Would it be fair to say anyone who has assets, children, or preferences on what happens to them should probably have a will or...? Every adult does need a will. You should have a will on your 18th birthday. Are you going to? Is that what you're going to be first thing in line, Monday morning, your 18th birthday?

No, let's be realistic. But every adult should have a will. There's no minimum asset thresholds. And like you said, even if you don't have this huge amount of assets, you don't have children, you still have final arrangements, and you still have some property that you will dispose of, whether it's high value or sentimental property, you need a will.

Every adult needs a will. I wanted to talk to someone who I think really understands all of the advanced tactics people are using to both avoid taxes now, avoid taxes in the future, be able to transfer money to their children. The estate tax is, it makes all other taxes look low.

So just the federal tax rate alone is 40%. It does graduate, but it gets to 40% pretty quickly. And that's just federal. So then you can start to layer on state taxes on top of that, and it can get much, much higher. Now, some of these state estate taxes actually start at levels below this 12 million, depends on a state by state basis.

But the federal is the most punitive. And that's primarily what people are concerned about is if they're trying to pass on as much of their hard-earned wealth to their kids or grandchildren, how do they work around the estate tax? And this is where estate planning comes into play. Hello, and welcome to another episode of All The Hacks, a show about upgrading your life, money, and travel.

I'm your host, Chris Hutchins, and I'm excited to have my first two interview episode today. We'll first talk about estate planning with Patrick Hicks, a lawyer who recently became the general counsel for Trust & Will. Now, if you're not familiar with estate planning, think of it a little bit like risk management for your family.

It's a way to protect and guide your loved ones should you die or become incapacitated. Now, I know that's not the most exciting topic for a dinner conversation, but I promise it's an important one and we'll get into some really tactical advice. After that, we'll talk to Mani Mahadevan, who runs a company called Valor, which is really democratizing access to the kinds of trusts that wealthy people use to limit the taxes they pay.

It was so fascinating to hear about some of the crazy ways that people avoid giving the IRS more money. I know this is a longer episode, but both of these conversations were on similar topics and were so interesting that I thought it would be worth combining them into one.

So let's jump right in. Patrick, thank you for being here. Happy to be here and speak with you. You know, I just spent some time talking about some of the aspects of how people and their families can start to protect themselves, their documents, and I didn't spend as much time on the legal side of things.

So I think most people have heard of the term will and I've written about it a bit and we've mentioned it in the past. Maybe we could just start at the basics about what kind of is a will and who needs one? Yeah, that's a great question. So a will is a fundamental estate planning document.

And once you have all of your decisions made and your intentions and your preferences, it's these legal documents are the ones that actually make them legally binding, enforceable, and valid. So that's the difference between I have a desire and now I actually have an enforceable legal decision. That's the estate planning documents.

And the will is the cornerstone, fundamental estate planning document. It's incredibly old. It's been around the concept of a will since ancient Greece, but the will as we know it today, even that the origins kind of trace back to the 16th century. Henry VIII was the king when they passed the Statute of Wills Act that set a lot of the requirements that we're still working with today.

So that's how long a will has been part of estate planning in modern society, if you can really call the 16th century modern society. We're still using the same rules. So I guess I got to give them a little bit of credit. Wow. I didn't know the history. Are there a handful of things if you went through a list of like what are the main components of it, the decisions that you want to think about before creating one?

Yeah, absolutely. So a will, because it is a very fundamental document, it handles fundamental needs. And there's three primary needs that every will will handle. And the first is it will dispose of your assets. It will say where your things go, who gets what after your death. And a will only applies at death, but that's what it does is it transfers your assets after death.

The second thing after disposing of your assets is it will choose who will care for your children. Now your children are not assets. You don't dispose of them in quite the same way, but a will allows you to nominate someone who can care for your children to serve as their guardian.

And the last thing that a will does is allows you to specify your own final arrangements, your burial preferences. Do you want to be cremated, buried at sea, blasted to the moon, whatever it is that you want to do, a will lets you select those three things. Dispose of your assets, someone to care for your children and your final arrangements.

Those are the core functions of a will. Would it be fair to say anyone who has assets, children, or preferences on what happens to them should probably have a will? Or what would happen if I wrote a document, it wasn't fancy, and I emailed it to like three friends that just kind of said, "Here's what I want to do." Does that work in place of a will?

Or what's kind of necessary for this to all play out how you want it? Yeah, those are great questions. So the first one is every adult does need a will. You should have a will on your 18th birthday. Are you going to? Is that what you're going to be first thing in line Monday morning on your 18th birthday?

No, let's be realistic. But every adult should have a will. There's no minimum asset thresholds. And like you said, even if you don't have this huge amount of assets, you don't have children, you still have final arrangements and you still have some property that you will dispose of, whether it's high value or sentimental property, you need a will.

Every adult needs a will. But if you don't have a will or if you're looking to kind of create your intentions without a will, it starts to get a little dicey because you can send that email or even draft a letter to your friends and say, "In the event of my death, I want this to happen." And the question is, is that legally valid and enforceable?

Is that enough for your preferences to be given actual weight in the eyes of the law? And in many times, unfortunately, the answer is no. And so when you have that result, you may think you have a plan, but the law disregards your plan and you wind up dying with no estate plan at all.

And so let's take an example. Somebody has $50,000, one child, and a strong desire to be cremated, but no will, no email sent to anyone. Maybe they've told their spouse what they want, or maybe we can go through whether they do or don't have a spouse. But what would happen?

What would happen to that $50,000 without a will? What would happen to their child and who makes the decision on what happens to their remains? Yeah. So if you die without a will, that's known as dying intestate or intestacy is the process that you go through. And that simply means that you have no will at death.

And every state has a set of laws that will apply that says, if there is no will, here are the default laws. And those default laws attempt to kind of fill in all those holes. So it will say who's responsible for making decisions or where assets might go or who might have priority to care for children.

So it's an attempt to fill in those gaps, but it's not a perfect solution by any stretch. In your situation, that $50,000 would most likely be split between the surviving spouse and their surviving child. So $25,000 to each of them. And that's just that default law. Now, that spouse might be the person who has the presumed authority to make decisions who could say, "Hey, I happen to know that this person wanted to be cremated.

So we're going to choose cremation." But if they don't know that, or if they disagree with that, if you've never expressed that preference at all, that spouse may have the legal right to act, but they don't have the knowledge of what your preferences are. So you have to have both sides.

You have to have clear intentions and you have to have legal authority. And without a will, you're really running a risk that you don't have either of those. And if you didn't have a spouse, what happens to children or assets? Or if you don't have children, what happens to assets?

Yeah. So if you don't have a spouse, you don't have children. Most of these state laws, what they have is a set of, essentially, an if-then statement. So if you have a spouse, everything goes to your spouse. And if you have a spouse and one child, it's divided equally.

If you have a spouse and two children, it's just kind of corresponding, cascading set of decisions. But if you really boil it down, all of these laws basically say assets pass to your closest living relatives. So if you have a spouse, maybe your spouse or your kids, and if you don't have one, it might be your parents or your siblings.

Maybe you can go out to your grandparents and your cousins. So if you're really isolated and don't have close family, it might still pass to your cousins. The problem is getting that process completed, getting to that finish line could be a difficult step. And it's just sometimes, by the time the assets get to that cousin, the assets might even be depleted by fees and expenses.

And so you're really starting to eat into the beneficiary's actual receipt of funds from your estate. And I assume if you had neighbors who were kind of unofficial godparents to your children, and your desire was, "I wish they could take our kids," and you didn't have a will to state that, I imagine that would probably be a difficult thing because neighbors and friends probably aren't in the kind of statutes of if-then statements.

Right, absolutely. And so if you have assets you want to leave to your neighbors or your close friends, the law just doesn't look at that at all. It's either a family member or you're not. So if you have something like that, you really critically need an estate plan in place.

But with children, it's even trickier because ultimately the court is compelled to do what is best for the child. So even if as a parent, I say, "I want my neighbor to care for my child," and the court will look at that and it's very unlikely. But if the court says, "Hey, this is a really bad decision for some unknown scenario, maybe the neighbors have developed a drug habit or something like that that is unknown to me," the court can actually step in and say, "We're going to overrule this decision and we're going to pass the children to someone else." And it kind of leaves the court with almost too many options.

Should we give it to a family member? Should we give it to close friends or does the child fall into the system, the foster care for the state? It's almost too open-ended and it leaves your children with no certainty. And what's already, if you think about a tragic time, the loss of a parent, it's a lot for a child to be expected to bear.

