RPF0622-Asset_Protection_Planning_for_Mere_Mortals_-_Part_8_-_Annuity_Values_and_Annuity_Payments_Exemption

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00:00:15.600 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:18.600 | skills, insight, and encouragement you need to live a rich and meaningful life now, while

00:00:22.760 | building a plan for financial freedom in 10 years or less.

00:00:26.080 | Today, our asset protection planning series comes back from vacation.

00:00:30.360 | It's been hiding out down in the sunny climes of the Caribbean, sitting on the beach, laying

00:00:34.520 | low, waiting for all of the storms and investigations to pass.

00:00:38.600 | But now, it's time to come back and get back to work.

00:00:41.160 | So we begin today with part eight, called Annuity Values and Annuity Payments, Exemption

00:00:46.400 | Planning.

00:00:47.400 | So for context, we're talking here about asset protection planning for mere mortals.

00:00:52.320 | And my goal in this show is to give you a lot of low-hanging fruit, some exposure to

00:00:56.480 | a number of strategies that are available to mortals.

00:00:59.660 | Not to somebody with $10 million, but to any person who's just simply building assets,

00:01:04.640 | accumulating capital, and thinking about how to protect that capital from the unique risks

00:01:09.000 | that you face.

00:01:10.880 | And so I'm trying to make everything very accessible.

00:01:13.540 | And annuities are an important component of that.

00:01:17.200 | We've been talking about exemption planning for the last few shows.

00:01:20.400 | And of course, exemption planning involves assets that are specifically exempt from the

00:01:24.440 | claims of creditors based upon US federal or state law.

00:01:29.040 | Apologies to my international listeners, but some of these concepts will come over.

00:01:33.960 | But you'll have to, of course, do the detailed research for your country, as well as listeners

00:01:39.760 | in each state.

00:01:40.760 | You have to research your own particular state.

00:01:42.600 | But we've talked about retirement account exemptions.

00:01:45.020 | We've talked about life insurance exemptions.

00:01:47.200 | We've talked about homestead exemptions.

00:01:49.320 | And today we continue with annuity exemptions.

00:01:52.080 | Now annuities are interesting creatures.

00:01:54.240 | I really love annuities.

00:01:55.720 | Not everybody does.

00:01:56.720 | I always chuckle.

00:01:58.280 | Clark Howard, a well-known financial broadcaster, just done a great job.

00:02:02.440 | I really enjoy his work.

00:02:04.080 | But Clark Howard calls annuities a four-letter word in his show.

00:02:07.240 | And I always chuckle when he says that.

00:02:08.640 | Because in a way, he's not wrong, but he's certainly not right.

00:02:13.840 | He's right about that statement in the same way that I'm right in making a statement like

00:02:17.800 | this.

00:02:18.800 | A dog is a totally worthless creature.

00:02:21.520 | I repeat, a dog is a totally worthless creature.

00:02:26.080 | Now is your dog worthless?

00:02:27.400 | Well, of course, that depends a lot on the context.

00:02:30.360 | A dog really is worthless.

00:02:32.040 | Of course, if you went out and tried to sell your dog, you really wouldn't be able to sell

00:02:36.440 | your dog.

00:02:37.440 | So of course, it's worthless.

00:02:38.440 | Except that you say, but that's not why I have the dog.

00:02:41.560 | I really love my dog.

00:02:43.200 | I like a lot of the things that I get from my dog.

00:02:45.480 | I get love.

00:02:46.480 | I get affection.

00:02:47.480 | I get plenty of licks around the head and shoulders.

00:02:50.040 | And so I like my dog.

00:02:51.280 | My dog is not worthless.

00:02:52.280 | It's an important part of my life.

00:02:55.200 | Well, your dog isn't worthless, but yet it still is worthless.

00:03:00.760 | Except, you know, some dogs actually can be sold.

00:03:03.240 | So they're not worthless.

00:03:05.200 | But even if you have an expensive dog that's not worthless, because you could actually

00:03:09.000 | sell it for money, the owner might still call it worthless, because it's just not doing

00:03:13.040 | its job well.

00:03:14.040 | So for example, you go out, buy an expensive guard dog, pay a lot of money for the training.

00:03:17.720 | You could sell it for a lot of money.

00:03:19.440 | Guard dogs are not cheap.

00:03:20.940 | But the guard dog prefers to cuddle up by the fireplace and is not too interested in

00:03:24.320 | ripping out an intruder's throat when you give it its attack commands.

00:03:27.120 | So that worthless dog sits around for years and you just say, man, that worthless dog,

00:03:30.680 | I spent $15,000 on that thing and it is totally worthless.

00:03:34.680 | Until one day that dog jumps out of its bed and saves your daughter's life by protecting

00:03:38.680 | her from a kidnapping attempt.

00:03:39.960 | Now, of course, it was bleary eyed and stumbling around from a little too much sleep by the

00:03:43.720 | fire, but it still came through in time of need.

00:03:46.840 | So your worthless dog turned out to be worth something after all to you.

00:03:53.400 | But because it won't attack on command, you can't sell it anymore because no one wants

00:03:57.440 | to pay top dollar for a bleary eyed guard dog that sits by the fire all day.

00:04:00.400 | So it's worthless after all.

00:04:01.520 | Now, it's maddening, isn't it?

00:04:02.960 | A statement like that, dogs are worthless, is a maddening statement because there's so

00:04:07.380 | many different directions that you could go with it.

00:04:09.960 | I've just scratched the surface on all the permutations that I came up with on that particular

00:04:14.520 | statement I made up.

00:04:16.320 | So let's save our dissertation on the relative worthlessness of dogs for another day.

00:04:19.800 | I just want you to think of that statement in the same way that you think of the statement

00:04:23.480 | annuities are a four letter word.

00:04:25.920 | It's expressing a truth.

00:04:27.040 | A statement like that is expressing a truth that's important for you to understand, but

00:04:31.400 | it's not a true statement.

00:04:33.160 | It's obviously not objectively explicitly true because annuities has 11 letters in it.

00:04:39.760 | One, two, three, four, five, six, seven, eight, nine letters, not four letters.

00:04:43.920 | So it's obviously not true.

00:04:46.120 | And it's not true that they're a four letter word in the metaphorical sense, but yet it

00:04:50.080 | is.

00:04:52.400 | And this is the problem with annuities.

00:04:54.000 | So let's start back to the beginning to add a little context so that you can figure out

00:04:57.880 | whether your annuities might be worthless or extremely valuable.

00:05:02.260 | What is an annuity?

00:05:03.260 | Well, you can think about an annuity in multiple ways.

00:05:06.680 | You can think about an annuity in terms of a pot of money and or a stream of payments.

00:05:11.920 | Usually when talking about annuities, we define an annuity as a stream of payments, a stream

00:05:17.340 | of payments that comes into somebody and it often comes in for something approaching life

00:05:22.580 | expectancy.

00:05:24.320 | In many ways, we talk about annuities as the opposite of life insurance.

00:05:28.080 | When you buy a life insurance policy, you make premium payments into that policy until

00:05:33.060 | the moment of death and then when the death claim is filed, that life insurance policy

00:05:37.560 | pays out a large lump sum of money to the stated beneficiary.

00:05:42.840 | So that's life insurance.

00:05:43.840 | Now annuity is the opposite because you can take a large sum of money and you can give

00:05:47.960 | it to an insurance company and they can make out a series of payments that come in each

00:05:52.120 | month until the moment of death at which time the payments stop.

00:05:56.000 | So one useful way of thinking about annuities is as a way of disposing of a large amount

00:06:01.280 | of money over the course of somebody's lifetime.

00:06:04.900 | But of course there are many types of annuities.

00:06:07.420 | There are immediate annuities and there are deferred annuities.

00:06:10.520 | There are annuities that come in for a fixed term.

00:06:13.200 | There are annuities that come in for a lifetime.

00:06:15.580 | There are annuities that come in for a lifetime and or a fixed term.

00:06:19.480 | There are annuities that come in for, that are calculated based upon fixed interest rates

00:06:24.040 | that are guaranteed by an insurance company.

00:06:25.740 | There are annuities that are based upon variable rates.

00:06:29.480 | And I don't want to go into a whole discourse on all the different types of product versions,

00:06:33.160 | but I want you to think about this in terms of concept.

00:06:36.600 | So back to corpus or stream of payments.

00:06:40.240 | With specific regard to asset protection planning, annuities that are a sum of money are valuable

00:06:46.560 | and also annuities that are a stream of payments can be valuable.

00:06:51.640 | Both of these can be valuable.

00:06:53.980 | You can take a million dollars and you can go to the commercial annuity marketplace and

00:07:00.680 | you can say to a commercial insurance company, here is a million dollars.

00:07:06.000 | You can deposit that million dollars into an annuity contract.

00:07:10.480 | It's an insurance contract.

00:07:11.840 | You can deposit the million dollars into the annuity contract.

00:07:14.880 | That annuity contract can sit there and then five years, 10 years from now, you can go

00:07:21.480 | back to that contract and you can take out your million dollars plus interest and do

00:07:27.920 | whatever you want with it and yet have it inside that annuity contract.

00:07:33.180 | That is one way of thinking about an annuity.

00:07:35.520 | I think of that as the corpus, the body of money that's just sitting there.

00:07:39.680 | And sometimes you don't have to decide in advance what happens with the money.

00:07:42.520 | You can just simply put the money into an annuity contract.

00:07:46.980 | Now on the flip side, you can think about an annuity in terms of a series of payments,

00:07:50.480 | a stream of payments.

00:07:51.840 | You can take that same million dollars to an insurance company.

00:07:54.640 | You can say, here insurance company, make payments to me for the rest of my life.

00:08:01.320 | And they'll say, okay, well based upon your life expectancy, we'll make payments to you

00:08:04.720 | of $800 every month for the rest of your life.

00:08:08.120 | That's also an annuity.

00:08:09.740 | But in that case, once you have that series of payments, you no longer have access to

00:08:13.040 | the million dollars.

00:08:14.400 | You have now the series of payments.

00:08:17.040 | It's important to point out, however, that both of these are valuable.

00:08:22.120 | It's valuable to have a body of money, a corpus of money.

00:08:26.400 | It's also valuable to have a stream of payments.

00:08:28.880 | Now when you think about your net worth, you usually think in terms of the body of money.

00:08:34.480 | And so you usually think in terms of that value, that corpus of money.

00:08:39.400 | But is that really the most important thing?

00:08:42.000 | Or are annuity payments more important?

00:08:44.360 | Ask a question.

00:08:45.360 | Who's richer?

00:08:46.360 | A 30 year old with a million dollars in the bank and no income, or a 30 year old with

00:08:51.400 | no assets, but a guaranteed $100,000 a year income for the rest of his life?

00:08:57.440 | Which 30 year old is richer?

00:08:59.040 | I repeat, a 30 year old with a million dollars in the bank and no income, or a 30 year old

00:09:05.680 | with no assets, no money in the bank, but a guaranteed income of $100,000 a year for

00:09:10.160 | the rest of his life?

00:09:12.160 | Which is richer?

00:09:13.160 | I should probably adjust those numbers a little bit because a 30 year old couldn't buy a million

00:09:16.520 | dollar with a million dollars, couldn't buy $100,000 a year.

00:09:20.160 | So let's just say it's $60,000 a year.

00:09:23.080 | Which is richer?

00:09:24.080 | You get the point.

00:09:25.080 | The point is that you can't answer the question because sometimes the body of money is valuable

00:09:29.840 | and sometimes the stream of income is valuable.

00:09:33.000 | Now here's why that's so important.

00:09:34.440 | When we come to asset protection planning, both of these strategies can be appropriate

00:09:40.320 | ways of protecting money.

00:09:44.120 | For example, if you have a million dollars in a bank account and you move that million

00:09:50.120 | dollars into an annuity contract, and if annuity contracts are exempt from the claims of creditors

00:09:56.800 | in your particular state, you have effectively protected the million dollars.

00:10:04.280 | And that can be very helpful in your overall asset protection scheme.

00:10:10.220 | Sometimes however, you can't do that.

00:10:13.800 | But you can take a million dollars out of your bank account and you can purchase a stream

00:10:17.840 | of payments that comes in for the rest of your life.

00:10:20.000 | And those payments can either be legally protected from the claims of creditors or simply functionally

00:10:27.600 | protected from the claims of creditors.

00:10:30.860 | If you're trying to convert a non-protected asset into a protected asset, you can do that

00:10:36.280 | with an annuity.

00:10:38.560 | If you're facing problems, you can take a million dollars from your bank account.

00:10:43.200 | You can go to a commercial insurance company and you can say, "Here's a million dollars.

00:10:47.960 | I want you to pay me a stream of annuity payments beginning 20 years from now."

00:10:54.880 | You can make that an irrevocable contract where they'll start 20 years from now.

00:11:00.720 | Well now practically, what is a creditor going to come after?

