as a long-term care benefit. So if let’s say we have a million dollars worth of death benefit depending on how we structure this policy that million dollars could go to the death benefit or the long-term care benefit. Where if let’s say we needed five hundred thousand dollars of long-term care benefits during our life. That means of this million-dollar pie now there’s going to be a death benefit going to the kids of whatever’s leftover to that. So it’s a way that we can leverage for not only long-term care but also death and so what we do when we’re utilizing IUL if that’s going to fit into the strategy is we prioritize. Okay, what’s most important is the most important thing tax-free income okay. Then we’re going to structure the policy differently and maybe we don’t add on that long-term care benefit and more. It’s more geared towards having this like tax-free death benefit or tax-free income benefit or I was sitting with some clients yesterday they were fine in terms of income. So really we structured their entire policy more for a death benefit. So that we’re maximizing the death benefit right. So there are different ways we can structure it based on what your goals are. So that’s a short explanation of IUL. All right number five if a person has IUL for 30 years then decides they don’t need their life insurance. Can they cash it out the answer is yes.

Assuming it is truly IUL, there’s a lot of different types of permanent life insurance some of them do not have any type of cash value. But even like the policy, I showed some clients yesterday who are only interested in death benefits. If they decided to change their mind so we’re setting up this death benefit to be invested inside of the Castle Trust or the IUL. To be inside of the Castle Trust and we structured it for a death benefit for the kids because they said you know what we have enough wealth to see us through retirement. So let’s carve out a portion to give the kids two dollars on every dollar invested and do it inside of the Castle Trust. But the way the policy is structured if they change their mind they still could pull the money from the policy in the future. So typically the way we structure it is you can always pull the money if you wanted in the future. If you’re looking for growth would you recommend FIA or brokerage accounts? FIA stands for fixed index annuities. There are lots of different types of these a lot of the ones in the past were more geared towards income but I see a lot of people moving forward with growth ones. So this gets into what I call the pick 2 conversation and again these are just tools it’s all about figuring out what your goals are.

So any investment really has two out of three characteristics. So first would be growth most people want their money to grow. The second would be safety you don’t want to lose your money everything you worked hard for and then third you want liquidity right we don’t or we want to get access to our funds if you think about it any investment really has only two out of three characteristics. So safety and liquidity think of this as money as you that you have in the bank sitting and checking savings. We call this your now bucket of money think of it as money you might need over the next year. So this should be like your checking savings account money. Markets any cash right it’s not growing but it’s good for emergency funds it’s good if you have any big expenses over the next year et cetera. But I wouldn’t have anything more than that sitting in cash okay because you’re missing out on growth. It’s not even keeping up with inflation then we have grown in liquidity. This is investing money in the market right we use TD Ameritrade as our custodian so TD Ameritrade and we can put together aggressive portfolios. We can put together moderate portfolios we can put together conservative portfolios but typically this is going to be in the market and you’re going to see some type of variability right. A lot of people look at well what if the market drops we’ve been on a 12-year bull run I want safety etc. So then the other option is we can have money that’s geared towards growth and safety but we have to give up a little bit of liquidity.

In so short term we have things like CDs that are typically on a one to two-year time horizon. You might be getting a one to two percent rate of return on these right now. Just not a good investment because fixed interest rates are so low right. Like I see people refinancing at two three percent for their mortgage okay that’s the positive of low-interest rates. The downside is these fixed rates you’re getting hardly any benefit. Likewise, we have what’s called multi-year guaranteed annuities these are typically on a two to five-year time horizon. You might be getting say two to three percent rate of return okay. Now both of these are strictly fixed okay meaning whatever that contract says that’s going to be the rate and it might be 2.25.

So you’re going to get that over that period of time which keeps up with inflation maybe but really not much more than that. And then this is where we get into FIAs or IULs and here you’re going to see a fixed rate or not a fixed rate of return. It’s going to be tied to the index but on average you’re going to get a five to eight percent rate of return. Okay and if the market’s going kind of up and down with these typically they index every year every couple of years. So you see growth more like that and so typically we want to have our now bucket of money. 