Wow. So it's pretty clear that everyone probably needs a will. What would actually happen, I'm just curious, if you were in debt? Let's say someone actually had the opposite of ads, they just had liabilities. Is that a rare circumstance where if you had no kids, no spouse, no desires for your remains, it might be better to not specify who takes on those liabilities?

Or what happens when you die with credit card debt or a mortgage that you don't have enough assets to cover? Yeah, that's a great question. So there's two types of debt. The first type is known as recourse debt. And that's something that might be like your mortgage on your house.

It's actually tied to a specific property. And so that debt is associated with that property. If you want to leave someone that property, they take it with that debt. The other type is something like maybe your credit card bills. And that's just as a personal promise to repay that debt.

The benefit of that second type, your credit cards, any sort of normal outstanding loans, they don't evaporate that death. They can be paid off from any assets in your estate. But if there are not enough assets to pay down those debts, those debts just go away. They don't get passed on to your heirs.

As a general rule, there's some weird exceptions that might pop up here and there. So it's not always a black and white scenario. But generally, you don't have to pass on liabilities to your children. But you still need to account for that plan. Because if you don't have that accounted for as part of your estate plan, you can actually have a creditor who will come in and say, well, we're going to open up the probate proceeding, for example.

And we're going to call the shots. And we're going to run the show. So it may still not be in your best interest. Even if you don't have significant assets, everyone has something of sentimental value, whether it's a photo album or old furniture in your house is an antique.

And it's something been in the family a long time that a creditor is going to say, well, that's $50 at a consignment shop. And they're going to look at it as dollar amounts. And it's going to deplete what could be sentimental inheritance to your children, for example. So I think that makes a lot of sense.

Will, seems to be something that everyone listening should have, at least over 18. What about all of these other documents? So I've written in the past about the full estate plan. And I know in California, that's sometimes something that has to do with avoiding probate. I don't generally know across the country what all the rules are.

But what would you say is the kind of core difference between an estate plan and a will? And who needs to make the upgrade? Yeah, so I think the best way to think about it is an estate plan is a set of documents. And then a state plan can contain a variety of documents depending on your particular situation.

Most typically, an estate plan will have at least a will and a set of healthcare documents, maybe a power of attorney or a living will or advanced healthcare directive, something like that. So that set is really the fundamental building block of an estate plan. You can also add additional documents.

So a trust, a living trust, for example, is a very common additional document to be included in an estate plan. And if you start getting in more complex situations, you might have other types of trust, maybe your asset protection trusts or really charitable giving trust, anything like that, that are really specific tools for specific use cases.

Not everyone's going to have those as part of their estate plan. But if you have that need, it is a great fit for your situation. But that core set, will and healthcare documents. So fortunately, we're going to have Monte from Valor on the show in a little bit. So we don't have to get into a lot of those complex things.

But I do think it would be good to walk through the basic documents. I know, even I originally got confused when I was like, "Okay, so there's a will and then there's a living will. And it turns out the living will is not the same thing as what you think of as a will.

So maybe we could just kind of step through the common components of an estate plan and maybe start from the most common. So you said these kind of healthcare documents and move towards and maybe end at the living trust and talk about what they are and who might need them.

Yeah. So you have the will. The will, the fundamental document, dispose of your assets at death, nominate guardians for children, final arrangements. A will only applies at death. It has no impact on you during your lifetime. Where you fill that out or kind of compliment a will is with something known as healthcare documents.

And this might be this group of documents is sometimes known as healthcare documents or disability documents, incapacity documents, a variety of names that might apply here. And within that group of documents, you typically see something called a power of attorney. And then you see a healthcare directive or a living will medical directive.

Again, there's a lot of interchangeable terms here, but the basic concept is these healthcare documents. These apply during your lifetime. So a will applies after death, but healthcare documents apply during your lifetime and allow you to make decisions for what should happen if you are alive, but unable to speak for yourself.

So maybe you've had, you know, a medical emergency, you're incapacitated, you stepped off the curb and got hit by that proverbial bus, whatever it is that you're unable to make a decision for yourself at that time. These documents can step in and kind of fill in that gap and either speak for you or nominate someone else to make decisions on your behalf.

Okay. And what kinds of decisions can you make in advance? What do you need to specify? Kind of what goes into the nuance of creating them? So each document does a little bit, each document does one thing a little bit different than each other document. So that's why they're typically kind of coupled together as a set.

The power of attorney handles your financial affairs and essentially it's everything that's not medical. So it ranges from banking and taxes to real estate, anything that you need to do as a transactional matter other than dealing with healthcare, that's where the power of attorney will fill in. And this essentially allows you to designate someone else to sit in your place, step into your shoes and make decisions on your behalf.

That's great to cover a wide range of really common needs. The healthcare side, you have a set of documents known as either a living will, an advanced directive, a medical directive. Again, a lot of different terms can be used interchangeably. And these do two things. One, they specify your medical preferences.

So what type of care do you want to receive or not want to receive? You can make choices for yourself. But the second thing they do is they nominate someone else again to fill in those gaps. So if a decision has to be made and you have it spoken in advance, who answers those questions for you?

And that's the medical side that pairs with the financial side. Both of those two documents together comprise the healthcare documents as a single unit. And I know for having filled out these documents, one of the big decisions you often talk about is kind of plans for life support. So for anyone listening, and you're kind of thinking, "What kind of decisions would I want to make?" It's if you were in a coma, how do you want to treat that?

What kinds of... The options are often like, "Go at all expense to try and prolong my life." Or if a doctor determines that we've done kind of as much as is reasonable, "Don't keep going." So those are the kinds of decisions that you might have a different opinion on than whoever's in charge.

And you can specify in advance. Yeah, these are inherently personal decisions. And so your choice is specific to you. No one else can make the same choice that you would in that circumstance. They're also very difficult decisions. And so it's unfortunate for anyone to be asked to make a decision with no guidance.

That can be just incredibly overwhelming for that individual to think, "What am I supposed to do? Am I going to hold a plug or leave them on life support?" I mean, they can carry that doubt and potentially guilt for the rest of their lifetime worrying if they made the wrong choice.

So it's not always something you do for yourself. It's really important for you to do this to think about those who are also still alive and making decisions for you and what the benefit you can provide to them. And who would make that decision absent these documents? If I hadn't nominated someone to be my healthcare...

I'm guessing the law stipulates, "Okay, if you have a spouse, the spouse makes a decision." Is it the same thing? The closest living relative is kind of the person who gets to make the call? It does. And it follows the same set of rules. They're different rules, but they're the same structure, at least.

So it'd be your spouse, your kids, your parents, closest living relatives. But you can get into a situation if you have three kids and they're equally entitled to make a decision and they disagree, what happens then? So it can be very important because you have to make one single decision.

And in many cases, you don't have time to work out a dispute or go to court, get a court to intervene and make a decision on behalf of the three kids. Some of these decisions are very urgent. So having a plan is really particularly important for healthcare decisions. We've got a will, we've got your medical and your power of attorney documents to cover your finances.

What are other things people should be considering when it comes to their estate planning? So the other core document that many people should look at is a trust. And when I say trust, I mean a revocable living trust. There's a whole wide range of trusts, but we're talking about a revocable living trust.

The revocable part simply means that it's able to be amended or changed or even revoked during your lifetime. And the living part just simply means you create it while you're alive. So it sounds kind of complicated, but it's the workhorse of modern estate planning. That is the document that the majority of individuals who look to add something beyond a will will look to add a revocable living trust into their plan.

Like the will, it allows you to make decisions after death, but it also applies during your lifetime. So a trust kind of blurs the line. It allows you to handle some of those lifetime incapacity issues, but also allows you to plan for what happens after death, where your assets should go, who should be in charge, things like that.

I'll just flag for anyone listening. A lot of times, we've all seen some TV show or movie where some kid gets a trust fund and there's tens of millions of dollars. And I think my original knowledge of it was like, "Trusts are just for millionaires who have so much money that they want to limit how much goes to their kids." I've learned over time that that is true.

There are lots of trusts. They're actually usually more the irrevocable kind that have a lot of different tax and tax avoidance often benefits. And we're going to talk about those a little bit later because I think it's really fun to understand. But the revocable or irrevocable trust is really not a thing just for people with millions of dollars.

But who should be thinking about this? When does it make sense to say, "Okay, a will and some of these healthcare documents is not enough. Let's look at the trust." Yeah. So there are a few reasons you might want to look to add a trust to your estate plan.