00:11:03.520 | Are they going to sit around and wait for 20 years for this stream of payments that

00:11:06.920 | they can then legally come after?

00:11:10.560 | That would be a very rare creditor indeed.

00:11:12.840 | And so annuities can be very useful in many ways in asset protection planning.

00:11:16.960 | You have to study the laws of your state.

00:11:19.360 | You have to look at the laws of the specific situation.

00:11:22.320 | This is very detailed planning where specific legal knowledge needs to be applied.

00:11:26.920 | But conceptually, annuities can provide for a lot of benefits.

00:11:33.520 | Why did I go into so much about the corpus and the payments?

00:11:35.600 | Well some states protect the corpus.

00:11:39.400 | Some states protect the stream of payments.

00:11:42.980 | So we'll talk more about that in just a moment.

00:11:46.600 | Now here are a couple of points.

00:11:48.360 | You already own an annuity.

00:11:51.000 | You're already contributing to an annuity if you are a US person.

00:11:56.360 | That annuity is called Social Security.

00:11:59.540 | Now Social Security is a unique asset because it is exempt from the claims of creditors

00:12:05.120 | when you receive the income.

00:12:07.160 | It's also exempt from bankruptcy court.

00:12:10.760 | Any listener of the show for two or three episodes would know I'm not a fan of the

00:12:14.640 | Social Security program for many reasons.

00:12:18.800 | But it can be a useful form of asset protection.

00:12:23.300 | One thing that might hopefully make you feel a little bit better about throwing all your

00:12:27.200 | money into the Social Security program is that at the very least, those payments that

00:12:33.560 | you're making are going to be protected from the claims of your creditors.

00:12:37.680 | If you're making a contribution each month through your payroll deferrals or your self-employment

00:12:44.160 | taxes that you're contributing, if you're making a contribution to the Social Security

00:12:47.800 | administration, and then in retirement you take that in distribution out, those income

00:12:54.120 | streams, the assets that you are accumulating in the Social Security system are protected

00:12:59.520 | from the claims of creditors.

00:13:00.960 | There are other kinds of annuities that also function like this.

00:13:04.840 | So for example, you might be enrolled in a defined benefit pension program, some system

00:13:09.740 | where when you retire you receive a certain amount of money.

00:13:13.280 | You receive a retirement stream for the rest of your life of a specific amount, a specific

00:13:18.920 | dollar amount or a specific dollar amount that's calculated based upon a formula.

00:13:24.760 | That asset is protected from the claims of creditors, primarily because it's a retirement

00:13:29.780 | program and it falls in under those retirement exemptions, but functionally it's an annuity.

00:13:37.200 | That's what it is.

00:13:39.040 | So you could have a 401k account, which is a sum of money that is protected from the

00:13:43.760 | claims of creditors, but what we're talking about is a stream of payments in the form

00:13:48.720 | of a pension program that is protected from creditors.

00:13:53.940 | Now annuities have their exceptions.

00:13:55.360 | For example, commercial annuities are not protected against the IRS making a charge

00:14:01.700 | against you.

00:14:02.700 | They're not protected from criminal judgments, just like most of those other assets.

00:14:06.580 | So if you're up against the IRS, your million dollar commercial annuity is not going to

00:14:09.820 | protect you, but they are protected from many different, more everyday creditors.

00:14:17.020 | They are protected.

00:14:19.120 | Or I should modify that to say they often are protected.

00:14:23.080 | You need to check on the specific rules of your states.

00:14:25.140 | I'm going to give a couple of state examples in a moment.

00:14:27.580 | I could go over so many states, but it just would be maddening to go through the 50 United

00:14:31.580 | States and talk about what's protected and what's not protected.

00:14:35.420 | And there is a wide range.

00:14:36.900 | Florida, of course, being where I have the most familiarity of having done financial

00:14:41.540 | planning on the ground, Florida protects annuity values the same as life insurance cash values,

00:14:47.260 | which means that Florida protects 100% of the value of annuities.

00:14:54.360 | That's protected 100%.

00:14:56.140 | So if you had a lot of money in Florida, you have lots of tools available to you.

00:15:00.160 | You can buy a house that is protected from homestead exemptions.

00:15:03.340 | You can purchase life insurance and accumulate cash values.

00:15:06.880 | You can put your money inside of annuity contract.

00:15:09.300 | You can fund your IRAs.

00:15:10.900 | And then we'll talk in the next episode on college exemptions.

00:15:15.500 | You can fund things like five to nine accounts, and those will all be protected from the claims

00:15:19.380 | or creditors.

00:15:20.380 | Now, there are other interesting states, states where things are not protected at all.

00:15:24.520 | For example, if we go to the state of Massachusetts, Massachusetts doesn't protect annuity cash

00:15:29.880 | values, and it does not protect annuity payments.

00:15:35.840 | So Massachusetts, annuities would not be useful to you.

00:15:39.000 | Now, there are some states which are a mixture of these things.

00:15:42.760 | For example, some states protect the values, and some states protect a monthly payment.

00:15:48.040 | We went to Delaware, Massachusetts' neighbor.

00:15:51.320 | $350 per month in annuity payments is protected, plus an amount needed for reasonable requirements

00:15:58.340 | of the debtor and dependents.

00:16:00.120 | That's different than a huge amount, and many states have a specific stated sum.

00:16:06.380 | We could go throughout all the states.

00:16:07.960 | Now, there are some states which are interesting in the difference between annuities and life

00:16:12.300 | insurance or annuities and IRAs.

00:16:14.600 | For example, the state of Georgia does not protect life insurance cash values beyond

00:16:19.980 | about $2,000 from the claims or creditors.

00:16:23.240 | But in the state of Georgia, annuities are protected, based upon my understanding of

00:16:28.160 | the state law.

00:16:29.160 | Consult with an attorney in the state of Georgia who would be an expert on that.

00:16:32.400 | So you can look at your state and try to figure out how to put these tools together.

00:16:35.440 | So let me give you just some basic planning ideas.

00:16:38.240 | In annuities, think about protecting a sum of money just through simple exemption planning.

00:16:45.960 | If your state, the laws of your state, protect annuity values from the claims or creditors,

00:16:53.760 | consider purchasing an annuity to shelter the money that would otherwise be exposed

00:16:59.840 | to the claims or creditors.

00:17:01.440 | Now, if you do this, you will have to consider a few things.

00:17:05.000 | First, you'll have to consider the investments that will be represented by the annuity.

00:17:10.520 | You'll also have to consider the costs that will be incurred by the annuity.

00:17:14.960 | Let's start with investments.

00:17:16.480 | Functionally, annuities fall into two different categories, what are called fixed annuities

00:17:20.720 | and what are called variable annuities.

00:17:22.920 | A fixed annuity is like a contract, is a contract with an insurance company, like you can sometimes

00:17:29.060 | purchase an investment contract with a bank.

00:17:31.700 | In a fixed annuity, an insurance company guarantees a stated rate of return on the money.

00:17:37.300 | They guarantee that return and it's backed up by the full faith and credit of the insurance

00:17:42.180 | company.

00:17:43.180 | Think of this like a CD from a bank.

00:17:45.080 | If you purchase the annuity, you'll get this particular interest rate.

00:17:48.920 | Now those interest rates will vary depending on the interest rate environment.

00:17:52.800 | In a low interest rate environment, they will of course be fairly low, but they do have

00:17:57.000 | a high degree of safety, of certainty.

00:17:59.680 | Yes, you're going to get a low return compared to a riskier investment, but you're going

00:18:04.320 | to get certainty.

00:18:05.940 | And that may be useful for you, especially if you were entering into a period of time

00:18:09.960 | at which you thought you might need to make sure that a certain amount of money is protected.

00:18:14.760 | We will deal very lightly in this show with the Fraudulent Transfers Act.

00:18:20.560 | Annuities are interesting in that they are generally not a transfer without value, but

00:18:27.960 | as in anything, the best time to do asset protection planning is before you need it,

00:18:31.920 | before a claim arises.

00:18:33.480 | What I mean when I say before thinking about something like this, let's say that you had

00:18:37.000 | a good amount of money and you were getting ready to start a business enterprise that

00:18:40.600 | might expose you to a higher amount of liability, or you were getting ready to make some particular

00:18:44.760 | move in your personal life that might expose you to some kind of liability.

00:18:48.200 | Well, it might be wise for you to look and say, "Where can I stash the money?"

00:18:52.280 | So that if some circumstances that give rise to a claim occur two or three years from now,

00:18:57.560 | I would be protected and my money would be protected.

00:19:00.520 | Annuities can do that.

00:19:02.160 | And you can purchase an annuity contract, a fixed annuity contract, and it's functionally

00:19:06.280 | similar to purchasing a CD.

00:19:08.360 | You can purchase the contract, you can keep the annuity for 10 years, 5 years, whatever,

00:19:13.640 | and you'll get a fixed rate of return on that contract.

00:19:16.720 | Now the difference between a fixed contract and a variable contract has to do with the

00:19:21.360 | investment.

00:19:22.360 | In a fixed contract, the insurance company will be taking your money and investing that

00:19:26.560 | with their general portfolio of investments, paying you your interest rate based upon their

00:19:33.960 | earnings from that portfolio, and they're guaranteeing it.

00:19:37.360 | Different annuity contracts might have some flexibility.

00:19:39.900 | For example, you might buy a fixed contract, which has a certain rate that's guaranteed

00:19:43.600 | for a certain time, but that rate can adjust.

00:19:46.200 | There are all kinds of options available.

00:19:47.600 | Now that's different than a variable contract.

00:19:49.360 | A variable contract works like a variable life insurance policy where you're purchasing

00:19:52.960 | what are called subaccounts in the language of insurance companies.

00:19:56.400 | A subaccount is functionally a separate investment account.

00:20:00.840 | Usually it's just simply a mutual fund.

00:20:03.960 | Usually it's a mainstream mutual fund that has been slightly reorganized to be a subaccount

00:20:09.920 | for an annuity portfolio, and you're purchasing credits in that subaccount.

00:20:13.200 | What that means is you can go and you can purchase your mutual fund that's invested

00:20:16.960 | in the stock market, and your annuity in that case will receive the same rate of return

00:20:22.440 | that the mutual fund holders own.

00:20:25.000 | So you'll be exposed to the potential for profit from the market, or you'll also be

00:20:32.200 | exposed to the potential of loss of value due to declines in the market.

00:20:37.560 | So you can purchase a variable annuity and be exposed to market risk with a potential

00:20:42.500 | for market upside.

00:20:43.500 | Now at the very high end, if you have enough money, you can purchase a private annuity,

00:20:47.880 | an annuity issued by a commercial insurance company where even your account is individually

00:20:53.680 | managed.

00:20:54.680 | So it is possible, if you have enough money, to have an investment manager individually

00:20:58.880 | managing your personal $5 million portfolio, but that's being managed inside of an annuity

00:21:04.200 | contract.

00:21:06.960 | Pretty high end, it's possible.

00:21:10.040 | We talked about fixed versus variable annuities.

00:21:13.200 | You could see how, if you're trying to invest money, an annuity can bring you useful protection

00:21:20.640 | because of the creditor protection.

00:21:23.020 | If you're going to own mutual funds that are just simply open-end mutual funds, you can

00:21:31.120 | just simply probably own those same mutual funds inside of an annuity.

00:21:38.560 | And you move those mutual funds from an unprotected class to a protected class.

00:21:46.640 | So in your investment options, think carefully.

00:21:49.280 | And if you want to own something with those investment characteristics, look at annuity

00:21:53.760 | contracts, shop the market, see what's available.

00:21:56.120 | Now the other thing that you want to ask questions about is what about the expenses in an annuity?

00:22:01.520 | Because any investment will feature some expenses.

00:22:05.800 | Your very cheapest way for you to invest in something like a company is for you to go

00:22:11.280 | to the company, purchase shares of stock directly, and hold those shares of stock yourself with

00:22:16.560 | individual registration with that company.

00:22:18.400 | You'll have no investment management fees, you'll get the full dividend, you'll have

00:22:21.200 | the cheapest option.

00:22:22.680 | But any layer of investment management that you put on top of that is going to feature

00:22:27.120 | some amount of expense.

00:22:28.880 | Those expenses range from very small, for example if you're purchasing index funds from

00:22:34.040 | the large low-cost providers, they'll allow you to hold large numbers of investments at

00:22:37.960 | a very low expense, to very high.

00:22:40.000 | If you're paying an individual investment advisor a percentage of money to manage and

00:22:45.040 | purchase individual stocks in your portfolio, then your expenses are going to be relatively

00:22:50.000 | high.

00:22:51.080 | And with annuities you have two sets of expenses that you have to pay attention to.

00:22:56.880 | Now in a fixed annuity contract, the expenses are basically non-existent in the sense that

00:23:02.720 | they're already calculated and taken out before your investments are guaranteed to you.

00:23:07.280 | So in a fixed annuity contract, it's not that there are no expenses, but those expenses

00:23:10.960 | are largely blind to you because they're dealt with prior to the guarantees that are made

00:23:16.760 | to you.