So how much do we need maybe over the next year or emergency fund and then everything else. Typically is invested on one of these other lines okay and getting to the question FIA or brokerage account really it’s a combination of both. Because with the FIA typically you’re looking at the rate of returns of anywhere on average over the last 10 20 years five to eight percent. But I was looking at FIA with the client yesterday not that it was doing this every year but one year it got a 40 rate of return right and it has that downside protection okay. So yeah I think FIAs or IULs could be a tool and I’ll caution you there’s a lot of people that sell all they do is sell that and so for anyone that walks in their door as I talked about over here. All they are is they’re a vendor like if you go to your bank or you go to a lot of these quote-unquote financial planners who aren’t attorneys they aren’t investment advisor representatives. They’re not true fiduciaries they’ll sell you an FIA or IUL but it might not be in your best interest. So again I want to focus on goals. Then develop the strategies and then get into the tools is an FIA geared towards growth.

A tool that may make sense yeah but let’s make sure it fits into your overall plan okay. Before you just rush out and get one from your banker or someone that gives you a dinner seminar and everyone that walks in their door gets a FIAor they’re trying to pitch you on IUL. And we see this in the attorney world where you walk into some of these just basic estate planning attorneys everyone’s gonna walk out with a revocable trust whether they need it or not. And I’ll tell you I think a lot of basic revocable trusts are oversold by a lot of attorneys because we can accomplish those goals sometimes without even using a trust. And again it gets into your goals strategies and then tools. Comment you know your stuff Glendale found you thanks I appreciate that. Another question this was the first one does I ever recommend ladybird deeds and payable on death or tod over other ways to designate beneficiaries. Of course yeah so and this is actually exactly what I was talking about. We don’t always need to use a trust like if your only goal is to avoid probate. Then we need to just focus on avoiding probate and we need to understand the state administration. And there are four ways assets transfer out of your name. The first would be joint ownership. This is good for married couples but don’t ever name your kids joint to your real estate and stuff like that because you’re opening yourself up to all the liabilities. The second would be beneficiary designations, okay these are your tods or transfer on death so transfer on death payable on death naming beneficiaries of your life insurance 401ks IRAs. It goes outright to whoever you’ve named third would be through a trust. And again not everyone needs trust it depends on what your goals are. But if an asset doesn’t pass through one of these first three ways. Then it ends up going into probate and that’s what like that’s everyone’s baseline. As it comes to estate planning is we don’t want to things to end up in probate because it’s a five-month process at the very least. 

At minimum, three to five percent of any assets typically get eaten up in fees. Plus it’s public anyone can see what’s going through probate. So most people want to avoid probate at the very least all right. So can you do it without trust, yeah but the concern is then you’re just giving things outright to your beneficiaries? And then if they get a divorce a lawsuit creditor action bankruptcy then whatever you’ve left them could be lost right. So with a trust, one of the main reasons people look to moving to a trust is that that trust can build in a lifetime of asset protection for the kids. So they can be protected for their lifetime from creditors. They can be protected from a divorce right. We don’t want that money to go to an in-law if there’s a divorce and we can keep the money in the family. Right so if one of your kids passes away we can make sure the money flows down to the grandkids. Truly that’s only going to be available depending on how the trust is set up. So no to avoid probate we don’t need to do a trust and that’s what I was talking about is I have I had clients 2.2 million dollars but they said you know what we’re going to just rely on beneficiary designations and everything. 