And the first, if you focus on what a trust does, a trust gives you more control over the distribution of your assets. When and how those assets are distributed to your beneficiaries. So this might be useful if you have young children, you might want to look to add a trust because that allows you to say, "Hey, I want my assets to go to my kids, but maybe not at age 18.

I want them to go at age 25 or split half at 25 and half at 35." You have a little more control over when and how assets are distributed. Similarly, if you're in a blended family or if you're a second marriage situation, a trust allows you to do a little more in terms of, "I want to support my spouse, but I want to ensure that ultimately those assets pass to my children.

I don't want to worry about leaving everything to my spouse. And then my spouse either getting remarried or leaving everything to my stepchildren with my kids receiving nothing." So those kinds of complex family dynamic situations, it's a great option for a trust. Beyond that though, a trust has one feature that a will does not.

A will goes through probate after death and it becomes essentially a public document. And a trust stays private. So if you want to have a little privacy in your affairs, particularly after your death, a trust gives you that and a will simply does not. But the primary reason for most people to look for a trust is to avoid probate entirely.

And that's something that a will, by nature of a will, it goes through probate and a trust just simply bypasses the probate process entirely. That can be a massive savings of not just time and effort, but money for a whole lot of people. So I have a couple questions there.

One, what is that general cost? And two, at least in California, I've always heard this, "If you have less than $100,000 in assets, a will can avoid probate. So think about a trust when you cross that threshold." Is that still true? And what does the process look like? Yeah.

So the probate process, it deals after death. It allows you to essentially prove that the will is valid, appoint the executor, carry out the terms of the will. It seems like an orderly process. It's anything but. It can take, you know, measured typically in months or years. In California, a two-year probate is close to the norm these days.

So the fees involved with probate, they vary by state, but then they also vary by the facts of your particular estate. In California, the threshold was recently raised, and it's now 184,000 of whether or not you can have some sort of short-form probate or if you have to have a full probate.

Once you reach that threshold, the amount that you're actually going to pay in terms of fees and expenses, it's basically a percentage of the overall value of your assets. But as a quick example, if you have a million dollars of assets in California, you might look to pay maybe $50,000 of fees all out the door to get through the probate process.

And just to clarify, that million dollars is the gross value of your assets. So if you own a home and you're heavily mortgaged, you maybe have a million-dollar home and 200,000 of equity, you're still paying that 50,000 on the full $1 million value. You don't just look at the net value of your assets.

That $50,000 can be a pretty heavy bill for someone to pay on top of their ongoing costs to maintain their standard of living. Where do those assets, they just pull those assets to pay for probate out of whatever you had in your bank account and whatnot and sell your investments and that kind of stuff?

Yeah. If you have liquid assets available, they'll come from that. Otherwise, you might be forced to mortgage a house or even sell assets that are illiquid in order to generate these funds. And that can happen. You do see surviving spouses who have to sell the family home because they cannot come up with the cash to pay for probate or they can't maintain the mortgage payments after death, particularly with a loss of a source of income.

So life insurance proceeds, it's a great opportunity to pair life insurance with your estate to ensure that there is cash available. But if you don't have that cash available, it's coming from other assets. And ultimately, it's going to reduce the amount that passes to your beneficiaries. So California, in many different ways, is a unique state.

How do the other kind of 49 states and commonwealths and territories compare in terms of a hard threshold where things get really complicated? Or do many states offer that kind of short form version of probate that maybe isn't as daunting or expensive or timely? Yeah. Most other states are not quite as burdensome as California with respect to probate.

California, if it's not the worst, it's competing up there with maybe a couple other states to be among the worst states in terms of probate. A lot of other states, it's a more streamlined process. It's maybe closer to filing your tax returns. You're filling out some documentation, submitting it.

You got to have a lot of records to back it up. It's not quite as burdensome. It doesn't take as long. It's not nearly as expensive, but it's still not enjoyable. And so you have to bear in mind that you're doing this immediately following a death. So there's a lot of emotion going on, a lot of just mental struggle happening.

And then, "Hey, let me go fill out this really complicated equivalent to a tax return." It may be easier than California, but it's still something that a lot of people might look to avoid. Without the fees of $50,000, you can definitely get away in a lot of other states without a trust.

So you don't necessarily have to have a trust in every state, every situation as a universal rule. Many people still want to trust because it does have other benefits outside of probate. Those additional control over distributions and the privacy benefits, but it's not necessarily the probate factor alone requiring the use of a trust.

Are there other states that if someone's listening and in that aren't California that are equally challenging or maybe not as challenging, but states where a trust might make a little bit more sense? Yeah. So there are a couple of states. So New York is actually fairly difficult, not surprising.

It has a lot in common with California. You also get some interesting things like Cook County in Illinois, not the whole state of Illinois, but Cook County in Illinois can be difficult to go through the probate process. So as a general rule, if you're in a bigger city or a higher net worth area, you tend to have a little bit more going on.

The courts might be more congested. So the whole process just gets a little more bogged down. If you're in the Midwest, most of the states that tends to move a little more efficiently. So if you aren't sure what your local rules might apply to you, just think about what it looks like if you were to go to the county courthouse and try to get any sort of application.

Is that relatively easy or is that something you don't want to look forward to doing? And that should give you a direction of which way to lean on how bad probate might be. I've gone through a couple different processes in my life setting all these documents up. One time I had a legal benefit at work where it turns out I could enroll.

And I just did it for one year. I paid a couple, maybe $15 a month. And at the end of it, I was able to go hire an attorney to drop these docs. And then full disclosure, once we had our first child, I used trust and will. And that's how we put together our whole estate plan.

And I'm a big fan of the product. I'm not getting paid. You guys didn't pay to come on. I just like the product. I've talked about it before. I am curious for people listening, when does it make sense to download the template of a will that I'm sure there's lots of free legal will templates?

Maybe even the state provides one. When does it make sense to use a service like trust and will or others that help you automate and create documents that you don't have to fill out yourself? And when do you get to the point that it makes sense to work with an attorney to drop something a little bit more custom?

Yeah. So the hard part of trusting any sort of free document is knowing, is this actually valid? Has this been updated? Does this reflect the current laws? If I create this document, do I get what I think I'm actually expecting to receive here? I would say what you're paying for, but that's nothing.

So are you really getting what you're expecting there? And unfortunately, I've looked at many of these free templates and sometimes they're just not valid. So there's that huge risk there of what you get. Some of them are good. So I'm not saying it's impossible to do it. And in some states, you can just pull out a piece of paper and handwrite your will and you're good.

You're out the door. The mechanics of it are less difficult than somehow knowing what to say to carry out your intentions. So that's where you might want to look at something like Trust and Will. And if you need to make a quick comparison, Trust and Will is kind of like TurboTax for state planning.

So yeah, you can download the forms in the IRS and fill out your 1040 on your own, but most people would rather have a guided experience through a tech platform like TurboTax. It just seems to make it all a little more comfort inspiring. You get more peace of mind, a little bit easier.

Trust and Will, we really handle most needs for most people where we really start to have some situations where you might want to go to an attorney. If you have really complex situations or if you're expecting a fight after your death, it's probably worth it to go see an attorney.

Or once you get into really high net worth individuals, if you're over about $5 million, we can still handle that at Trust and Will. Our documents are sophisticated enough to handle those situations up to and including a taxable estate, 12 or 15, $20 million of total wealth. But you're probably going to get a better value if you actually go and pay the $5,000, $10,000 to have a custom document drafted by your attorney.

$5,000, if you have $20 million in the bank, not that big of a blow to you. But $5,000, if you maybe have $500,000 in the bank, it starts to be a little harder to swallow that bill. That's really where Trust and Will fits in for most people. Any other circumstances that might make someone say, "Okay, maybe working with an attorney does make sense?" Well, special needs children is a particularly difficult situation.

There's a specific type of planning that can be done for that. Trust and Will doesn't currently offer that, although that's something that's on our roadmaps. We hope to have that offered soon. But that particular situation, if you want to account for a beneficiary who has special needs, it's a great option to go say, "Hey, maybe an attorney is better for my use case." Beyond that, if you have things like a prenup that requires certain payments to be made at death, or even a divorce decree or a marital settlement agreement that says, "Upon my death, I ensure that I'm going to leave X amount to my former spouse." You may need to have custom language inserted into your documents.

Typically, only an attorney can provide that and ensure that the language in your documents complies with the requirements of that prenup or that marital agreement. If you have a situation where you may think everybody's unique, and I don't want to say anybody is boilerplate, no one's template. But if you have a situation where you go, "I just feel like I'm not a good fit for this particular reason." You get that tingly feeling, that might be enough to at least call an attorney, see what they say.