00:23:17.760 | But with a variable annuity contract, that is not the case.

00:23:20.920 | With a variable annuity contract, you need to look at the investment expenses as well

00:23:24.520 | as what's called the mortality and expense charge.

00:23:28.200 | Investment expenses are relatively straightforward.

00:23:30.000 | Investment expenses are simply the money that's paid to the investment managers of the investment.

00:23:36.400 | So if you're purchasing a variable annuity that has sub-accounts that are made up of

00:23:40.360 | mainstream mutual funds, you're paying the mutual fund manager, the mutual fund management

00:23:45.520 | company, the same fees that are going to be paid if you were purchasing that mutual fund

00:23:51.200 | on the open market with an open-end mutual fund account.

00:23:54.360 | And you weren't simply paying them within the context of an annuity count.

00:23:58.460 | So if you're with the BlackRock XYZ fund or the Vanguard ABC fund or whatever, the same

00:24:04.120 | investment expenses that you would pay if you owned that mutual fund separately are

00:24:08.640 | going to be paid if you have that as a mutual fund sub-account, as a variable annuity sub-account.

00:24:14.580 | So here, your expenses will range from very low to very high.

00:24:18.720 | And you have to do the same investment analysis that you do with a mutual fund to see whether

00:24:23.840 | those mutual fund expenses are in your best interest.

00:24:27.320 | You can purchase low-cost investments in an annuity just like you can purchase low-cost

00:24:34.500 | investments in a mutual fund.

00:24:37.720 | And in general, you should always look for low-cost investments because one of the most

00:24:41.840 | reliable predictors of investment performance is low expenses and low costs.

00:24:48.240 | But in an annuity, that's only one component of the costs.

00:24:52.140 | It's only one component.

00:24:53.180 | The other component you have to look at is what's called the mortality and expense charge.

00:24:57.880 | The mortality charge is the insurance company's assessment of the cost of providing you with

00:25:03.620 | insurance that's related to your life expectancy.

00:25:07.380 | The expense charge is the insurance company's charge of the expenses necessary for them

00:25:12.160 | to manage the investment contract.

00:25:14.520 | Together, these mortality and expense charges can be low, they can be moderate, or they

00:25:20.400 | can be high.

00:25:22.040 | Depending on the specific choices that you make.

00:25:25.200 | In most annuity contracts, you will have a number of choices.

00:25:28.680 | For example, you will usually have a choice of what kind of death benefit you would like

00:25:32.960 | to purchase.

00:25:33.960 | Let me use a very simplified example.

00:25:36.160 | You could purchase a death benefit that guarantees that any amount of money that you invest into

00:25:41.120 | an annuity contract will be paid out to your beneficiaries no matter the value of the contract

00:25:46.320 | at the date of your death.

00:25:47.880 | If you invest $100,000 into an annuity contract, go forward eight years, your investment contract

00:25:54.520 | has declined in value to $50,000 due to bad performance in the stock market, and then

00:26:00.560 | you die, the insurance company would pay out $100,000 to your beneficiaries.

00:26:06.380 | That's basically a form of life insurance, and that's calculated by the insurance company

00:26:10.500 | in terms of their overall risk and included in the mortality and expense charge.

00:26:14.360 | Now, usually you can purchase some form of enhanced death benefit.

00:26:18.720 | There are simple forms of enhanced death benefits that are available with annuities, such as

00:26:23.360 | a ratcheting death benefit.

00:26:25.560 | You invest $100,000 in an annuity contract each year on the policy anniversary.

00:26:30.520 | If the portfolio value is higher than $100,000, then that becomes your new death benefit.

00:26:36.800 | If it's lower than the previous ratcheted death benefit, it gets ignored.

00:26:41.560 | So the policy values increase, fast forward five years, your policy values have increased

00:26:45.640 | to $150,000 because of good investment performance.

00:26:50.100 | Then you have three years of decline, so the actual account value of the annuity has declined

00:26:54.480 | from $150,000 to $100,000 back.

00:26:57.520 | And then you die, well your beneficiaries will receive the $150,000 instead of the $100,000

00:27:03.960 | account value.

00:27:04.960 | These are some of the benefits of annuities that are not available with things like open

00:27:08.520 | and mutual funds, and they involve this form of life insurance.

00:27:12.240 | But that comes with a cost, it comes with an expense that's associated with it.

00:27:16.640 | If a company is offering a difference between a standard death benefit and an enhanced death

00:27:21.720 | benefit, they're going to also list for you the specific charge that you'll face for that

00:27:27.480 | annuity contract.

00:27:29.040 | This can be an extremely valuable form of a financial planning tool.

00:27:33.440 | For example, if I have a client that does not have the health necessary to be able to

00:27:38.020 | purchase life insurance in the open market, one of the tools to try to make sure that

00:27:42.400 | their family is going to be protected is a tool like an annuity death benefit.

00:27:46.720 | Because when you purchase an annuity, that particular form of life insurance is not medically

00:27:50.960 | underwritten.

00:27:51.960 | So I could have a client where I said, "Hey, let's take this $100,000, it's in open and

00:27:55.320 | mutual funds, let's put it into an annuity contract."

00:27:57.920 | You can't qualify for life insurance, but if we invest the money aggressively and we

00:28:02.000 | choose a ratcheting enhanced death benefit, then that money will be either it'll grow

00:28:08.060 | a lot and you'll have the money to spend, or if it goes down, at least it'll be available

00:28:12.080 | as an enhanced death benefit because there's a good chance that you're going to die early

00:28:15.800 | and that'll help your family to have a little bit more money.

00:28:18.600 | But you would have to assess if that's worth it to you, a feature like that.

00:28:22.600 | Now there are other features as well that you can purchase in an annuity contract.

00:28:25.960 | I've seen annuity contracts that have guaranteed increases in the death benefit.

00:28:30.000 | This was very popular about 10 years ago.

00:28:31.880 | I haven't looked or analyzed the annuity market contract in the last few years, but this used

00:28:35.960 | to be very, very popular where there was a death benefit amount that would grow by a

00:28:41.160 | guaranteed amount.

00:28:43.280 | And that can have its place.

00:28:44.840 | It also can be very expensive.

00:28:47.480 | So it's tough to know whether it's worth it to you and a lot of individual consideration

00:28:53.640 | is important.

00:28:56.020 | Back to my dog example, should you buy a $15,000 dog?

00:29:00.880 | Well, that depends.

00:29:03.380 | Should you buy an annuity?

00:29:05.080 | Well, that depends.

00:29:06.720 | And you'll have to go through a careful analysis of the risks, the benefits, and the costs.

00:29:13.560 | I don't want to go any deeper other than to simply say you can purchase high quality commercial

00:29:18.360 | annuities that give you good investments with low expenses.

00:29:23.480 | You can purchase those and use them to protect money.

00:29:27.540 | And if you use them, you can also purchase them and own them in a low cost way and you

00:29:32.600 | don't have to be committed forever.

00:29:35.540 | You can take several hundred thousand dollars, you can purchase a commercial variable annuity

00:29:41.160 | from a low cost provider that has modest mortality and expense charges, and you choose investment

00:29:47.740 | sub-accounts that are modestly priced, and you can have a good investment, which brings

00:29:53.000 | me to now sales charges and taxes.

00:29:56.540 | So the other thing you have to be careful of with the purchase of an annuity is the

00:30:01.060 | sales commission that is charged.

00:30:03.220 | Those sales commissions, most annuities have a sales commission because they're sold by

00:30:07.180 | an insurance agent.

00:30:08.620 | I think there are companies out there that will sell annuity contracts that don't have

00:30:12.860 | commissions, but I have not ever worked with those companies, so you'll have to research

00:30:17.240 | that yourself.

00:30:18.360 | But most annuity contracts will have sales commissions.

00:30:23.900 | Those commissions will usually, can either be paid on what's called a front-end commission

00:30:29.980 | or a back-end commission, back to our different shares of mutual funds.

00:30:33.260 | In a world of no-load or no-commission mutual funds, most people have forgotten about A-shares,

00:30:37.980 | B-shares, C-shares, etc.

00:30:39.980 | But functionally, with variable annuities, you can either purchase a sales commission

00:30:44.820 | up front, where you have a lower expense that's deducted from the contract in exchange for

00:30:51.060 | a specific commission that comes out of the money up front, or you can pay what's called

00:30:54.980 | a back-end sales commission, where you don't see any money deducted from your account up

00:31:00.860 | front, but you pay a higher mortality and expense charge for a period of time.

00:31:05.260 | That period of time with some companies is a specific period of time, such as six years,

00:31:09.780 | eight years, a period of time for other companies is forever.

00:31:14.980 | But the way it works, if you're paying an up-front sales commission, you take your $100,000

00:31:19.380 | to the insurance company, they deposit it, and you're charged a 3% sales commission up

00:31:23.940 | front.

00:31:24.940 | So your account value only shows you $97,000 to begin with.

00:31:29.540 | But your mortality and expense charge may be 1.8% instead of 3.2%.

00:31:36.020 | On the other side, you could take your $100,000 to the insurance company, you could invest

00:31:39.760 | your $100,000, and all $100,000 would flow right to the contract, but you'll be charged

00:31:45.280 | a higher expense ratio, a 2.6% for the first eight years, and then it'll change down, something

00:31:50.940 | like that.

00:31:51.980 | And what's better or worse would depend largely on what you thought the investments were going

00:31:55.260 | to happen, and it'd also depend on what was going to happen with your overall plans for

00:32:01.740 | the contract.

00:32:03.180 | If you choose a contract where the sales commission is not charged up front, then you're going

00:32:11.500 | to incur a series of surrender fees, where if you surrender the contract within a short

00:32:16.860 | amount of time, a surrender charge will be charged to the contract.

00:32:21.360 | Those charges range from reasonable to unreasonable, to egregious.

00:32:25.960 | And there'll usually be a sliding scale.

00:32:28.320 | With some companies it might be 6, 7, 5, 4, 3, 2, 1.

00:32:31.440 | With some companies it might be 10%, 10%, 5%, 5%, 0.

00:32:35.160 | You get the idea.

00:32:36.160 | You have to look at the actual contract, but all of that is spelled out very specifically.

00:32:41.240 | The point is, if you hold an annuity for an extended period of time, then you can keep

00:32:46.600 | that annuity and take it back, and you won't pay any expenses on the contract, other than

00:32:54.740 | what you paid each year with your management charges.

00:32:57.280 | The reason I'm going into this is because of asset protection planning.

00:33:05.580 | If you're trying to protect a lump sum of money, you have a million dollars, you're

00:33:09.220 | getting ready to start a business that you think might expose you to risk, you could

00:33:14.820 | easily move that million dollars into an annuity contract.

00:33:18.360 | And then, fast forward six years, you close that business, eight years, whatever, you

00:33:23.280 | could take the money back out of the annuity contract if you no longer want the annuity.

00:33:29.140 | That's important to know.

00:33:31.600 | So that's why I'm going into this with such detail, so that you can understand, hey, I

00:33:36.480 | can choose something.

00:33:37.840 | I can choose money that's safe, I can choose a fixed annuity, I could choose money that's

00:33:42.020 | more aggressively invested, I can choose to expose myself to the potential of surrender

00:33:46.360 | charges or not surrender charges, and meanwhile, if the laws of my state protect it, this annuity

00:33:51.640 | can be very valuable to me to protect a lump sum of money.

00:33:56.560 | Which leads me now to the final thing, which is taxes.

00:33:59.560 | One of the important things to know with annuities, if you're purchasing annuities, there is a

00:34:03.560 | unique system of taxation that's applied to them.

00:34:06.600 | Functionally, it's similar in some ways to the system of taxation that's applied to retirement

00:34:11.800 | accounts.

00:34:12.840 | The money that grows within an annuity contract is not taxed as it grows.

00:34:19.720 | When you purchase an annuity, unless you're purchasing an annuity inside of a retirement

00:34:24.600 | account, which we'll talk about in a moment, the purchase of that annuity is always made

00:34:28.280 | with after-tax dollars, money that you've earned and already paid taxes on.

00:34:32.880 | But the inside buildup of values inside the annuity is not taxed, which means you can

00:34:40.240 | get a helpful tax deferral on the contract.

00:34:44.220 | That's very, very useful.

00:34:46.480 | Now when you take the money out of the annuity, the profit on the annuity will be taxed.

00:34:54.720 | I repeat, when you take the money out of the annuity, the profit will be taxed.

00:35:01.720 | If you take it out after, what is it, 59 and a half, I guess, also, then it's taxed like

00:35:07.680 | an IRA.

00:35:08.680 | It's just taxed to you as income.

00:35:11.320 | If you take the money out prior to that age, 59 and a half, then you will be paid tax.

00:35:18.400 | If you take the profits out of the annuity, then you'll pay an additional 10% penalty

00:35:23.720 | tax, like an IRA tax can be.