Have everything go all right to our daughters their daughters were in their 20s and they said you know what we’re gone I don’t care. And again it’s not my job to tell you what you need to do if you’re comfortable and you don’t want to build in that asset protection for the kids. Then we can do it through beneficiary designations. I’m not judging my goal is to educate you on the options. Figure out the best strategy and then pick the right tools. So no we don’t always have to use a trust. In fact we don’t always use a trust okay. Mike, I see your question that’s gonna take me a second to read. Phil your question if I currently have an fia can I move it to one of these without paying surrender charges. So with fixed index annuities depending and some other investments depending on when you get it. 

There might be a fee to get out of it. And so depending on when you got it. You might have to pay a fee but depending on how well it did. That might be a negligible easy word for me to say or there might not be any fees plus depending on what we move it into. There might be some bonuses where it makes it more attractive with the bonuses and the improved rate of return versus where you currently have things. So if you already have said a fixed index annuity or specific investment before we ever move anything we always figure out where you’re at and then figure out where you want to go. And then we’ll talk about the pros and cons of engaging in that strategy. So I have a client I have one client who had about seven different accounts. She had a lot of old high fee variable annuities and it just made a lot of sense to get out of those. Okay but that’s where we always look to see where you’re at figure out what you want to do and then we weigh the pros and cons. All right here’s a longer question the iuo cash value is tax-free when it’s withdrawn. However, you’re paying a tax in the form of fees you mentioned. Eight percent rate of charge. My question is there a study showing the difference in portfolio value investing in s p versus IUL. 

Okay, so the question is comparing ie well over time versus an investment. Let me share another screen so give me just a second. And again there are no guarantees with these and again past performance doesn’t equal like future performance blah blah blah blah but I’ll tell you I have an IUL this last year. It has the downside protection but gave me an eight percent rate of return which is pretty darn good. Considering it has downside protection let me find I have a graph, let me see if I can find that. While we’re talking here and while I’m doing this if you do have any further questions because I’ve covered all the questions submitted. Please make sure to put the here we go put those in now. All right so what I’m going to do is I’m going to share a screen that talks about IUL with downside protection over the last 20 years. 

Compared to the s p 500 and again I’m not sharing this and saying that you should rush out and get IUL or get some type of fixed product. I’m just trying to educate you on something that maybe you’re not as familiar with and also answering your questions. So this is showing an IUL that has an 11 cap. So if the market goes up 20 you get 11 if the market goes down you don’t lose anything. And this is taking into account any fees near mortality expense etc really just looking at this as an investment. And I 11 cap they have lowered the interest rates on these, for example, I was working with a client yesterday and right now they’re offering a 10 and a half percent cap. Where if the market goes up 12 you get 10 and a half if the market goes down you don’t lose anything if the market goes up to six you get six. So there’s no like spread or anything it’s just a pure cap but if we were to compare the s p 500 over the last 20 years and this is as of 2020 the red line is s p 500. 

So someone asked me the other day has the market went down two years in a row the answer is yes. So you see that in 2000 in this situation the IUL would have given you zero but then as you see the rebounding you’re going to get the caps. So your IUL will continue to grow just like the SMP would continue to build itself back up over time. They’ve actually ended up being about even but if you look at it because of these downturns anything that has indexing typically it’s going to outperform say the smp. And then the big concern here is that we’ve gone on basically a 12-year bull run from 2008. We did have that drop in march we did rebound 119 days later but there is a big concern that if you looked at since 2008 we’ve been on this bull run. 