Maybe you could find some help. Maybe they go, "Oh, yeah, I can easily handle this. It's not a problem." And you get a little guidance from them. But you kind of maybe use your own best judgment. If you feel that you aren't going to be a good fit, you probably are worth paying a little bit more just to get the peace of mind of having an attorney involved.

Are there any financial or tax benefits other than avoiding probate costs that come with setting up a will? Or sorry, come with setting up a trust? So trust can have some tax savings opportunities, both on a federal state tax or even a state tax. For most people, that's not applicable.

The current federal state tax thresholds are so high that it's just not something most people have to care about. But a trust can be used to at least efficiently pass assets without incurring additional taxes. So if it's something that you're concerned about, it can do that. But on the flip side of that, the trust also doesn't really incur any additional taxes.

While you're alive, a revocable living trust is essentially disregarded from federal tax viewpoint. It's your alter ego. It's moving assets from your left pocket into your right pocket. You don't need a new taxpayer ID number. You don't have to file a separate tax return for assets in your trust.

It's known as a grantor trust. But that just means it's no change. So it's held in this vehicle of a trust that provides a lot of benefits, but it won't negatively impact your tax status while you're still alive. As someone who's gone through this process, usually you fill out a form, sign it, send it in, the bank and the account now has a new title, but it's still your same account.

You still get your debit card with your name on it. It doesn't really change a whole lot. So I think when it comes to a lot of the trust we'll talk about in a bit, the irrevocable ones, that changes a lot of things. But in this circumstance, I think it just, it feels more fancy and technical because of the way we've seen it in the media about kids with trust funds than it is actually more a document to kind of just keep things more organized.

But one of the questions that you have to figure out is who's going to be the trustee of the trust if you were to pass and usually that is you and your spouse might create it and the spouse takes over. Can you talk a little bit about that decision?

Because I think some people listening are probably going to go through this and have to think, "Okay, who is going to manage these financial affairs? And let's say my kids are young and they're not ready for the money. What happens to it? How do those decisions get made?" So the trustee, they're kind of like the CEO of the trust.

They have a lot of administrative and financial responsibilities. And that includes everything from keeping records, paying taxes after death, making sure the distributions are actually made. They also work with a lot of professional advisors, whether it's a lawyer, an accountant, somebody like that. They have a lot of maybe more sophisticated requirements.

And so you also want to make sure that you have someone that understands you and your decisions because they still have to exercise their own discretion. Sometimes it's not a black and white decision. The trustee has to make a choice. You want to make sure that that choice that is made is one that you would agree with.

So choosing someone who can handle all of those duties well, it can be difficult. You're right. Most people do look to name a spouse or a child or a family member as their trustee. But if you don't have a spouse or if your children are very young, they may not be good choices.

You can look to name a sibling or a parent, but is that the right person? It's ultimately going to depend on what's right for you. The most common choices are spouse and children and other near family members, close friends are a common option. There are business partners that you can choose if you have a close working relationship.

But if none of those apply, there are professional fiduciaries or even a bank who can step in and serve as trustee. They charge a fee for it, but it's more of a corporate approach. You know what you're getting, you're opting into. I am choosing to have this bank serve as my trustee.

They're going to make very corporate decisions. But sometimes that's good if you don't have another alternative that you can comfortably rely on to fill in and make those decisions for you. For our circumstances, we didn't want to leave our children who right now are one about to be born and two years old with money at that age, which I don't even know if you could legally do.

So this person was going to have to manage our assets until the right age, which meant managing the investments. What happens when the funds that you're invested in pay dividends? Do you reinvest them? When do you change asset classes? If you look at a trust that was maybe written 10 years ago, you probably never thought maybe you'd want to invest some percentage of your portfolio in cryptocurrency, but now you might.

So for us, we thought about who can make those kinds of investment decisions. And it was just a very different calculus than who do we want to take care of our children? Those are just fundamentally very different. And so we didn't choose the same person for that. And it was much more of an investment kind of mindset that we wanted someone to think about and be fair with money.

Because I think, am I right calling them HIMSS clauses? There's like a phrase of what kind of discretion you give the trustee over things. And that kind of really helped me think about who could make those decisions. Yeah. It's a really important point. And it is a HIMSS clause, H-E-M-S, health, education, maintenance, and support.

You can talk to your favorite lawyer about it, but it provides certain instruction as the terms of when assets can be paid out to a beneficiary or when assets have to be held in the trust. But the bigger point is the person who fills the role of the trustee best for you may not be the person who fills the role of guardian or fills the role of executor, fills the role of your power of attorney.

So the default many people think is, "I'm going to name my spouse for everything." But that may work, but maybe your spouse isn't the person who wants to handle these complex financial situations. So maybe you want to name your spouse to care for your children, obviously, and make personal decisions for you.

Maybe you want to name your brother who's a tax lawyer to handle your financial investment decisions if that's more suitable for your particular needs. So you don't have to name one person in every role. You can name individuals that are suited for each particular role. You want to make sure they're kind of coordinated and able to work together.

But each role should be kind of accounted for different or as a one-off, if you will. So it can be someone that serves another role, but it doesn't have to be one person filling every fiduciary role throughout your estate plan. And one thing we did, which I think isn't required, but we kind of wrote a side letter for the successor trustee because they have this ability to control the health, the education, the maintenance, how much...

Do the kids go to private school or not? That's a financial decision. The trustee would get to decide that. So we just wrote a letter to that person and said, "We want you to know that here's how we would think about spending money on our children. Would we want them to have some money to go on vacations or study abroad?" Things like that, where it was less about we thought this person would make the wrong decision, but we just wanted to make it easier for them to make the decision we would have made.

So while I don't think you guys have built in a feature to write a letter to a friend, which doesn't really need a product, but that is something that we did on the side, just to make sure that we weren't doing what a lot of people do. And if you Google online, there's some crazy Reddit posts about people saying, "Well, did you decide that my kids will only be able to pay for...

The trust will only pay for their college if they get above a 3.7." And then someone said, "Well, I don't know. What if it's a 3.6?" And you get into these really tough situations where if a kid were to get sick or have an accident, maybe their GPA drops.

Now you don't pay for their college. And so we took the approach of not trying to outline every little nuance of everything that would happen, but to choose a person we trusted and give them some guidance and give them the discretion to make those decisions. That's always been my professional recommendation.

It's really hard to predict the future, but it's a lot easier to find someone that you trust and give them direction. And then ultimately, you're just relying on them to make the best choice that they can. As a parent, that's all you're trying to do every day is make the best choice that you can in a situation.

Nobody knows what next year is going to be like. If you'd asked us 5 years ago, "Were we going to have a global pandemic?" No one would have raised their hand. If those of you who did, we would have looked at it with skeptical eyes. But you can't predict the future.

But what you can do is you can pick people you trust. And if you can do that, and you can give them the guidance in that letter of instruction, it may not be legally binding, but it's helpful. And sometimes helpful is all you need. Do you have to tell or do you recommend telling all of these people this thing?

I know that one of the decisions that we had to make was, "Gosh, who we might want now?" We actually thought about it in hindsight. We said, "Gosh, if we had to make this decision 5 years ago, some of those people are people that we're not as close to anymore." Or maybe something happens to them.

And we thought, "Gosh, if we tell the person who is the trustee or the guardian now, and then we change it, that's going to be pretty awkward to be like, 'Hey, I know for the last 4 years, I've thought you'd be good to manage my affairs.' I changed my mind." Is this something you have to tell people about?

You don't have to tell anybody. You don't have to. But generally, it's a good idea to tell people. And when I say good idea, what I mean is having that conversation in advance is one of the easiest ways to avoid conflict or disagreement or dispute after death. You save so much hassle by having that conversation up front.

It's not easy. People don't want to have that conversation about death in most cases. But it also doesn't have to be hard. It can be as simple as, "Hey, I've created an estate plan, and I've named you as trustee. Are you okay with that? Also, here's where my documents are in case something happens to me." You don't have to get into the details, but you can at least inform people of the decisions.

And if those decisions change later, it can be as simple as, "Hey, I've updated my estate plan. I've named someone else as trustee to fill these needs right now. But I still have these documents in this place." Or, "You're still serving as my power of attorney." Whatever the update may be.

People respect the information. It's ultimately your choice. And is it worth trying to save an awkward conversation now if you know that the likelihood is that you're going to wind up having your family, your heirs, your beneficiaries dealing with that situation later on? Most people, when they think about it, say, "I'd rather just go ahead and get this out of the way and have maybe an awkward conversation.