00:35:28.080 | Annuity taxation is important for you to think about.

00:35:32.560 | One benefit to annuities is they can be rolled over from annuity to annuity without incurring

00:35:38.840 | taxation.

00:35:39.840 | If you've taken a lump sum of money, you've invested it into an annuity contract, then

00:35:45.160 | 10 years from now you decide you want a different annuity contract, you can do a 1030, I always

00:35:52.480 | get it messed up, either 1035 or 1031 exchange.

00:35:55.480 | One of those is for like-kind real property and one of those is for annuity and insurance

00:36:00.880 | contracts.

00:36:01.880 | You can do a 1031 exchange, I think, from one annuity into another annuity contract.

00:36:07.680 | You can also do a 1031 exchange from an annuity, I got to make sure I get this right.

00:36:14.160 | I was wrong, it's 1035, sorry.

00:36:16.160 | One of those details that has bedeviled my mind for the last 10 years that I've been

00:36:20.360 | a financial planner is I always get confused which is real property and which is with insurance

00:36:26.200 | contracts.

00:36:27.200 | A 1035 exchange is an exchange of annuities, life insurance contracts, and long-term care

00:36:33.600 | contracts.

00:36:34.600 | A 1031 exchange is for real property usually used for real estate to avoid taxation on

00:36:40.800 | real estate.

00:36:41.800 | So, with an annuity, you can do a 1035 exchange from an annuity contract into another annuity

00:36:46.120 | contract without incurring taxation.

00:36:48.780 | You can also do an exchange from a life insurance contract into an annuity contract and there

00:36:53.760 | are a couple different permutations of going between life and long-term care annuity, etc.

00:37:02.080 | But 1035 exchanges can be very useful because as those values grow in annuity, you can exchange

00:37:07.840 | them from one annuity to another annuity if there's an annuity that better fits your circumstances

00:37:11.820 | and better fits your situations.

00:37:13.600 | You should know that.

00:37:14.600 | However, if you don't keep an annuity and if you surrender an annuity before 59.5, you

00:37:19.400 | will pay ordinary income taxes on the gain plus, if it's before 59.5, a 10% penalty tax.

00:37:27.200 | If it's after 59.5, you'll just pay ordinary income taxes.

00:37:30.720 | Those taxes are assessed if it's a lump sum, they'll be assessed as a lump sum.

00:37:35.280 | If you're receiving a series of annuity payments, you'll pay taxes based upon an exclusion ratio,

00:37:39.720 | which represents the amount of the annuity contract that was your contribution versus

00:37:44.360 | an amount that was your taxable profit.

00:37:47.120 | Notice the words that I said a moment ago in this long stream of tax words, which was

00:37:50.860 | ordinary income.

00:37:52.580 | One of the disadvantages of purchasing annuities is the growth on an annuity is ordinary income,

00:37:58.880 | which is usually the highest taxed category for most people.

00:38:03.920 | This means that although you could purchase variable subaccounts that have investments

00:38:08.840 | in them, that's useful, but what you don't get is you don't get the treatment of those

00:38:13.320 | accounts as long-term capital gains, which are usually, at least in the current US tax

00:38:17.440 | code, a lower tax rate.

00:38:19.760 | You need to do a tax analysis when purchasing an annuity as well.

00:38:24.720 | That covers basically taking money, putting it into annuity for the purpose of protecting

00:38:29.880 | that money.

00:38:31.400 | It is a valuable, useful strategy.

00:38:34.640 | It's also not quite as simple as some of the other strategies we have discussed, but it

00:38:38.440 | is a valuable, useful strategy.

00:38:41.880 | You can take money that is exposed to the claims of creditors because you are holding

00:38:45.860 | it in just open investment accounts and open bank accounts, and you can purchase an annuity

00:38:51.120 | that is suited to your investment objectives, and that annuity value can be protected from

00:38:57.160 | the claims of your creditors.

00:39:00.160 | Additionally, you can take an annuity and you can protect a sum of money by simply turning

00:39:07.200 | it into either a present or a future income.

00:39:11.960 | I repeat, first long series of planning that took the last 35 minutes to cover, which is

00:39:17.520 | to be taking an annuity and putting it into a contract, keeping it as a body of money

00:39:20.760 | altogether.

00:39:21.760 | Now, I'm saying you could take a sum of money and you can protect it by turning it

00:39:26.160 | into an income, either a current income or a future income.

00:39:31.680 | That can be an extremely useful thing.

00:39:34.000 | Again, consider you're heading into a potential situation where you think in the coming years

00:39:38.800 | you'll face increased liability risks.

00:39:41.400 | You have a sum of money right now, $100,000, $1 million, whatever.

00:39:45.680 | You have a sum of money and you say, "You know what?

00:39:47.400 | I'd like to protect this sum of money.

00:39:49.200 | I don't think I'm going to need this sum of money now, but what I'll do is I'll

00:39:52.640 | go ahead and I will turn this sum of money into a future income stream."

00:39:57.600 | You go and you purchase an insurance contract.

00:40:00.540 | That income stream can come in right away or it can come in in the future.

00:40:05.040 | You can use that money to purchase an annuity that creates the income stream that's there

00:40:10.440 | for you.

00:40:11.440 | Now, here's what's cool about that.

00:40:14.720 | Sometimes that income stream will actually be completely protected from the claims of

00:40:18.800 | creditors because it is an annuity stream.

00:40:22.880 | Sometimes you just get a functional protection of that stream of income because the creditor

00:40:27.880 | wants a lump sum now.

00:40:29.840 | They don't want a stream of income, especially if you purchase a deferred annuity.

00:40:35.320 | You're 40 years old.

00:40:36.360 | You set up an annuity that's going to pay you an income stream at 65 years old.

00:40:40.880 | You're sued when you're 43.

00:40:43.600 | That creditor is going to want to sit around and wait 22 years to receive this stream of

00:40:48.120 | payments from the insurance company.

00:40:50.440 | You can set up the annuity in such a way that's just not available to them.

00:40:54.080 | This can be really valuable because you still are going to have a death benefit on that

00:40:57.280 | contract.

00:40:58.280 | If you die before you can collect the money at 65, no problem.

00:41:02.360 | It's just part of your estate and you can direct the beneficiary of that.

00:41:05.920 | But if you live, you'll just receive it as retirement income.

00:41:10.080 | That can be very, very useful and it can be very useful to help a creditor to settle for

00:41:15.680 | less.

00:41:16.680 | When you put this together with other asset protection planning techniques, you have some

00:41:18.560 | liability insurance that uses to give them a small settlement and you use the power of

00:41:23.680 | the fact that, hey, all your assets are locked up, they're unavailable, then you can get

00:41:27.420 | a smaller settlement.

00:41:28.420 | You can settle with them, clear your judgment creditors and be on with your life.

00:41:32.520 | Annuities can be useful just simply by turning them into a future income stream.

00:41:38.800 | Don't let the simplicity of that concept make you think it's not useful.

00:41:42.040 | It can be useful.

00:41:43.200 | All depends on what your needs are for a sum of money, what your intended purposes are,

00:41:47.360 | etc.

00:41:48.360 | Next, annuities can be useful by helping you to protect money that is otherwise exposed

00:41:55.140 | to the claims of creditors.

00:41:56.460 | One of the biggest examples here would be money that's in a retirement account.

00:42:00.520 | There are some states that explicitly protect the money that's in a retirement account from

00:42:06.200 | the claims of creditors.

00:42:07.920 | We talked about that in the retirement exemption program.

00:42:10.900 | There are some states, however, that do not protect the money that's in a retirement account

00:42:16.120 | from the claims of creditors, but that do protect the money that is in an annuity contract.

00:42:24.080 | The most important of these states that I've looked into is Georgia.

00:42:26.960 | Georgia does not protect money that's in an IRA, but they do protect money that is in annuity.

00:42:32.880 | So if you have money in a Georgia IRA, you should seriously consider using an annuity

00:42:37.280 | contract inside of that IRA instead of just simply mutual funds if you are concerned about

00:42:42.640 | creditor protection.

00:42:44.260 | There aren't many other states that I'm aware of that are that way, and you would need to

00:42:47.760 | ask a Georgia asset protection attorney.

00:42:50.480 | Perhaps they'll know problems with that plan that I don't know, but I think that that strategy

00:42:55.640 | could work perfectly well.

00:42:58.640 | There are other states such as Wyoming.

00:43:00.760 | Wyoming doesn't protect IRA values, but they do protect annuity payments.

00:43:04.320 | So I think that could work in a state like Wyoming as well.

00:43:08.160 | But the idea here is you can fund in an IRA, you have certain investments that you can

00:43:13.480 | put in there and certain investments that you can't.

00:43:15.760 | So when it comes to asset protection, you can't put a life insurance contract in an

00:43:19.440 | IRA.

00:43:20.440 | That's a prohibited investment.

00:43:22.640 | But you can put an annuity contract inside of an IRA.

00:43:26.400 | Usually you will hear the advice that you should never fund an IRA with an annuity.

00:43:31.040 | It's one of the ones that amateur financial advisors are most confident in.

00:43:36.360 | Never fund an IRA with an annuity contract.

00:43:40.560 | And the reasoning is that you don't get any tax benefits from the annuity.

00:43:44.320 | That is absolutely true.

00:43:45.920 | You don't get any additional tax deferral or additional tax benefits with an annuity

00:43:50.160 | contract that you wouldn't otherwise get with having money inside of an IRA or a Roth IRA.

00:43:55.860 | You don't get any additional tax benefits.

00:43:57.400 | The taxation of the IRA supersedes the tax deferral of the annuity.

00:44:02.240 | And so you're getting additional costs and expenses of the annuity, is usually how the

00:44:06.600 | logic goes, additional costs and expenses of the annuity that are unnecessary.

00:44:11.440 | Just purchase mutual funds.

00:44:12.800 | However, there are exceptions to that.

00:44:14.440 | And here are just the meaningful exceptions.

00:44:16.720 | First, the exception can be with regard to asset protection, as I'm describing.

00:44:22.800 | If you have the protection of an annuity inside of an IRA, then now you have to confront that

00:44:27.840 | insurance law in addition to the IRA.

00:44:30.480 | And that could be a useful way of your protecting a large sum of money that you've accumulated

00:44:34.200 | in an IRA just simply by putting it into an annuity contract.

00:44:39.160 | Second thing would be benefits of the annuity, such as lifetime income that are useful to

00:44:44.760 | you, and/or benefits such as those death benefits, enhanced death benefits, things like that.

00:44:50.280 | And there are financial planning circumstances in which those things could be useful.

00:44:53.760 | So no problem with the general advice.

00:44:55.600 | Don't generally put annuities inside of IRAs.

00:44:57.800 | I think that's good general advice.

00:44:59.240 | Totally fine.

00:45:00.240 | It's not good in all circumstances.

00:45:01.880 | And that's an example of why it's not good.

00:45:05.800 | Next, one of the most useful things of annuities is they are a contract, and they allow you

00:45:14.440 | to get money out of your probate estate and allow money to pass via beneficiaries.

00:45:22.240 | And this can help you to protect the claims, can help you protect you against the claims

00:45:27.480 | of creditors that would otherwise be assessed upon your estate.

00:45:32.960 | Now here I'm specifically talking about your estate, which means you will die.

00:45:37.400 | Some people, some types of asset protection planning are important when we come into planning

00:45:42.880 | while you're alive.

00:45:44.040 | How do you keep control of your money?

00:45:45.680 | But remember, if you die and you owe money to people, your creditors will file a claim

00:45:51.640 | against your estate, and your estate has to stand good for the claims of your creditors.

00:45:59.280 | How does this work?

00:46:00.280 | Well, when you die, some of your assets will be included in what's called your probate

00:46:05.080 | estate, the assets that will pass through the probate court, and some of your assets

00:46:10.160 | will pass outside of your probate estate.

00:46:12.960 | They pass simply via beneficiary designations.

00:46:16.000 | The most important one here is to compare something like a life insurance contract to

00:46:20.060 | money that's in your bank account.

00:46:22.140 | If you have $100,000 in your bank account, and you die, and you owe your creditors $100,000,

00:46:30.640 | your creditors will file their claims against your estate, and the executive of your estate

00:46:34.480 | will pay your creditors their claims.

00:46:36.960 | And so therefore, the beneficiaries of your estate by will will not receive any money,

00:46:43.580 | because if you only had $100,000 in your bank account, and you willed that money to your

00:46:47.600 | brother or your children, whatever, they won't receive any money because the creditors come

00:46:52.080 | ahead of the beneficiaries.

00:46:53.680 | The beneficiaries have no claim.

00:46:56.000 | Now, differently, if you had $0 in your bank account, you owe $100,000, but you also own

00:47:06.260 | a life insurance contract with a beneficiary designation on it.

00:47:12.920 | Now, a life insurance contract is worth $100,000.

00:47:16.560 | When you die, the life insurance company will pay the beneficiary of your contract $100,000.