There might be another drop coming right and so whenever you see the drops that are really where anything that has that I as part of the investment like IUL or fia that’s where it’s going to typically outperform. Just having the money in the market and again I’m not saying this is the end-all-be-all but just like in my own situation. Just like the way that you should be thinking about investing you should be looking at diversification right so you wouldn’t have all your money in just one stock. Typically right if you had all your money in Enron and then and around goes down you just lost your entire retirement right. So also think about diversifying the investment classes right maybe we shouldn’t have everything in the market. Maybe we should diversify also look at tax diversification. Maybe we shouldn’t have everything sitting in pre-tax accounts. Maybe we should look at diversifying between tax-free tax-deferred and taxable. So just some things to think about a couple of questions and comments I know my FIA does not give me the dividends just the price return. So it lags behind the s p 500 is that true for IUL. So keep in mind anything that has indexing you’re not going to get dividends because there is no dividend. You’re not actually investing in whatever that stock or investment is. What that’s going to do all they’re doing to minimize fees is they’re going to look at how the index performed and that it’s almost just like a scorecard okay. The s p is up 10 and your cap is 11 you get the 10 okay. There’s no dividends it’s not like you’re investing in these stocks okay. And so I see a couple of comments talking about dividends and that type of thing. So there are additional fees to keep in mind with regards to anything invest in the market. 

So yeah you might get dividends but also you’re going to have expense ratios that are eating away at your returns they are eating away your returns. And anything in the market right so any anything invests in the market typically you’re going to have an expense ratio anything. And typically we try to get it lower than a half percent but especially when we’re doing reviews with clients and they have their money elsewhere especially at some of those vendors. Some of those second-level brokerage or wirehouses or a lot of those places that might have just like two names or something like that. A lot of times we see expense ratios over one percent and that’s something that you’re not going to see in these fixed index products. And again I’m not trying to push you in that direction I just want to make sure we truly understand it because there’s a lot of confusion there’s a lot of misinformation. So that’s answering some of those again you’re not going to get dividends with this but you’re not going to have the investment or expense ratios either in iu IUL. You have to invest five-seven or ten years yeah typically when you’re investing inside of an IUL. You’re going to want to look at not touching that money for a period of at least 10 years the reason for that is you want this money to grow inside of this tax-free environment. Plus with IUL there is a mortality expense that has to go to that life insurance or death benefit component even if we try to minimize that we still have to have that. So that it still fix fits into section 7702 of the tax code. 

So it still qualifies as tax-free growth so even if we’re minimizing that death benefit the first couple years that you put in is going to go to cover the mortality expense but then you’re going to get the cash value growing with every annual amount you put in. And then you’re going to get the compounding inside of this tax-free environment FIA return chart after-tax yeah. So if we’re looking at a fia after-tax let me pull one up. Where is it that they’re making me dance here? I don’t have these handy ah let me see them again. Get any other questions you have while I’m sitting here look up here we go. Let’s see when this one this might not be updated all right. This is going to be similar. So this is looking at a fixed index annuity that has this one does not have a cap this has a participation rate. So give me a second so again similar situation here we’re looking at a fixed index annuity versus s p 500 here instead of a cap. We have a 40 participation rate so if the market goes up 10. You’ll get four if the market goes down you don’t lose anything. And again this is running from 2020 similarly to March 31st. I’ll tell you why these are picked by the companies. 

Is because this is at the dip all right so if you see this dip that happened in march understand that it came back about 119 days later. So just take that into account take it with a grain of salt but again if you look over time you see that it fits nicely into just diversifying it’s diversifying against market risk right. And especially this is a great opportunity when you look at bonds okay. So a lot of people have this 60 40 portfolio that they think is the magic bullet well guess what you and you can if you do the research on your own or I can send you some research actually do the research on your own. But bonds are not performing very well right now because of interest rates being so low. And there’s a lot of research right now to say that bonds aren’t the perfect hedge against equities. That they have were in the past so that 60 40 portfolios that a lot of people especially that kind of do-it-yourselfers think is a magic bullet. Guess what those bonds are underperforming and they’re not the perfect hedge to equities than they have been. So a concept would be okay that 40 that we put into bonds. What if we put it into an alternative something like this that we’re gonna has upside potential. It’s a hedge against the volatility of the market but now we’re gonna it’s gonna perform better than say bonds will. So that’s again that’s a strategy where maybe this tool makes sense. And again I’m I’m putting the cart before the horse because of the questions that have been asked like people are asking me specifically about FIA or IUL. So I’m talking to you about those I’m not saying it’s perfect for everyone or a magic bullet. There are no magic bullets but it just might make sense depend depending on how you want to diversify things. Okay last question here with insurance companies offer FIAs to pay the brokerage agent commissions. Obviously, insurance companies incentivizing these investments for their own benefit but it seems motivated and non-qualified FIAs are tax-deferred as well yep all right. So let’s talk about fees all right so this is a common question and yes you have to be careful who you’re talking to or where you’re getting this because there are going to be people that will sell you things just to make money. Right those are your vendors okay again you’re going to have your vendors the people at the bank these are not fiduciaries. They’re trying to sell you something sell you a cd sell you an annuity. 