But I know I'm not going to have a fight that I'm leaving for my family after my death." "I created my estate plan. Things change in life. How do you think about when it makes sense to update them? Is that something you do every year or every time you have a major life event?" Many people think of estate planning as a one-and-done situation.

Unfortunately, it's not that way. Estate planning should be something that evolves with your life. What's good for you now may not be what's good for you in 5, 10, 20 years from now. Your estate plan should change as your life changes as well. There's a simple rule at Trust & Will.

We think that after any major life events, you should look to update your estate plan. If there's been a birth or a death, a change in marital status, anything like that, take a look at your estate plan. But even if you haven't had any major changes and you look at your plan and you go, "Everything's about how I still want this to be," every 3-5 years, it's worth just reviewing your plan, maybe even refreshing it because the laws do sometimes change.

You want to make sure that you don't have a stale or an outdated plan. You want to make sure that your plan continues to represent your interests and your desires. Any major life events, every 3-5 years, or if you have some specific change, you need a new guardian, anything like that, go ahead and take a look.

Update your plan. It's really not that hard to get a plan updated once you have the first plan in place. Great. And you just mentioned where you keep the documents. I'll share a company that I started using on my own called Trustworthy, which is basically this family operating system where you store all the documents that, while you're alive, are great for just managing between your partner.

And were you to pass, you can actually nominate people who find out in advance that were something to happen, they could reach out to the company and get access to. So we've put things like our estate plan, our insurance documents, just where we hold bank accounts and financial accounts, all those kinds of different things we put there.

And then just sent a few friends that we trusted. Here's where they are. If something happens to us, you know where to get them. So that's another company like Trust and Will that I use. So my Trust and Will docs are in my Trustworthy account online. That's great. Trust and Will, we've recently added the ability to upload additional documents to be stored with your estate plan.

It's a slightly different approach. Ours is typically focused more on the estate planning side. But the ultimate goal is to make sure that all the documents that you need, which includes your estate plan and things like your insurance documents, other important information, they're available to the people who need them.

So absolutely, find a solution for that because having a will is the first step. But having a will that no one can find doesn't do you any good. You need to make sure that people know where that is, how to access it when they need it. So it's important to have the document, but make sure that it's also still accessible when it's needed.

I've talked to a few people that have gone through this process. And unfortunately, they got held up at the last step, which is getting all these documents signed and notarized. It's been a couple years for me. Has anything evolved in the world of online notaries, such that getting your documents signed and executed in a way that they're enforceable by law is easier than driving to a notary or having a notary come to your house?

A little bit, but not enough. Estate planning, particularly wills are the last lingering holdout in e-signatures and electronic notification online notarization. You still typically have to have a paper document that you physically sign with physical witnesses watching you sign it and take it to a notary. It's very old school, very complex.

There has been some improvement. There are up to about 10 or 12 states now that have digital wills and the electronic will law. So you can create and sign a document entirely digitally and make it a valid will. It looks like that's going to be a continuing trend. And so hopefully, more and more states will have that each year, but it is a slow process.

So it's still not the easiest thing to do. But it's also not that hard. You can go to a FedEx store or something like that, pay a few bucks, get a notary, AAA store, ARP office. There are lots of places to get a notary who can help you out.

So the little bit of effort you have to put in, it's more than it should be, but it's not enough to let you avoid having a plan in place. That makes a lot of sense. Ask your bank. Some banks I've found are willing to do notarization for free. Some of them are only willing to do it on non-estate planning related documents.

So we were fortunate when we were doing some stuff with real estate that Wells Fargo was willing to notarize things for free. We were unfortunate that they were not willing to notarize any estate planning documents. So we did a search on Yelp. We messaged some mobile notaries and I was surprised that it was less expensive than I thought to get it all done at once.

We actually walked across the street to our neighbor's house and did it all there. So we weren't asking them to be our witnesses and having to drive down. So that's another option for anyone listening. Are there any other outside of the basics of document creation and some of the stuff that I've written about or talked about that you think people should be thinking about?

Let's call it other tips, tricks, hacks on protecting your family, things that you've picked up along the way that are worth sharing. Well, I think the recommendation that I always give is to have that discussion upfront. Tell people what your plans are. And if you have a plan, let people know, "I have a plan.

Here's where it's located." Maybe fill them in on some details. That is the number one tip. But beyond that, you can really consider the importance of having backups plan in place. You want to think about trying to over-plan rather than under-planning for any situation. So your situation is unique.

What I plan for may not meet your needs. What you plan for may not be appropriate for my needs. So if you are worried about some particular specific scenario that may only apply to you, or even if it may never apply to you, but it's just this nagging doubt in your head, plan for it.

Put a provision in place that will buy you that peace of mind just to know that you have something there. That peace of mind, that self-confidence that is worth its weight in gold for so many people. The relief that people feel once they've completed this process, they then wonder, "Why did I put this off so long?

This was A, not that hard. And B, I feel so much better." But the last tip to make sure that your family has a plan in place as well. So if you have kids and they're getting to the age of 18, talk to them about estate planning. It's awkward.

It's difficult, but you're a parent, you have to guide them into becoming adults as well. But if you have siblings or parents that don't have a plan, guess who's going to be stuck dealing with that mess? You are. So yeah, it's a bit of a self-interested conversation, but talk to your family members.

Do you have a plan in place? What do you want to happen? You can start that conversation and ultimately not rely on them to start it, but you can start that conversation and you're still both going to be better off for having raised the topic with your family members as well.

Any tips for that conversation? I imagine at least in my circumstance, my parents had never really talked to me about their plans or anything like that. But I can see how it can come off a little bit like, "Hey, how much money am I going to get when you die?" That kind of conversation.

Any suggestions for broaching the topic in the best way possible? The easiest way to raise it is to start with yourself and say, "Hey, I've created an estate plan. Here's where it's located." But it made me think, "Do you have an estate plan? What can I know to ensure that your wishes are carried out after your death?" And that's the focus is what can I do to ensure that you get what you've planned for?

You don't have to talk about specific assets. And if it comes up that like, "Hey, you've been named as my guardian for my children," then you can have the conversation of, "Okay, well, what would you like to happen for your kids? Would you want them to go to private school or public school?

Do you want to go to summer camp? What should you tell me that I can be as best a guardian as possible for your plans?" Ultimately, you're trying to learn how to fill that expectation as best as possible. And if you focus on it that way, most people don't see that as, "Oh, you're trying to figure out what you're going to get when I die." It's not money-grubbing, greedy.

It's really, "Oh, how can I help you out with this?" And it tends to be received a little bit better. That's really helpful. Big shout out to Trust & Will for partnering with us to get everyone listening who wants to sign up a discount, allthehacks.com/trustandwill and you'll get 15% off any estate plan.

Really appreciate you guys doing that. Anything else to share before we wrap up? I always like to emphasize that Trust & Will has a wealth of resources available to learn about estate planning. So if you have questions that haven't been answered today, you're not sure what your next step should be, head to Trust & Will, check out those resources and make sure that you feel empowered to take those next steps with your estate plan.

Ultimately, it's your plan, it's your needs. And if you feel good about the decision that you're making, that's a win for everybody. So check it out. Trust & Will, that resource library is easily available. Don't even have to sign up. There's lots of resources available for you there. Yeah.

Just to be clear, those resources are free. Absolutely. They're just on the website for anyone to read. Yeah. Awesome. Patrick, thank you so much for being here. I love it. It's been great. I enjoy speaking with you. When we think about trust, we think about more advanced things. And so I'm not the expert here.

I wanted to talk to someone who I think really understands all of the advanced tactics people are using to both avoid taxes now, avoid taxes in the future, be able to transfer money to their children. So I'm really excited to bring on Mani from Valor, who has built an entire business around this that's really interesting.

Mani, thanks for joining me. Really appreciate it, Chris. Excited to join you. And I'll give you a little bit of context on those things that you're talking about. And so to give you context on ourselves, at Valor, our entire idea is how do we use technology to make these tax and estate planning tactics more accessible so that everyone can build wealth more efficiently?

And the problem we're solving is most of these things, your audience may know about it, you may know about it, but it's a black box to most people. But let's start at the top of what is tax planning and estate planning, which you've both mentioned. When most people think about tax planning, it's how do they use legal tax rules, things that the IRS has okayed, or the government has okayed, to reduce their taxes?

So this could be their taxes on their salary, their capital gains, their stock they've received from their company, or their side hustles. It's how do you take advantage of whatever rules and opportunities the government has laid out to reduce your taxes so you can keep as much income for your use during your lifetime?