00:47:27.600 | Your creditors will file their claims against your estate.

00:47:31.860 | The executor will simply say to those creditors, "The estate has no money.

00:47:37.020 | We have no money to pay you with, and so therefore, your creditors will be unpaid, and the beneficiaries

00:47:42.500 | of your life insurance contract will still receive their money."

00:47:46.860 | The beneficiaries of a life insurance contract do not owe your debts.

00:47:50.140 | They do not owe your...

00:47:51.780 | They didn't borrow the money.

00:47:52.780 | They don't owe the money.

00:47:54.240 | And so they have no connection with your estate.

00:47:57.240 | They're simply the beneficiaries of your life insurance contract, which is not part of your

00:48:02.220 | probate estate.

00:48:06.260 | That can be useful.

00:48:07.620 | It can be useful because similar things happen with annuity contracts.

00:48:13.500 | An annuity contract is an insurance contract that has a beneficiary designation, which

00:48:18.300 | means that the annuity will pass outside of your probate estate.

00:48:23.020 | If you own $100,000 in an annuity contract and then you die, your executor does not have

00:48:30.720 | any function, cannot do anything with that annuity contract.

00:48:35.400 | It's not part of your probate estate.

00:48:37.040 | It doesn't get submitted to the probate court.

00:48:39.240 | It passes outside of your probate estate.

00:48:43.780 | Don't mix up your tax planning here with this discussion.

00:48:49.160 | The life insurance, the value of the contract, and the annuity contract is still part of

00:48:54.400 | your taxable estate with regard to settling your debts with the IRS.

00:48:58.940 | It's still part of your taxable estate.

00:49:01.340 | But with a $10 million estate tax exemption for an individual now, there's really very

00:49:06.220 | few people who are going to face that situation.

00:49:08.480 | I'm just talking about normal, ordinary claims of creditors against your estate.

00:49:13.820 | This can be very useful as part of retirement planning for people, especially people who

00:49:18.900 | are concerned about the risk of long-term care expenses, especially when we talk about

00:49:22.260 | Medicaid planning, which we'll talk briefly.

00:49:24.500 | That's next.

00:49:25.500 | I'm going to briefly mention Medicaid planning.

00:49:27.140 | But annuities can provide a useful tool for you because they can allow you to establish

00:49:34.620 | an account where your assets will pass via beneficiary designation outside of your probate

00:49:40.540 | estate.

00:49:41.540 | You cannot accomplish that with money in a bank account.

00:49:43.740 | You cannot accomplish that with individually owned mutual funds.

00:49:46.500 | You can accomplish that with annuities.

00:49:49.100 | I hope your brain can think of the situations and the financial planning examples in which

00:49:55.380 | that would be a useful feature of an annuity.

00:49:58.380 | Now let's talk about Medicaid planning.

00:50:00.300 | Annuities can provide an interesting way to impoverish yourself or your estate specifically

00:50:06.880 | and especially with things like Medicaid planning.

00:50:10.340 | So Medicaid planning, if you're unfamiliar with this particular idea, Medicaid is a way

00:50:14.580 | of paying for health expenses for the indigent, people that don't have money.

00:50:19.060 | It's also a way of paying, Medicaid does have long-term care expenses that can be paid.

00:50:24.160 | So Medicaid will pay for nursing home care for somebody who doesn't have money.

00:50:29.220 | And of course, one of the biggest risks that retirees face is how do I pay for the potential

00:50:34.420 | expense of a nursing home in my particular circumstance?

00:50:38.660 | If I don't have, nursing homes can be very expensive and how do we afford that?

00:50:42.900 | But the only way that you get any kind of government payment for nursing homes in the

00:50:47.340 | United States is through Medicaid and to be eligible for Medicaid, you have to be basically

00:50:53.980 | broke and bankrupt.

00:50:55.060 | You can't have any money and there are very stringent rules on Medicaid as far as how

00:51:00.100 | many resources you can have and just a couple of thousand dollars.

00:51:02.980 | If somebody applies for Medicaid, they can't have more than about $2,000.

00:51:06.780 | So that's a big, big deal.

00:51:08.260 | So what do you do?

00:51:09.260 | How do you provide for this?

00:51:10.260 | Well, annuities provide a useful tool for people who are planning for Medicaid expenses

00:51:17.340 | because they can be set up and allow you to take a sum of money and pay it to the community

00:51:23.540 | spouse.

00:51:24.540 | How does this work?

00:51:25.540 | Okay.

00:51:26.540 | Most states, again, require a Medicaid applicant to have no more than $2,000 to their name.

00:51:34.700 | But the states consider the total assets of both the spouse, both the person that needs

00:51:41.900 | Medicaid and also what's called the community spouse.

00:51:46.060 | If I'm married and I need Medicaid and my wife is alive and living with me, she's the

00:51:54.140 | community spouse.

00:51:55.600 | And so because the property of husband and wife is considered to be the property of each

00:52:01.380 | person fully, then Medicaid says, "Well, listen, all of my wife's assets should go to pay for

00:52:06.780 | my long-term care expenses."

00:52:08.540 | But what do we do in that circumstance?

00:52:10.300 | If my wife spends all of our money paying for my long-term care expenses and then I

00:52:15.100 | die, she's fully impoverished and now she has no money.

00:52:18.860 | So what is she going to live on at this point in time?

00:52:21.220 | So an annuity is one of the standard ways that you can solve for this because although

00:52:25.220 | the resources owned by either spouse are taken into consideration, and the community spouse

00:52:30.780 | does have a specific allowance of what they're actually allowed to keep.

00:52:34.020 | It's called the community spouse resource allowance, which is half of all the couple's

00:52:38.380 | countable resources, not exceeding a certain limit.

00:52:41.860 | It comes out to about $123,000 according to the federal law, and each state can have a

00:52:46.720 | lower limit.

00:52:47.720 | Some states are very, very low.

00:52:49.900 | But if a couple has too many resources to qualify for Medicaid, then the Medicare rules

00:52:55.300 | require the money actually be spent before the applicant qualifies for Medicaid.

00:52:59.500 | It's called spending down the assets.

00:53:01.580 | So Medicaid doesn't care what the money is spent on.

00:53:04.020 | They just have to be spent down and the money has to be spent down.

00:53:07.420 | So you can pay for your housing, your medical bills, the long-term care expenses, whatever.

00:53:11.640 | But when the money is gone, then Medicaid will step in.

00:53:14.620 | However, income for the community spouse is not counted in the Medicaid rules.

00:53:23.500 | Income is counted to only if it's received by the Medicaid applicant.

00:53:28.580 | And so that's a really important thing.

00:53:30.860 | The community spouse's income is exempted from the Medicaid formulas.

00:53:36.420 | And so you can use an annuity as a way to deplete an asset.

00:53:40.380 | Because if you take an amount of money and you purchase an annuity with it, and that

00:53:45.540 | annuity stream of payments goes to the community spouse, and the community spouse's income

00:53:51.940 | is not counted towards Medicaid eligibility, then basically that asset disappears from

00:53:59.180 | the Medicaid planning circumstance.

00:54:01.540 | It doesn't cause someone to be ineligible for Medicaid, which means that the assets

00:54:05.700 | don't have to be spent down on other things, and those assets are now available to the

00:54:10.820 | community spouse for -- that stream of income is available to support the community spouse.

00:54:17.780 | Now there are some detailed rules that need to be followed on that.

00:54:21.020 | The annuity payments have to be completed before the end of the community spouse's

00:54:25.260 | life expectancy.

00:54:26.760 | So it can't be purchased as a gift to heirs.

00:54:28.860 | It has to come in for the life expectancy of the community spouse based upon the Social

00:54:33.420 | Security life expectancy tables.

00:54:36.940 | It has to be a single premium immediate annuity.

00:54:40.420 | It has to pay out in a series of substantially equal payments.

00:54:43.660 | It can't be irrevocable.

00:54:45.380 | It must be non-assignable, non-transferable.

00:54:49.820 | And the Medicaid agency has to be designated as the primary beneficiary of the annuity

00:54:55.460 | after the death of the community spouse.

00:54:57.740 | So that way if there are any unpaid funds that were expected to go to the community

00:55:00.860 | spouse, then they actually go to the Medicaid agency.

00:55:05.260 | But this is an example of how annuities can provide an interesting way of basically impoverishing

00:55:09.780 | yourself and/or your estate, but yet -- on paper, but yet not actually impoverishing

00:55:17.640 | yourself in reality.

00:55:19.340 | So consider that.

00:55:20.340 | Now, let's talk about annuities and bankruptcy.

00:55:24.300 | One of the important parts of asset protection planning is always to consider bankruptcy

00:55:28.300 | and bankruptcy law.

00:55:29.900 | And these two things flow together in a very tight way.

00:55:34.500 | If you disconnect them, you miss out.

00:55:37.380 | And one of the ultimate reasons is basically the last-ditch effort of a creditor is to

00:55:43.140 | force you into bankruptcy, to force you into an involuntary bankruptcy.

00:55:46.960 | So you can be in a situation in which you never borrow money.

00:55:49.980 | You have assets.

00:55:50.980 | You never borrow money.

00:55:53.020 | And because you never borrow money, then you're not at a high risk of bankruptcy.

00:55:59.560 | No one's going to foreclose on your house if there's no mortgage on it.

00:56:02.500 | Nobody's going to repossess your car if there's no car payment.

00:56:05.500 | Your credit card company can't sue you, and you have to declare bankruptcy if you

00:56:09.060 | don't have any credit card debts.

00:56:10.840 | But you've still faced some kind of legal liability or legal judgment, and you lose

00:56:16.060 | that lawsuit.

00:56:17.060 | You lose that lawsuit.

00:56:18.620 | Your creditors come after you.

00:56:20.460 | They can't get anything because all of your assets are owned in exempt asset classes.

00:56:25.980 | And because of this, you're still protected.

00:56:30.220 | But their ultimate recourse is, if they can follow all the rules, to force you into involuntary

00:56:35.340 | bankruptcy and then file their petition in bankruptcy court and be paid out by the bankruptcy

00:56:41.100 | trustee.

00:56:42.100 | And so that's one of the reasons why we always think about bankruptcy.

00:56:44.380 | Then, of course, the more practical reason is we always think about bankruptcy because

00:56:47.860 | it's always possible that you could go bankrupt.

00:56:50.180 | So let's talk about annuities in bankruptcy.

00:56:53.060 | In annuities, depending on whether your annuity is counted, whether your state uses the federal

00:57:02.620 | bankruptcy codes or its own state-specific codes, your annuity can be an exempt asset.

00:57:09.180 | According to the federal bankruptcy exemptions, your exemption for an annuity in an IRA is

00:57:16.740 | going to be the same as, or other non-qualified retirement plan, is going to be the same $1.2

00:57:21.300 | million that is protected by the federal bankruptcy exemption.

00:57:26.500 | Each state has their own particular annuity exemptions as well.

00:57:29.620 | So you can look into the bankruptcy exemptions, and you should, because remember, that's always

00:57:35.300 | one of the key points, one of the ultimate last case ways that a creditor can collect

00:57:41.420 | against you is force you into involuntary bankruptcy.

00:57:45.460 | One other component of annuities that I want to talk about, though, is in terms of one

00:57:49.780 | of the exceptions, especially in bankruptcy court, one of the exempt income streams.

00:57:57.260 | So annuities that are providing an income stream can usually be exempted from bankruptcy

00:58:04.900 | court if the annuities are for managing insurance proceeds, the payout of an insurance policy,

00:58:14.580 | or annuities are the rollover of some kind of pension account, IRA, 401(k), retirement

00:58:19.700 | account, or are sometimes lottery winnings or a structured settlement from a lawsuit.

00:58:24.980 | And so one of the useful things that you should always consider is if you're going to receive

00:58:29.220 | a lump sum of money, and you want that lump sum of money to be protected from the claims

00:58:33.300 | of creditors, perhaps you should receive that lump sum of money as an annuity payment.

00:58:38.980 | That's really important, especially when it comes to things like life insurance payouts.

00:58:44.260 | Many people have this idea that with life insurance, the best thing to do if you're

00:58:47.700 | going to be the beneficiary of a life insurance policy is that you should just automatically

00:58:52.860 | take the money and run, take the lump sum and run.

00:58:55.980 | That might be fine.

00:58:57.100 | That might be wise.

00:58:58.100 | You maybe should take that lump sum of money, take the $2 million, call up your investment

00:59:01.780 | manager and invest it into a portfolio with your investment manager.

00:59:06.280 | But if there's any kind of possibility of a contentious situation with a creditor, or

00:59:10.340 | if there is an active situation of a contentious situation with a creditor, you should be very,

00:59:15.660 | very careful.

00:59:16.660 | Remember back to the example that I talked about where an estate has creditors.

00:59:22.120 | What would you do if you are in a situation where you know that when you die, your estate

00:59:27.700 | is going to have many, many creditors, those creditors are going to file claims against

00:59:31.780 | your probate estate, but yet you're still seeking to care for your spouse and your children?