So you omega some estate planning attorneys they’re just off to sell you something right. They’re going to sell you a revocable living trust whether you need it or not that’s not at all our our approach. Let me share my screen okay again. So we have our vendors yes there are plenty of vendors that’ll sell you a fixed index annuity make a commission and call it a day and never talk to you again likewise you can see similar things in the investment world as well. That’s why we think it’s important to work with the fiduciary work with someone who has your best interest. But here’s the thing to be honest if we’re working together we get paid less on a fixed index annuity or IUL than we would if we were to manage money in the investment.

So typically pulling back the curtain on the investment world there’s two ways people get paid because obviously, no one out here is a non-profit right. So a lot of times people and we’re no different we charge a fee for assets under management. If we’re managing money in the market we charge a fee plus there might be an expense ratio. I’ll tell you for any money in the market a lot of times when people are coming over from some of these vendors when we add up the assets or management plus the hidden expense ratios you might be paying a two percent fee on that per year. Okay, commissions on an insurance product might be say six percent okay. Here’s the thing this two percent that you’re paying on money in the market. So this is like I’ll name names Merrill Lynch, Edward Jones Ameriprise right they’re gonna charge you a fee for assets under management plus there’s gonna be expense ratios based on fidelity even expense ratio based on the types of investments. And sometimes we see this as high as two percent one of our goals is to minimize this as much as possible but understand this is two percent a year okay every year okay. So I don’t have time to do the math but if you have a million dollars two percent every year what is that going to come out to versus a fixed product a lot of times this is a one-time fee okay. So we get paid more on this side of the equation because we have long-term relationships with our clients. Now here’s where you have to be careful like I talked about where are you getting your advice okay. Vendors a lot of times it’s like a one-and-done they just want to sell you something and then they’re gone right. So I had a client who they were sold an annuity probably 10 years ago they never heard from the guy again. So his goal is to sell something and then move on and then on to the next family and on to the next family right where they’re just selling a product okay versus our us we’re focused here we’re looking at relationships long-term relationships okay. 

So that’s kind of talking about the commission versus fees thoughts on performance-based brokerage fees versus standard management brokerage fee of say 75 or 0.75 percent. I gotta run I am sorry. So I’m not a big fan of let’s say performance fees I don’t think anyone can outperform the market, to be honest. I think they’re getting rewarded for not for something that’s to a certain extent outside of their control the rate of return we get on your investments are going to completely depend on what your goals are and how risky or how much volatility we’re willing to take on. So I don’t think performance-based investing or fees make a lot of sense. I understand where it’s coming from logically but just with my view of the markets and how illogical they are. What we do is we try to put together overall portfolios that meet your goals versus I’m not trying to get the best rate of return we’re not looking at hedge funds for our clients. A lot of our clients are very conservative they don’t want to lose what they’ve lost versus a performance-based fee that would be rewarding someone to maybe take on more risk than they really should in the portfolio. So I’m not a big fan of say performance-based fees all right. So with that I want to thank everyone so much I ran a couple of minutes long I do have to run I appreciate everything. If you do have follow-up questions feel free to bring them up either on the next call which we’ll do next week. Shoot us an email we can certainly sit down and see how this applies to you. Thank you so much make it a great week. 

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