That's kind of what tax planning is really focused on. Now, estate planning is thinking about a little bit longer time horizon. It's taking the assets and the wealth that you, your family have built up, and how do you pass on as much of that as possible to the next generation?

And kind of the big constraint here is the lifetime gift exemption. So I know this is something you probably know about, Chris, but in the US, you're allowed to give, there's a limitation on how much you can gift in assets to other people before the government starts to tax it.

So as of now, the individual limit is a little above $12 million. So that means as an individual, you can give $12 million, or as a couple, a little above $24 million before the government starts to tax your assets with the estate tax. - Which is a really high rate, right?

- Yeah, the estate tax is, it makes all other taxes look low. So just the federal tax rate alone is 40%. It does graduate, but it gets to 40% pretty quickly. And that's just federal. So then you can start to layer on state taxes on top of that, and it can get much, much higher.

Now, some of these state estate taxes actually start at levels below this $12 million, depends on a state by state basis, but the federal is the most punitive. And that's primarily what people are concerned about is, if they're trying to pass on as much of their hard-earned wealth to their kids or grandchildren, how do they work around the estate tax?

And this is where estate planning comes into play. So it's a little bit different time horizon of, are you focused on, how do you maximize assets for your use? Or how do you maximize assets for future generations, or some combination? And that's where more of these different structures come into play, like irrevocable trust.

- Yeah, and we've talked a bit earlier about the basics of estate planning. And I think what you're doing is interesting, because it marries the two a little bit. Some of the tactics that we'll talk about are things that you might be able to use, even if you're nowhere close to hitting $24 million with a spouse.

And some of them might be less ideal, or not worth it if you're not that close. And just so everyone knows, I'm not an attorney. Monte, I don't think you're an attorney. This is not meant to be personalized financial or tax advice. But we're just gonna explore some of these tactics that I think are really mystified.

You hear trust and people are like, "Oh, they're so fancy." I just wanna break down a bunch of them and walk through them so people understand what they are, how they work, how people are legally either avoiding or postponing taxes, and for many people, how they could fit into their lives and when they make sense.

- Yeah, that sounds great. - I wrote a newsletter a few months ago, and I did my own research. And I'm not the expert like you are. And I found... I'd known about a few of these, and I wrote about Gratz, and Charitable Remainder Trusts, and Islets, and Family Limited Partnerships.

Those are the things I highlighted and wrote a paragraph on. And even in just preparing for this interview and looking at your company, I realized, "Gosh, I really didn't know what I was talking about then." And I caveated it with, "I don't know what I'm talking about, but this is my quick research." So I'm glad we can clear things up.

So maybe we start with Charitable Remainder Trusts. - At a high level, Charitable Remainder Trusts are typically used for people when they're selling highly appreciated assets, because you can take advantage of... Their core thing is their tax exempt structure. And the easiest way to understand these, and the most relatable thing is, for most people is, Charitable Remainder Trusts are very similar to a standard IRA that most Americans use to build their wealth.

IRAs, just as a quick reminder, it's Individual Retirement Accounts, and the core benefit for most people is that you can contribute between $5,000 to $8,000 per year to your IRA, and the assets grow in your IRA on a tax-free basis. Until you take money out of the IRA, you can buy and sell the assets, and you won't pay taxes.

And this is to the power of compound wealth, which your audience obviously knows a lot about. It creates an incredible amount of wealth for people over a long time period. Charitable Remainder Trusts are very similar to that. They're also a tax-exempt structure where assets that are sold in the trust, you don't pay taxes on until you receive a distribution from the trust.

Now, the big difference and where this comes into play is, there's a couple key differences. One, you can contribute an unlimited amount of assets to a Charitable Remainder Trust instead of being limited to $5,000 to $8,000. So kind of a common use case is if someone has paid off the mortgage on their house that they've lived in for 20 years, and they want to sell it.

They can't put it into their IRA, but they could move that house into a Charitable Remainder Trust and then sell it and avoid the taxes on when they sell their house and reinvest that money. So just to take kind of a quick example, let's just say the house is worth a million dollars.

And to keep numbers simple, their cost basis was close to zero when they bought it. So they bought in a really great place that's exploded in value. If they lived in California, they would probably, when they sell it, pay 35% or $350,000 in taxes and take away 650 grand if they didn't do anything.

But instead, if they put it into a Charitable Remainder Trust, they would upfront get about 10% of that value as a charitable deduction to write off their income. So $100,000 charitable deduction. But critically, when they sell that million-dollar home, the trust wouldn't owe any taxes on it. So it would keep a million dollars to reinvest, to put into the market, or any of the other investment options that they're looking at.

And just kind of with simple math of if a million dollars invested at the market versus $650,000, you're going to generate a lot more income and wealth for yourself. That's kind of the key piece. So let's say you work at a company, you've got some shares. When they were granted to you, they're really inexpensive and you exercise them.

Now they're worth a lot. Yeah, you could pay taxes and invest it. Or you could contribute these to a Charitable Remainder Trust and then not pay the taxes because it is a charitable vehicle. And you get a deduction for that donation. And then the trust can use that full million dollars to keep investing it.

So if you otherwise were going to donate a million dollars to charity, that seems comparable. But can you talk a little bit about how this is not just something that is beneficial to charity, which it is, but it also is beneficial to you? Yeah, it's a great question. This is where a lot of people wondering like, why is it called a Charitable Remainder Trust?

And kind of the way that this works is every year from a Charitable Remainder Trust, or at least annually, you're allowed to take money out of the Charitable Remainder Trust. That amount is set up front when you create the trust of what percentage of trust assets it is. But that's kind of the critical thing is the core part of this is that you're expected to get 90% of the value out of the trust, and the charity is expected to be left about 10%.

And that 10% that you leave behind, this is what enables the structure to stay tax exempt, so assets can grow. And you only give that 10% at the end of the trust term. And for most folks, this is at the end of their life. So they'll take their highly appreciated equity in the company, they'll put it into Charitable Remainder Trust, they'll sell it, they'll keep that entire principle in the trust, reinvest it, and then every year, they can start to take distributions from that trust.

And then at the end, they'll leave a little bit piece when they pass away, that'll go to a charitable cause that they care about. So it's kind of a... The easiest way to think about it is the government is giving you kind of a 0% interest loan on your taxes, so that you can reinvest it in the market in exchange for leaving a small percentage for charity at the end of the trust.

Yeah. And I've seen the calculators you make on your website. And because you're able to invest money without paying taxes and grow it along the way, it turns out you end up over your lifetime, usually with more money coming back than you would have otherwise. So you actually... The charity benefits and you benefit.

Yeah, that's 100% right. If you're selling an appreciated asset, or if you live in a high tax state, you will come out ahead personally by using a Charitable Remainder Trust to sell the asset and do the money that you receive over time by being able to avoid that taxes.

And as like a cherry on top, a charitable cause will also benefit. But even if you ignore that piece, you will personally benefit. And if you really care about the charitable cause, then it's a real kind of win-win all around. Now, I know what you give up is a little bit of liquidity.

So can you talk about the trade-off is that million dollars in my example, you can't take it all out next year if you wanted it. Yeah, exactly. It's a great call out of... The way these Charitable Remainder Trusts work is every year you can take out a certain percentage of the assets.

This is the downside and the benefit is if you sold all those assets personally in your name, that $650,000 after taxes, you can pull it out and do whatever you want with it at any time. The Charitable Remainder Trust, you can only withdraw a certain percentage per year. That percent depends on how long you set the trust up for.

But let's just say you can pull out 10% a year. Instead of if there's a million dollars in the trust, that means you can pull out $100,000 that year. Now, that means that you don't have access to that full $650,000 or a million dollars. So you have less upfront liquidity.

And this is one of the key trade-offs you're making, is you get less upfront liquidity in exchange for your assets being able to stay in a tax-free environment and continuing to compound and grow on a pre-tax basis. So it's a little bit of the, "Do you need the money now, or are you trying to create more long-term wealth?" And that tilts the, "Should you sell it in your name or should you use this structure?" And it's not all or nothing.

So if in a given year, you were to make $2 million, you don't have to put all $2 million in any of these vehicles. You could put 10% of it or 20%, correct? Exactly. So for instance, we have some customers who are tech employees. And as part of the IPOs last year, they had a couple million exit for their assets.

And they ended up putting 50% into a shareholder remainder trust. And then they sold the other 50% in their own name to buy a home. So it depends. It's not all or nothing. And there's also one of the big benefits of these shareholder remainder trusts is you don't have to put in all the assets up front.