00:59:37.660 | Well, if I were in that situation, if I had a lot of creditors that were coming after

00:59:41.700 | me, basically the instructions I would give to my wife would be very, very simple.

00:59:45.820 | Number one, honey, we've got plenty of life insurance.

00:59:47.780 | The life insurance proceeds are going to be protected from the claims of creditors.

00:59:51.900 | Doesn't matter how all this stuff works, shakes out with regard to all these claims

00:59:55.340 | of creditors of our estate, my probate estate is going to have to be settled, it's going

01:00:00.260 | to pay for the claims of creditors, but the life insurance contract is protected.

01:00:04.080 | Number two, honey, keep the money with the insurance company.

01:00:08.100 | Do not co-mingle the money.

01:00:10.100 | Do not take the money and put it in a bank account.

01:00:13.280 | Even if it's ultimately protected based upon its origin, based upon its provenance, even

01:00:19.500 | if it's ultimately protected, that doesn't mean that it's practically protected.

01:00:22.860 | And all of a sudden I start mingling the money with the other assets, and all of a sudden

01:00:30.820 | creditors start taking out judgments, they file claims against bank accounts.

01:00:34.300 | Don't co-mingle the money.

01:00:35.380 | Keep the money with the insurance company.

01:00:37.140 | A good insurance company is happy to have the money, they'll pay you a good interest

01:00:40.260 | rate out, they'll keep it totally separate, and you'll never have any problem whatsoever

01:00:44.820 | of proving that the money is with the insurance company.

01:00:47.620 | Take a small sum of money from the insurance contract.

01:00:50.100 | You can usually, with most big insurance companies, they will send you a checkbook.

01:00:54.480 | They'll send you a checkbook, you have a million dollars sitting with them, they'll

01:00:56.900 | send you a checkbook.

01:00:57.900 | You could write one check for one million dollars, take it down to your bank and you

01:01:01.220 | can cash that check.

01:01:02.220 | I would tell my wife, "Do not do that."

01:01:04.500 | You can also take that checkbook and you can stroke individual checks to the funeral home,

01:01:08.980 | you can stroke individual checks to the landlord, you can stroke an individual check to yourself

01:01:13.300 | and you can cash it and use that to buy groceries, whatever you want to do.

01:01:16.860 | Use the checkbook and take a little bit of lump sum of money out in order to pay for

01:01:21.020 | expenses.

01:01:22.020 | Then, I would very seriously charge her, "Consider just taking an annuity from the insurance

01:01:27.380 | company."

01:01:28.380 | Now, obviously the insurance agent and the insurance company have an incentive to sell

01:01:33.980 | you an annuity.

01:01:34.980 | The insurance agent wants to make their money.

01:01:37.060 | But that doesn't mean it's a bad thing for you to have the annuity.

01:01:40.660 | And annuity payments that are as received as insurance proceeds are protected from the

01:01:45.620 | claims of creditors due to their original characterization and due to the federal bankruptcy

01:01:50.740 | laws.

01:01:51.740 | So those annuity characterizations are really, really important.

01:01:56.020 | You can take an annuity for some of the money, you can take an annuity for all of the money,

01:01:59.920 | you can take an annuity payment that comes in for life, you can take an annuity payment

01:02:03.220 | that comes in for life with benefits.

01:02:05.180 | There are dozens and dozens of options and you can set it up properly where the spouse

01:02:09.700 | and the children are taken care of.

01:02:12.060 | And you can do this and keep all the money protected from the claims of creditors.

01:02:15.500 | You can take an annuity payment, you can purchase a life insurance contract.

01:02:18.620 | My wife could purchase a life insurance contract on her life with the kids as beneficiaries.

01:02:22.220 | Again, we've got everything outside of the probate estate, everything outside of even

01:02:25.780 | the taxable estate if we set it up separately.

01:02:28.380 | It's a powerful, powerful tool.

01:02:30.460 | So don't ignore the value of annuities, especially for things like insurance proceeds from a

01:02:36.740 | death claim.

01:02:38.460 | It's one of the best, simplest, cheapest ways to provide for a spouse, especially if my

01:02:44.040 | estate is embroiled in all kinds of problems.

01:02:46.760 | Maybe I started a big business, I've got financial problems all over the place, I've got creditors

01:02:50.620 | calling left and right, I've got legal judgments against me, I've got, who knows, civil judgments

01:02:55.460 | against me, same thing, I've got criminal judgments against me, I've got problems all

01:02:59.340 | over the place.

01:03:00.340 | That life insurance policy is a very, very useful tool.

01:03:04.820 | Turn that life insurance policy into a stream of payments for my wife, she's going to be

01:03:08.420 | cared for even as the lawyers deal with the mess of my estate.

01:03:12.580 | That's one of the reasons I love life insurance so much.

01:03:14.820 | Now let's talk about a couple of really kind of top end ways that annuities can be used.

01:03:25.900 | This is going to go with some really high end financial planning.

01:03:28.540 | I know we're going long, I know we've got the lawnmowers going in the background, forgive

01:03:33.020 | me it's the challenge that Florida podcasters face, is figuring out how to have a quiet

01:03:36.700 | place away from the lawnmowers.

01:03:38.740 | But I feel like this is worth it.

01:03:40.620 | This will not apply, this is no longer dealing with mere mortals, so if you're a mere mortal

01:03:45.420 | and you don't care about this stuff, just skip on past.

01:03:47.980 | But if you're dealing with the higher end stuff, there are some other interesting ways

01:03:51.620 | that annuities can be used at the very, very high end.

01:03:56.620 | Thus far in this show, when I have been using the term annuity, I have been referring primarily

01:04:02.020 | to commercial insurance products, annuities that are purchased from commercial insurance

01:04:07.540 | companies.

01:04:08.540 | But the use of the word annuity is not exclusive to commercial products.

01:04:13.260 | So I'm going to deal with one example here from going offshore and how annuities can

01:04:17.860 | be a useful component of going offshore, especially if you're already in an antagonistic situation

01:04:23.900 | and you're trying to plan in the middle of dealing with the uniform fraudulent transfers

01:04:29.140 | provisions.

01:04:30.800 | And then I want to deal briefly with annuities in an estate planning context, specifically

01:04:35.380 | grats and crats, and how these can be useful to you if you are dealing with a large estate

01:04:41.420 | and how you can still get creditor protection.

01:04:43.980 | My source here, I'm going to read to you a short excerpt from perhaps one of the most

01:04:49.260 | useful higher end asset protection planning books written by Arnold Goldstein and Ryan

01:04:53.860 | Fowler called Asset Protection in Financially Unsafe Times, a guide for professional advisors

01:04:58.280 | and their clients.

01:04:59.660 | It's one of the higher end books and it's fairly dense.

01:05:04.340 | So if you're a professional financial planner, you'll find this useful.

01:05:07.580 | If you are not interested in the dense, like if you're not comfortable with a lot of the

01:05:11.580 | terms, etc, this is not a good starting level book for you.

01:05:15.260 | So listen and always listen to things that are beyond your current vocabulary, but this

01:05:19.400 | will not be a good place for you.

01:05:21.900 | But I want to read a short excerpt from page 65 of the book, 65 and 66, wherein the authors

01:05:27.900 | are talking about how to plan against basically the uniform fraudulent transfers laws.

01:05:34.900 | So quick reminder, when we get to offshore planning, which I'm probably not going to

01:05:40.860 | do in this series just because it's beyond my legal competence and it's better to talk

01:05:45.740 | to an attorney, but when you get to offshore planning, one of the biggest challenges that

01:05:49.180 | you face is the risk of being held in contempt of court.

01:05:53.300 | If you go and talk to an attorney today and you start talking about asset protection planning,

01:05:57.700 | usually they'll jump first to exemptions.

01:06:00.380 | Everything that I've been talking about here is in terms of exemptions, exemptions, exemptions.

01:06:04.500 | The reason is because exemptions are solid.

01:06:06.660 | They're well codified in law, they're well practiced, they're proven, exemptions work.

01:06:10.460 | That's why I'm talking about exemption planning.

01:06:12.760 | When you start to go offshore, then either sometimes you're trying to protect things

01:06:17.460 | based upon privacy or you're trying to get into some additional legal trickery.

01:06:22.580 | And the risk is simply this.

01:06:23.820 | You can set up an offshore asset protection trust, but your risk is what if the judge

01:06:29.380 | just says to you, "Repatriate the assets."

01:06:31.940 | And you've got to prove to the judge that you can't repatriate the assets.

01:06:35.400 | Because if you say to the judge, "Hey, judge, listen, I'm sorry.

01:06:37.960 | This money's in an offshore trust.

01:06:39.540 | I'm not the trustee of it.

01:06:41.100 | I have no authority over the trust itself.

01:06:44.020 | I just can't do it."

01:06:45.260 | Well, that's the idea behind good legal planning with an offshore asset protection trust is

01:06:49.200 | you basically put yourself in a situation where you say, "I can't do it.

01:06:52.060 | I can't repatriate the money, judge.

01:06:53.580 | I'm sorry.

01:06:54.580 | I have no problems."

01:06:55.580 | If the judge doesn't believe you, what'll happen is the judge will find you in contempt

01:06:59.100 | of court and they'll throw you in jail and so you'll sit in prison.

01:07:01.940 | Yeah, your creditors aren't getting paid, but you'll sit in prison.

01:07:04.980 | And there are plenty of examples of people who have faced that situation.

01:07:09.260 | You're held in contempt of court.

01:07:10.340 | You're sitting in prison.

01:07:11.340 | Judge says, "We can get out of prison whenever you bring the money back."

01:07:13.460 | And they just don't believe that you can't get the money back.

01:07:15.860 | So it's not enough just to say that you can't get the money back.

01:07:19.500 | You've got to actually not be able to get the money back.

01:07:22.340 | And you can set it up in such a way with your offshore trusts that you can't actually get

01:07:26.660 | the money back, but yet you could still benefit from the trust.

01:07:30.420 | It can be done.

01:07:31.420 | And there are plenty of people who have won their cases against even regular creditors,

01:07:36.660 | against super creditors like the IRS.

01:07:38.260 | You can set it up so that you can win the case.

01:07:40.820 | It's beyond my ability to do that, but I'm convinced based on looking at some of the

01:07:44.700 | cases, looking at the writings by the attorneys, it is possible to do.

01:07:48.460 | But you've got to do it right.

01:07:49.660 | And one of the things about doing it right is you've got to do it in advance, but it's

01:07:53.540 | especially problematic if you're facing certain issues where circumstances have already arisen

01:08:01.460 | that are giving threat to the claim.

01:08:03.400 | So listen to how an annuity can be used in an offshore trust.

01:08:06.300 | I love this example here that the author gives here and how annuities can provide a useful

01:08:12.700 | component of offshore planning.

01:08:14.100 | Again, reading from Asset Protection in Financially Unsafe Times, a guide for advisors and their

01:08:18.380 | clients by Arnold Goldstein and Ryan Fowler.

01:08:20.980 | The first thing you need to know about offshore planning is not all offshore plans are immune

01:08:25.060 | from creditors.

01:08:26.060 | In fact, most aren't because most aren't set up properly.

01:08:29.660 | Several high-end, expensive offshore plans, all involving a straightforward transfer of

01:08:33.440 | assets to an offshore trust, have in actuality failed when put to the test.

01:08:38.640 | The good news about offshore planning is your assets move outside of a US judge's jurisdiction.

01:08:43.820 | Therefore, when implemented in a careful and proper manner, offshore planning may work

01:08:48.780 | even if the transfer is deemed fraudulent.

01:08:51.580 | However, the bad news is while your assets are outside of a judge's grasp, you are

01:08:57.180 | in the judge's grasp while you remain in the USA.

01:09:01.140 | A judge could order you to repatriate offshore assets, and unless you can prove your inability

01:09:06.060 | to do so, he can incarcerate you for failing to do so.

01:09:10.140 | In light of the above, it is best to treat your offshore transactions as if they were

01:09:14.340 | still subject to US law, because you are, and I'll interrupt the commentary here to

01:09:19.460 | say, unless you aren't, which you should also make provisions to get yourself outside

01:09:23.560 | of the US and not be underneath the US judge's jurisdiction.

01:09:26.500 | Go back to the text.

01:09:27.820 | If the transfer is not voidable under US law, then you don't even test the offshore aspect

01:09:32.380 | of your plan.

01:09:33.580 | In other words, you'll have other layers of defense that need to be breached before

01:09:37.180 | the offshore aspect kicks in.

01:09:39.700 | This is what asset protection planners refer to as multi-layered protection, or defense

01:09:44.300 | in depth.

01:09:45.380 | In regards to this strategy, it's usually not wise to use an offshore asset protection

01:09:49.620 | trust as a first line of defense, because under the laws of 42 states, the trust's

01:09:54.380 | assets are attachable by creditors.

01:09:56.380 | This means a US judge might not look too kindly on your offshore trust.

01:10:00.460 | The trick is to avoid badges of fraud as much as possible.

01:10:04.000 | Make your transfer an exchange of equivalent value, use charging order protection, which

01:10:08.420 | is recognized under US law as opposed to a foreign jurisdiction self-settled asset protection

01:10:12.800 | trust law, which isn't, and have a valid economic purpose for your transfer so as to

01:10:17.540 | demonstrate your transfer was done with an intent other than to defraud a creditor.

01:10:23.040 | After all the foregoing has been done, you still need to make sure your transfer offshore

01:10:27.140 | is done so that you can prove to a court it's impossible for you to repatriate assets, especially

01:10:32.420 | if you do offshore planning after creditor threats arise.

01:10:35.380 | Thus, if your transfer is deemed fraudulent, you can't be held in contempt.

01:10:41.420 | With the above in mind, there is a provision of the Uniform Fraudulent Transfers Act, UFTA,

01:10:45.780 | that gives a proper offshore plan a lot of power.

01:10:49.340 | This provision is so powerful that one may call it the holy grail of asset protection

01:10:53.060 | planning.

01:10:54.120 | It may be the only way to fully protect your assets if a storm of the century lawsuit arises

01:11:00.540 | and you don't yet have an asset protection plan, which means anything you do is at risk

01:11:05.620 | of being deemed a fraudulent transfer under Section 4A1 of the UFTA.

01:11:11.180 | This provision is Section 8A of the UFTA.

01:11:13.500 | It states, "A transfer or obligation is not voidable under Section 4A1 against a person

01:11:20.620 | who took, in good faith, and for a reasonably equivalent value or against any subsequent

01:11:27.440 | transferee or obligee."

01:11:30.780 | This is important to understand.

01:11:32.660 | The UFTA gives one and only one situation where a transfer is not voidable, meaning

01:11:38.780 | the transfer won't be undone, even if the transfer was done with fraudulent intent.

01:11:45.180 | The transferee must have given the transferor something of equivalent value for the transfer,

01:11:53.120 | and the transferee must have done the transaction in good faith.

01:11:57.820 | Setting up an offshore trust or LLC by itself does not meet these criteria.

01:12:03.460 | Transferring assets to an offshore trust almost always involves a gift, and therefore there

01:12:08.560 | is no exchange of equivalent value.

01:12:11.280 | Although an exchange of equivalent value is present when you capitalize an offshore LLC,

01:12:16.180 | you get an interest in the company in exchange for giving the LLC assets, the LLC will probably

01:12:21.500 | not be considered a transferee in good faith if you are the one who set up the company.

01:12:26.780 | For the good faith criterion to be met beyond dispute, the transferee must be a completely

01:12:31.700 | impartial party who does the transaction in their normal course of business.

01:12:37.260 | Fortunately, there is such a transferee, an offshore insurance company.

01:12:43.060 | Let's examine the following scenario.

01:12:44.940 | An offshore insurance company manages $250 billion in assets and has been in business

01:12:50.900 | over 100 years.

01:12:52.820 | A creditor threat materializes and you're caught unprotected or your asset protection

01:12:57.740 | plan is seriously flawed.

01:13:00.300 | Consequently, you place your liquid assets in an offshore LLC, and you take the equity

01:13:06.220 | out of your real estate and other assets by setting up and exercising lines of credit

01:13:11.940 | with the hard assets as security for the lines of credit.

01:13:15.540 | You then place the line of credit funds offshore as well.

01:13:18.940 | Your offshore LLC then uses these funds to purchase a foreign annuity from the foreign

01:13:23.900 | insurer.

01:13:25.180 | In doing so, you have accomplished the following.

01:13:28.100 | One, you've transferred your assets to a non-insider for something of equivalent value,

01:13:35.740 | the annuity contract, that has little or no worth to a creditor.

01:13:40.540 | After all, even if they could seize the annuity contract, which they couldn't, they'd have

01:13:44.740 | to wait years to receive enough payments to satisfy their judgment.

01:13:48.740 | There is a viable economic purpose for this other than asset protection, and therefore

01:13:54.960 | you make it harder for a creditor to prove the transfer was done with fraudulent intent.

01:14:00.220 | Two, because the transfer was made in exchange for an item of equivalent value and the annuity

01:14:06.420 | purchase was in good faith in regards to the transferee, the insurance company, the transfer

01:14:12.020 | is not voidable under Section 8A of the UFTA, even if the debtor did it to hinder, delay,

01:14:20.700 | or defraud a creditor.

01:14:23.140 | Three, the foreign insurer is a large, reputable, and well-established, and is in a jurisdiction

01:14:30.560 | that not only does not recognize a U.S. court order, but forbids annuity contracts from

01:14:36.140 | being surrendered to creditors.

01:14:38.480 | This is almost certainly ample evidence that the debtor is unable to repatriate assets

01:14:43.580 | if the transfer is voidable, which greatly reduces the chance of being held in contempt

01:14:48.500 | if assets are not repatriated.

01:14:51.540 | We must note that you may be able to use this strategy by purchasing a domestic annuity,

01:14:56.060 | however there are some problems with the domestic approach.

01:14:59.500 | Notwithstanding Section 8A of the UFTA, some states' laws, especially fraudulent conversion

01:15:04.100 | laws, may specifically set aside purchases of annuities or life insurance if done with

01:15:08.500 | fraudulent intent.

01:15:10.380 | Also it is almost impossible to set up an annuity where payments are made to an LLC,

01:15:15.660 | or other entity the debtor could then receive distributions from, without that entity being

01:15:19.940 | subject to reverse piercing.

01:15:21.900 | For example, if an LLC received annuity payments, this might not be considered a valid business

01:15:26.060 | purpose for the LLC, and thus the LLC could be reverse pierced.

01:15:30.420 | In comparison, an offshore structure must be used in order to purchase an offshore annuity,

01:15:35.380 | as the foreign insurer will not do business directly with a U.S. person.

01:15:39.620 | Consequently, if annuity payments are made to the debtor, or to an entity he holds an

01:15:43.380 | interest in, then a creditor may or may not attach those payments when they're made,

01:15:47.820 | depending on whether or not those payments are exempt from attachment in a particular

01:15:51.780 | state.

01:15:52.920 | Offshore planning has the additional advantage of placing assets outside a U.S. court's

01:15:56.620 | jurisdiction, assuming we can prove it's impossible to repay trade assets of course.

01:16:00.660 | Offshore annuities are much more flexible and typically have a much higher rate of return

01:16:03.620 | than domestic ones, and the offshore annuity may be exempt from creditor claims under foreign

01:16:08.660 | law.

01:16:09.660 | I give that to you with those two pages from Goldstein and Fowler's book, because you may

01:16:16.540 | need it someday, especially if you are a person of means, but don't rely on that, don't be

01:16:22.300 | in that situation, I beg of you, don't be in that situation where you are ultimately

01:16:27.340 | exposed.

01:16:29.060 | Do the planning now, and your planning will be much, much stronger.

01:16:32.900 | But if you're ever in a situation where you need it, you now know where to go for one

01:16:37.380 | idea that could possibly save your assets if you are facing a massive, massive problem.

01:16:43.620 | I want to close with a brief discussion of a couple of estate planning tools that can

01:16:49.420 | also be basically formed as a form of annuity.

01:16:54.580 | There are a variety of different estate planning tools that involve the use of the name annuity.

01:17:00.100 | Remember, an annuity can be something that you purchase, but it's basically a concept

01:17:04.700 | which means a distribution of money for an expected period of time, sometimes based upon

01:17:09.260 | the life of a person, sometimes just a series of payments.

01:17:12.860 | And so in estate planning, there are a number of estate planning tools that we use.

01:17:17.740 | And usually you'll hear estate planners refer to these by their acronyms.

01:17:21.300 | And the acronyms mean different things.

01:17:24.460 | So for example, you can have a CRAT, a Charitable Remainder Annuity Trust, or a CRT, a Charitable

01:17:30.340 | Remainder Trust, and you have a CRUT, a Charitable Remainder Unit Trust, or a GRAT, or a GRUT,

01:17:36.080 | or all these different things.

01:17:37.220 | But when you use the term annuity, then you can think about this in the context of exemption

01:17:44.540 | planning.

01:17:45.540 | So let me just give you two examples here.

01:17:47.460 | One example would be a Grantor Retained Annuity Trust.

01:17:52.060 | Now a Grantor Retained Annuity Trust, commonly referred to as a GRAT, is a way that you set

01:17:57.860 | up your assets to try to build estate tax savings.

01:18:00.880 | And here it's usually an estate planning tool.

01:18:03.220 | And the reason we're talking about this is asset protection draws from business planning,

01:18:06.260 | it draws from estate planning, it draws from tax planning.

01:18:09.300 | But a GRAT is a way that you save on estate taxes.

01:18:12.460 | You set up a Grantor Retained Annuity Trust and you make a large donation to that trust.

01:18:18.540 | It's an irrevocable trust.

01:18:20.140 | And then when you transfer money, you'd make the donation to the trust, the GRAT pays the

01:18:25.420 | original person, the trustor, an annual annuity payment for a fixed period of time.

01:18:31.500 | And then at the end of the term, at the end of the time, then any remaining assets that

01:18:37.020 | are in the GRAT are passed on to the beneficiary as a gift.

01:18:41.220 | And the tax benefit comes from the idea that the principal donated to the GRAT will increase

01:18:47.500 | in value and that the interest that's paid back to the owner will be less than the appreciation.

01:18:54.460 | So you're moving money out of your taxable estate into another, into a separate entity,

01:19:01.260 | a separate trust, which will then go on to your beneficiary.

01:19:04.060 | And you take various exemptions, sorry, various deductions of value for that and you take

01:19:09.180 | various tax deductions for that.

01:19:12.580 | Now you can do something similar with a Charitable Remainder Trust.

01:19:15.420 | A Charitable Remainder Trust is the idea where you transfer property into the trust, you

01:19:19.900 | receive annual payments from the trust for your lifetime, and then when you die and the

01:19:23.660 | trust terminates and the money, the remaining assets that are in the trust go on to a charity.

01:19:29.380 | And so you're allowed an income tax deduction when you make the contribution and you can

01:19:34.980 | take various discounts on the assets because of the controlled nature of it.

01:19:39.380 | And so it can be a very useful thing.

01:19:41.780 | But these can also be used as a way of your protecting significant assets from the claims

01:19:46.500 | of your creditors.

01:19:47.820 | For the sake of brevity, I'm going to read two more pages from Goldstein and Fowler's

01:19:51.980 | book wherein they talk about Charitable Remainder Trusts.

01:19:54.620 | And you can see how this can be used also with regard to asset protection and protecting

01:20:00.620 | assets, getting them outside of your estate, saving money on estate tax savings, taking

01:20:04.000 | an income for yourself, protecting that income from the claims of creditors.

01:20:08.180 | And then also here they talk about setting up a wealth replacement trust so that your

01:20:11.500 | children are also cared for.

01:20:13.140 | Let me read the text and then if I feel like it needs it, I'll explain any details.

01:20:18.260 | Charitable Remainder Trusts.

01:20:19.260 | The Charitable Remainder Trust is defined by section 664 of the Internal Revenue Code,

01:20:23.580 | is a popular estate planning tool that provides for multiple benefits.

01:20:27.300 | Essentially a grantor transfers property to a Charitable Remainder Trust and receives

01:20:31.560 | annual payments from the trust for his lifetime or for a designated number of years, after

01:20:36.740 | which the trust terminates.

01:20:38.760 | Upon the trust's termination, all remaining assets, the remainder, pass to a charity or

01:20:43.560 | charities in accordance with the trust agreement.

01:20:46.500 | Even though remaining trust assets do not pass to charity until the trust's termination,

01:20:50.980 | the grantor is allowed an income tax deduction the year the trust is created that is equal

01:20:55.540 | to the estimated value of the charitable remainder gift.

01:20:58.580 | This deduction is often very significant.

01:21:00.760 | For example, let's say Tim creates a CRAT, Charitable Remainder Annuity Trust, CRAT,

01:21:04.860 | and funds it with $1,000,000.

01:21:06.640 | The CRAT will terminate upon his death and in the meantime, he receives annual income

01:21:10.860 | payments of $100,000 annually.

01:21:13.580 | In accordance with IRS-approved actuarial tables, by the time Tim dies, the trust should

01:21:18.540 | have a remainder of $500,000.

01:21:21.860 | This means in the year the trust is created, Tim may take a $500,000 income tax deduction.

01:21:28.580 | Assuming Tim receives $500,000 or more that year as ordinary income, then his tax savings

01:21:34.840 | will be more than $170,000.

01:21:38.280 | There are essentially three types of charitable remainder trusts.

01:21:40.940 | The Charitable Remainder Annuity Trust, CRAT, Charitable Remainder Unit Trust, CRUT, and

01:21:45.940 | the Net Income with Makeup Charitable Remainder Unit Trust, NMCRUT.