You can add assets. You can put a little bit of assets initially. You can add assets a year from now, two years from now. They're fairly flexible. So you don't have to make the decision up front. Now, this is an irrevocable trust, which is part of why you get these tax benefits.

So once you do put assets in, you can't decide to change your mind after the fact. But you will start to get those distributions. And you don't have to make that big decision up front. You can set up, put a little bit in, add more over time, or you can split your shares up.

So it's fairly flexible that way. And ultimately, what people do just depends on your life situation. Do you have a lot of big purchases coming out? Or life events changing in your life? Do you plan to take some time off? Or do you not need the money and you want to reinvest it and create more long-term wealth for years down the line when your kid's going to school or you want to take a couple years off from working?

That tends to be very situational dependent based on the person, their lifestyle, what their needs are. One quick follow up. So yes, it's irrevocable. You can't take the money out. But how much control do you have over the investment? Can you set it up in a way that you have just a brokerage account and you can go in and trade and buy anything?

Yeah, you can be in charge of making your own investment. You can set it up to have a robo-advisor control it. You can set it up so that you're making those investments. Charitable remainder trust, one of the great things is you can invest in almost any asset. There's really just two restrictions.

And this is similar to self-directed IRAs for people that are familiar with it. There's what's called a self-dealing prohibition where you can't invest in assets that you will personally benefit from. So for instance, the charitable remainder trust could invest in a rental property for real estate, which it's allowed to do, but you couldn't buy a rental property and then live in it yourself.

So as long as it's a passive investment, you can invest in it, can invest in real estate, stocks, crypto, do angel investments for people in tech. There's a huge myriad of opportunities. And really the restrictions are self-direct is self-dealing and taking leverage. You don't want to create debt inside of the charitable remainder trust.

So you don't want to be taking high leveraged options or trades like that. But otherwise, it's a fairly flexible, which... So for most people, they don't have to change their investment philosophy or what they want to invest in or who's managing their investments. It fits into their lifestyle that way.

Awesome. Okay. So that's charitable remainder trust. I know grats are similar in that you often want to donate highly appreciated assets. Can you talk a little bit about how they're different? Yeah. So one key thing is, in most cases, the people that are benefiting from the charitable remainder trust are the same people who put the assets in.

So if you set up a charitable remainder trust, in most cases, you're also going to be receiving those annual distributions from the trust and benefiting personally, financially. Grats, that's kind of in the tax planning situation. Grats fit more into the estate planning bucket of solutions, where grats are focused on how do you efficiently pass on assets from one generation to the next and are really focused on minimizing your estate taxes.

So just to start with, grats stand for the grantor-attained annuity trust. And kind of an interesting aside, the way that they were created was the previous favorite estate planning tool was called a GRIT, and Congress tried to outlaw GRITs. And when they changed the legislation to outlaw GRITs, they actually created a loophole that enabled grats, which are significantly more exploitative towards avoiding estate taxes.

So they took a broken system, they tried to make it better, broke it and made it worse. Now, how do grats work? Grats enable you, they essentially take advantage of, in most cases, an arbitrage between what is the government's discount rate, or what is the government's assumed growth rate of assets, and what do you actually achieve?

So let's take kind of an example of saying you're starting with a million dollars, and let's say the government's interest rate is 2%, where it was not that long ago. Obviously, things are changing pretty quickly right now. So the government is assuming that a year from now on that million dollars, you're going to gain 2%, or $20,000.

Now, and the way a grat is set up is that the grat, you set up for a number of years, and let's just say you set up for two years in this example, it is going to pay you a, what's called an annuity stream, which is why it's called a Grants Retained Annuity Trust, it's going to pay you a set amount of money.

Let's just say it's going to pay you $500,000 for two years. So in year one, it pays you $500,000. Now, the government is going to assume that there's $520,000 left in the trust, because they assume assets grow at 2% a year. And then in year two, it's going to pay you another $500,000, and it's going to assume that there's that $520,000 grew to $530,000 after, and left $30,000 behind.

That $30,000, from the government's point of view, is going to, in most cases, it's your kid or whoever you're trying to have inherit your assets. So the government assumes $30,000 passed on to your kid. Now, the reality that most of us know is your assets are probably going to grow faster than 2%, right?

The historical market return of the S&P is a little above 10%. So let's say your assets are actually growing at 10% a year. So after year one, that million dollars is worth $1.1 million. Okay, you lose $500,000. There's $600,000 left. After that second year, when there's $600,000, there's now $660,000 left.

That $500,000 then comes back to you, and then there's $160,000 left in the trust. The government, from its calculations, only says that you gifted $30,000 to whoever is the inheritor or the beneficiary of your grant, even though you passed $160,000 on. So this is where you can essentially pass on, in this case, $130,000 estate tax-free from a federal standpoint.

And the big advantage here is the higher you can grow your assets than the government's interest rate, the more you can pass on and avoid the estate tax. And this is kind of your comment on highly appreciated assets, why it's become so valuable. If you take, let's just say, startup equity or something that has a low current market value, but you feel like there's a good bet in two years it's going to be worth 10 or 100x that value, the government's assuming if you put it in, it's worth $10,000 today.

And let's just say, three years from now, it's going to be worth $10 million. The government is assuming that $10,000 is growing at 2% a year. So it's negligibly going to be worth nothing in 10 to $15,000 in three years. All of that upside passes on without paying the estate tax.

That's so interesting. So it's probably not a tool that's useful to the average person who's not even coming close to $24 million. But if you own a business or you own a piece of a business that's worth 10s or 100s of millions of dollars, or you think you might, it could come into play.

But the purpose of this conversation is not to necessarily share every tactic that everyone listening can use, but to unveil the mystery behind some of these things we hear about. And so it's fascinating to hear how... And your example, by the way, was just for 2 years. I assume if we continue that example for 20, 30 years, the compounding of the S&P at 10% leaves a whole lot more than $30,000 or what would have grown at 2%.

Yeah, exactly. Every year that you do this, you're able to leverage the difference between the government's assumed growth rate and what you can get to pass on even more value. To this example, one of the more prominent examples was when before Facebook IPO'd Mark Zuckerberg, Sheryl Sandberg, Dustin Moskovitz, they all set up grats.

They took the pre-IPO price of their Facebook shares, they put those shares in, they set up for I don't know how many years. And then after the IPO, when the price popped of Facebook, all that appreciation was able to pass on and avoid the estate tax. So this is to your point of if you have a family business that's worth eight or nine figures, or you're already above that, it's a really powerful tool to minimize those estate taxes and preserve as much of your hard-earned income for future generations.

That's so fascinating. Okay, we got a lot to get through, but I want to come back to charitable lead trusts and less about appreciated assets, but still helpful to avoid taxes in a high-income year. Can you talk a little bit about those? So charitable lead trusts are... The long name of it is charitable lead annuity trusts.

And this is a really powerful tool if you've got a big bonus or short-term capital gains or high ordinary income to be able to write off your income today. And the way that this works is you set up this charitable lead trust for a number of years, let's just say 20 years, and you're putting money into, let's say you put a million dollars into a charitable lead trust.

You get a million dollar charitable deduction today to write off your income, but you're not giving that entire million dollars away now, you're actually able to reinvest it. So you're able to take that million dollars, you put it in charitable lead trust, you put it into the market where it's going to grow 10% a year, 8% a year, whatever you assumed is, and you get a charitable deduction now.

Probably wondering like, why would you get a charitable deduction now if you're not giving away the money? It's kind of similar in some sense to a donor advice fund, where with a charitable lead trust, you're promising in the future years to give away a set amount of money to a charitable cause.

So it could be a donor advice fund, could be a foundation, could be the American Red Cross, but you're promising to do that in the future. And so you can say that in year two, I'm going to give $10,000, year three, $15,000, year four, $20,000. And when you are setting up this charitable lead trust, essentially the government is taking their interest rate, and they're figuring out what is the present value of their future donations.

And so they're taking that and they're giving you an upfront charitable deduction for the present value of those future charitable deductions. Now, a big part of this advantage is that discount rate that they're using, it's again, to the same kind of example as a grant, it tends to be lower than what you would be able to get if you invest your assets in the market.

Right now, it's 2.2%. And I'm willing to bet that the markets are a little bit choppy now, but in a long time horizon, most of us would hope to achieve a better than 2.2% return in the market. So you're able to write off your high tax income now, reinvest that money in the market, and give those charitable donations in the future.