01:21:49.980 | CRATs distribute a fixed dollar amount each year, whereas a CRUT has a percentage of overall

01:21:54.020 | trust assets distributed each year.

01:21:56.020 | The value of the CRUT's corpus is evaluated annually in order to determine the actual

01:21:59.320 | dollar amount distributed.

01:22:01.140 | We'll discuss the NMCRUT later.

01:22:02.700 | For a CRT to qualify, a Charitable Remainder Trust to qualify as such, it must meet the

01:22:06.060 | following criteria.

01:22:07.420 | A CRAT must pay at least 5%, but no more than 50% of its initial corpus annually.

01:22:12.260 | A CRUT must pay at least 5%, but no more than 50% of its corpus in accordance with its annual

01:22:17.600 | valuation amount.

01:22:19.060 | At least 10% of the CRT's initial corpus must pass as a remainder to charity.

01:22:23.220 | A CRT may last a maximum of 20 years or for the lifetime or lives of the grantors.

01:22:28.460 | When the grantors die, all remaining trust assets must pass to a charity that meets the

01:22:32.320 | criteria set forth in Section 170(c) of the Internal Revenue Code.

01:22:36.420 | CRTs are ideal for almost anyone who plans to give away some of their estate to charity

01:22:40.700 | when they die.

01:22:42.380 | This is because a normal charitable gift upon their death only qualifies for an estate tax

01:22:46.780 | deduction, wherein the gift is not included in the grantor's taxable estate.

01:22:51.060 | However, property gifted to a CRT qualifies for an estate tax and income tax deduction.

01:22:57.140 | Plus, the CRT assets may be invested and grown inside the CRT tax-free.

01:23:03.140 | Only annual distributions to the grantor are taxable when they are made.

01:23:07.240 | Because a CRT's assets are exempt from taxation while in the trust, many tax planners recommend

01:23:12.080 | the transfer of highly appreciated assets to a CRT, so those assets may be sold tax-free

01:23:17.860 | while the assets remain in trust.

01:23:20.680 | Although many people like the fact that the CRTs meet their charitable goals while providing

01:23:24.700 | a steady income stream and a sizable income tax deduction, some people are hesitant to

01:23:29.340 | use one because they'd rather have their wealth pass to heirs.

01:23:32.500 | However, if a CRT is used in conjunction with a wealth replacement trust, then the grantor,

01:23:38.340 | charity, and heirs all come out on top.

01:23:41.020 | This is because the income tax deduction taken when a CRT is funded provides extra cash that

01:23:46.020 | may be used to purchase a life insurance policy held in the wealth replacement trust, which

01:23:50.220 | is essentially an irrevocable life insurance trust in ILLIT.

01:23:53.980 | When the CRT's grantor dies, the life insurance proceeds pass to heirs in lieu of the charitable

01:23:58.580 | gift.

01:23:59.580 | Thus, the charity receives the gift from the CRT, the heirs receive the life insurance

01:24:03.980 | proceeds, both assets pass outside the grantor's taxable estate, and everyone is happy.

01:24:10.220 | Though CRTs have many benefits, one complaint we often hear is that a grantor must receive

01:24:14.220 | distributions from the trust each year.

01:24:16.480 | Many individuals would prefer to receive little or no distributions initially and then receive

01:24:20.200 | more distributions later after they retire.

01:24:23.140 | He goes on to talk about how he can make up that difference by using a NIMCRUD.

01:24:27.260 | Let's skip that.

01:24:28.260 | From an asset protection perspective, how does the CRT fare?

01:24:32.380 | The answer is the principle fares well, but the income distributions may be attached by

01:24:37.500 | a beneficiary's creditor as they're made.

01:24:40.620 | The workaround, of course, is to make the beneficiary, get ready for this, a disregarded

01:24:45.500 | entity multiple member LLC, a DEM LLC.

01:24:48.740 | Although a person or entity other than the grantor or DEM LLC may be used, this may not

01:24:53.660 | be a good idea as the income will probably then constitute a taxable gift from the grantor

01:24:58.300 | to the beneficiary.

01:25:00.220 | Since the DEM LLC is completely disregarded from the grantor, however, it may safely be

01:25:04.580 | designated as the CRT beneficiary without triggering adverse tax consequences.

01:25:09.180 | Alright, if you're still with me, briefly, let me explain what a DEM LLC is and why this

01:25:16.180 | is important for an asset protection strategy.

01:25:20.660 | These authors put forward the concept of a disregarded entity multi-member LLC.

01:25:27.580 | You create that disregarded entity multi-member LLC and you've set it as the beneficiary of

01:25:32.700 | the charitable remainder trust.

01:25:34.220 | Now, an LLC is a pass-through entity that can provide, because of the entity selection,

01:25:40.020 | some asset protection benefits.

01:25:41.900 | But usually, if a pass-through entity is going to be pass-through from a tax perspective,

01:25:49.060 | it's only going to be taxed based upon the beneficiary of the LLC, it's usually a sole

01:25:54.300 | member LLC.

01:25:55.300 | And so the question is, how do you get asset protection planning for a sole member LLC?

01:26:00.420 | You really don't.

01:26:01.420 | A sole member LLC does not provide much asset protection planning, especially in this kind

01:26:05.620 | of context.

01:26:07.140 | So what you need is a multi-member LLC.

01:26:10.980 | But how do you create a multi-member LLC that passes the income through but gets you asset

01:26:21.100 | protection planning?

01:26:22.580 | And so what they have done is advance the idea of creating a defective trust, so a defective

01:26:30.100 | grantor trust that's an irrevocable grantor trust, and making that irrevocable grantor

01:26:35.180 | trust one member of the LLC.

01:26:38.780 | Because the trust is defective, the income tax liability of that trust, even though it's

01:26:42.900 | an irrevocable trust, the income tax liability of that trust stays with the grantor.

01:26:49.440 | But then the grantor is additionally an additional member of the LLC.

01:26:53.340 | And so functionally what you've done is you've created a multi-member LLC that satisfies

01:27:00.400 | the asset protection needs of having a multi-member LLC, wherein all the members of the LLC, the

01:27:05.440 | tax liability stays with one single member.

01:27:08.540 | Because that single member has the tax liability as the member and also as the grantor of the

01:27:14.380 | defective trust.

01:27:15.880 | So that's what the DEM LLC is.

01:27:17.860 | So if you create a charitable remainder trust, you have a measure of asset protection for

01:27:23.380 | those assets.

01:27:24.380 | And let me just expand on the beauty of this particular concept.

01:27:28.980 | Who are we trying to protect here?

01:27:30.820 | We're trying to protect the individual, the wealthy individual who has assets and they

01:27:34.180 | want to receive income tax deductions, estate tax deductions, and creditor protection.

01:27:39.940 | So they transfer the assets into the charitable remainder trust.

01:27:43.260 | That's good.

01:27:44.260 | You transfer the assets into the charitable remainder trust.

01:27:46.200 | The assets in that trust are protected from the claims of the individual while they're

01:27:50.580 | in the trust.

01:27:51.660 | But because the individual is receiving annuity payments, those annuity payments are exposed

01:27:55.980 | potentially as an income source of the individual to the claims of their creditors.

01:28:02.060 | That's okay.

01:28:03.060 | We solve that in a moment with the DEM LLC.

01:28:05.340 | But while the assets are in that remainder trust, they're protected from the claims of

01:28:09.620 | the creditors.

01:28:10.700 | Those assets will flow eventually to a charity.

01:28:13.580 | So that charitable contribution is protected for the ultimate charity.

01:28:18.020 | By setting up a wealth replacement trust, a trust that holds a life insurance policy

01:28:21.980 | on the life of the wealthy person, with that life insurance policy flowing to the beneficiaries,

01:28:27.300 | flowing to the children, you've protected those assets from the claims of creditors.

01:28:31.020 | And you use the income tax savings to fund the wealth replacement trust to pay for the

01:28:34.420 | life insurance premiums.

01:28:36.300 | Because it's life insurance, you have protection.

01:28:39.580 | Because it's the beneficiaries, you have protection.

01:28:41.300 | Because it's the irrevocable trust, you have protection.

01:28:43.520 | So that's useful.

01:28:44.520 | So that protects the assets for the beneficiaries, for your children.

01:28:48.820 | It protects the money for your children.

01:28:50.900 | And then the ultimate little flourish on top is you add this disregarded entity multi-member

01:28:56.180 | LLC.

01:28:57.300 | And you make that disregarded entity, the DEM LLC, the beneficiary of the charitable

01:29:02.900 | remainder trust.

01:29:03.900 | Which means the assets flow into that LLC.

01:29:06.900 | The LLC protects those assets with charging order protection from the claims of creditors.

01:29:11.840 | But yet you don't create a tax problem because you the individual are still receiving, as

01:29:16.180 | the ultimate tax person, you the individual are still receiving the benefits of that charitable

01:29:21.980 | remainder trust.

01:29:23.020 | But those income streams are protected from the claims of creditors if necessary.

01:29:28.100 | I hope you made it with me.

01:29:33.100 | This series is for mere mortals.

01:29:35.940 | And so I've been trying to keep everything low hanging.

01:29:37.940 | I didn't want to get into state advanced stuff.

01:29:41.220 | I love the stuff.

01:29:42.580 | But it's just not applicable to most people, including most listeners of the podcast.

01:29:48.340 | But hopefully it piques your interest of some of the fun things that are available to you

01:29:52.460 | when you are wealthy enough to pay the legal fees.

01:29:55.380 | Remember, there are thousands of lawyers that sit around and read the rules and come up

01:29:59.020 | with all kinds of fun stuff like this.

01:30:01.020 | And you can have access to them too.

01:30:02.540 | Just pay the right fees.

01:30:04.340 | So there's one set of tax code.

01:30:05.780 | It's just that rich people pay lawyers to read it and figure out how to exploit it.

01:30:09.620 | Everything we've just talked about is totally legal.

01:30:12.260 | I'm not sure how much of it has been tested in court.

01:30:15.340 | I have not studied the court case to see how it has held up.

01:30:18.620 | But I see no...

01:30:19.620 | In my layman's approach, I see no reason why there's a problem.

01:30:22.660 | I'll let the attorneys argue that out later.

01:30:25.540 | But it should open up to you some of the ideas.

01:30:27.180 | I just wanted to mention those ideas because they also involve annuities.

01:30:30.940 | I get so sick and tired of people dumping on annuities.

01:30:33.740 | They also involve annuities, but not commercial annuities.

01:30:37.300 | The foreign annuity where we talked about the offshore LLC purchasing the foreign annuity,

01:30:42.620 | that involved a commercial annuity just from an offshore company, which is important.

01:30:47.700 | But then this stuff just involves the concept of an annuity, but doesn't involve a commercial

01:30:52.900 | annuity.

01:30:53.900 | It just involves an annuity schedule of payments coming out of an irrevocable trust.

01:30:57.460 | I hope that's enough to get you thinking.

01:30:59.580 | Again, we passed through mere mortals, but everything at the beginning of the show was

01:31:02.920 | low-hanging fruit.

01:31:03.920 | Annuities, you can use them yourself.

01:31:05.820 | The middle stuff, you can do that as you start to build up your offshore plan, as you start

01:31:10.340 | to go offshore yourself, as you start to accumulate assets offshore.

01:31:15.360 | Annuities can be very useful there for you.

01:31:17.620 | And then kind of the ultimate, hopefully you enjoyed the final flourish, is you can start

01:31:22.060 | to use this to dispose of an estate and to protect a large estate from the claims of

01:31:26.060 | creditors while also minimizing estate taxes, income taxes, and securing your wealth for

01:31:30.180 | future heirs while also making charitable contributions.

01:31:33.340 | Hope you're enjoying this particular series.

01:31:36.380 | I don't have any closing announcements.

01:31:37.700 | I just encourage you to go to RadicalPersonalFinance.com, switch over to the website, a new website.

01:31:42.580 | It's profoundly simpler than the old one was and profoundly more obvious where you can

01:31:46.500 | buy stuff from me.

01:31:47.780 | Go to the store.

01:31:48.780 | At the moment, there's only one course listed, but if you're listening to this in the future,

01:31:51.380 | come on back.

01:31:52.380 | There'll be more there in the future.

01:31:53.380 | Go to RadicalPersonalFinance.com, click on store, buy the credit card course, and then

01:31:57.660 | keep an eye out to see what's there.

01:31:59.260 | More ads coming in the future.

01:32:00.460 | I'll be back with you very soon.

01:32:02.700 | With Kroger Brand products from Ralphs, you can make all your favorite things this holiday

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01:32:12.580 | And with a money-back quality guarantee, every dish is sure to be a favorite.

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01:32:29.380 | [MUSIC PLAYING]

RPF0622-Asset_Protection_Planning_for_Mere_Mortals_-_Part_8_-_Annuity_Values_and_Annuity_Payments_Exemption_Planning