And any appreciation above what is donated to charity, you're able to at the end of the trust, so in 20 years in this situation, keep that money for yourself, or have that money returned back to yourself or future generations. So it's a great opportunity for folks that you can write off high tax income now, reinvest that money, and then give to charity later in the future.

And if people are just also charitably inclined, it's a really good way to set aside money to go to a charity in the future. Very comparable to a donor advice fund, except it also has some tax planning and estate planning benefits if those matter to you as well. But it also just guarantees that, hey, this cause that you care about, you're going to set them up to receive X amount of money for how many ever years you set up the trust.

So it has a lot of purposes, but it's really underutilized for folks who have a big bonus or a high tax year. I know the assumed interest rate affects everything and the government's interest rate changes. But if you take an example of a million dollars, you get that full write off, you put a million dollars in a charitable lead annuity trust, you're going to end up donating probably at least a million dollars to charity.

But because of the arbitrage, do you end up getting back a million dollars? What ends up coming back, kind of ballpark it over 20 years or whatever is the easiest example? Yeah. I mean, the easiest way to think about this is the longer you set this structure up for, and the faster your assets grow, the higher the rate.

So if you set this up for 25 years and your assets are growing at 10% a year, you may get a 50% return on your capital than if you had done nothing at all. So it may be an additional $500,000 in absolute cash that you're going to get on top of that kind of whatever that million is going to compound to.

In a circumstance like this, I would give away a million dollars into a charitable lead annuity trust. There would be donations made over the years and I'd get the remainder. Had I not done that, I would have paid taxes. And I probably, if you're in the highest brackets in California, I might have paid half a million dollars in taxes and I'm left with half a million to invest.

Would I have been better off ever? If I don't factor in the charitable donation, do I actually ever end up being better off over a period of time? If we assume a higher interest rate, like you said, 8%, 10%? Yeah. I mean, this is where you can generate an additional half a million dollars.

And this is the whole point. Take your situation that you brought up. If you're in a high tax rate place like California, you earned a million dollars. You may pay literally half of it or more, the government. So you only have $500,000 to invest versus if you're able to avoid taxes on that million dollars.

If you have $500,000 in the market versus a million dollars being reinvested in the market, that million dollars is going to create a lot more compounding wealth. That million dollars, you're going to give some of that to charity every single year. But just that million dollars compounding at 8% or whatever our assumed growth rate is here, it's going to over a long period, over 20 plus years, 25 years, it's going to create a lot more wealth.

For 25 years, taking a base case, you'll probably create an additional half a million dollars of wealth for yourself after taxes. Not factoring in the fact that you're generating probably at least that or more in charitable contribution. Yeah. So it's really like you're creating an additional half a million dollars of wealth for yourself, plus you're creating probably $1.2-$1.3 million in charitable causes to help advance things that you personally care about.

So you're doing good in the world, you're creating wealth for yourself. It's a really powerful combination. And I don't know why, but for some reason, it seems like every time I talk to someone from New York, they all seem really excited about islets, which I know are related to life insurance.

Is it as awesome? Is there a reason why it's so great in New York? What's the... I don't understand, as I read them, why they are as cool as some people make them sound. Yeah. So insurance is its own interesting niche, but a world where there's a lot of tax opportunities.

Now, a big advantage of islets, the core thing is it tends to be more of an estate planning structure. The big advantage is you can buy... Essentially, an islet stands for irrevocable life insurance trust. And what you're really doing is you're buying life insurance, you're putting it into this irrevocable trust.

And so you're really gifting the benefits of life insurance. So i.e. the payout when you pass away to your kids or spouse or whoever it is. The big benefit is hopefully when you buy your life insurance, your risk of dying is pretty low. So your life insurance is valued at a pretty low rate.

So let's say it's worth $100,000 now. It's worth $100,000, you put it in this irrevocable trust. Over time, you will continue contributing the premiums towards the life insurance and that money in the life insurance is being reinvested in the market or it's increasing the value of the policy as you naturally get older.

And let's just say when you pass away, it's worth $5 million. That $5 million doesn't count towards your state gift limit. Because you contributed the asset when it was worth $100,000, it only counts if you give a $100,000 gift to your kids or your future generations, even though when you pass away, it may be worth $5 million.

That's the key benefit is you're able to essentially lock in a low gift value and allow it to appreciate over time. Now, why is it so big in New York? I don't know. There's also a big thing to kind of probably watch out with life insurance is there's a lot of people who take a lot of cuts of the pie when they're selling it to you.

And it tends to be really lucrative for brokers, agents, advisors. So people do love to sell life insurance because they know they're locking you in for a really long time horizon. And so there's a lot of commission that gets spread out. I don't know if that impacts New York, but it is definitely a powerful tool.

But I don't know if it's quite as important for folks who aren't worried about the estate tax to start with. Yeah, my advice for life insurance has always been that term life is like the thing that makes sense for almost everyone. And unless you're working with an accountant and an estate planning attorney that together decide that there's some more complex way to take advantage of whole universal etc.

life set in a trust or even... And we won't go into it now. But private placement, life insurance, these other things. One, stick to term life. And two, almost all the other strategies are not really as beneficial unless you're kind of at approaching or over that 24 million estate tax limit.

Yeah. Yeah. And that's... I mean, this is like 100% agree with that. I think in most cases, people a lot of times overthink this or they get sold to. Most cases, people should just do kind of the standard, right? Like this term life insurance, you know what it is, you know what you're getting, you're not being sold to and kind of being ripped off.

And unless you have really particular needs, or a team that's getting each different answer, where it's like PPLI, etc, which makes sense in certain situations, it's better to keep it simple. I agree. I even had a listener send me an email and say, "Hey, I spent the last 10 years selling whole life.

Please don't tell anyone on your show to buy it. I won't name who they are because I don't want to get them in trouble with their job. But even a guy who sells it said he wouldn't recommend it." So... And ultimately, what I understand is with this estate tax limit, all of the estate tax planning tactics are really just about trying to take a bigger amount of money and fit it into a smaller amount now so that you can donate it when it's less and counts less towards your limit.

Another one that I know I found, which is outside of the kind of trust world, so I'll do my best to explain it, is around setting up a partnership or an LLC for your family. And the way I understood it was, you create this LLC, you put assets in it, or a partnership, and you give the value of that business goes to your heirs, but the control of the asset stays with you.

And so the IRS will give you this benefit of saying, "Oh, well, if you're giving your children a business that has $50 million, but you control all of it, and they don't get to choose what happens, well, you could lose it all. You could make terrible investments. So we're going to give a huge discount." And I don't know what that discount is.

Let's call it... I think it's closer to like 80%. So now you're able to say, "Oh, I'm giving my kids a $10 million business instead of a $50 million business." And then when you pass away, well, the control is transferred. And so my understanding is that all these estate planning tactics are like, "How do you find a way to give large sums of money, either now or in the future, today, when you can price them or value them at a lot less?" Yeah.

And there's really kind of... That nailed it on the head. And there's kind of three descriptions people often call this. They call it of like, "How do you freeze? How do you gift values?" And it's called the freeze. You freeze it at its current value when you expect it to appreciate it in the future.

So you gift... Let's just say you have startup equity or something you expect to appreciate significantly. You gift it at the value, at the low value today. And then when it appreciates in the future, it's already in the ownership of a trust or your kids. And that future value doesn't count as your gift value.

So that's the freeze. There's also a term called the burn, where it's how do you... Whether it's you paying taxes, this is where grats come into play. So in a grat, even though the assets, some of the money is coming back to you, all the appreciation passes on to your kids, you are liable for the taxes that are paid on assets, income realized in the trust.

And the big advantage of this is you're literally... By paying the taxes personally, you're reducing the value of your estate. So in other words, you're burning down your estate. And then kind of the third category is discounting. And this is where it's whether it's control with kind of these family partnerships of...

You can do all sorts of... Structure these things in all sorts of different ways, whether it's control, or it's hard to value asset, or you reduce the intangibles. How do you reduce the value below what you probably think it's worth or what you can actually realize in the market?

There's kind of a famous example where Phil Knight, the founder of Nike, took Nike shares, put it in an LLC, and then he gifted parts of it over time to his son. And each time he gave it to his son, it was at a discount because it was a non-controlling interest.

And so he's able to take something like a 15 or a little bit higher discount on those assets, even though Nike shares are very liquid. We can sell them at any time in the market, but because it was part of this structure, they're able to discount it. And so as a result, from an IRS standpoint, he was giving less value, which means there is less taxable gifting that he had to pay to the government.

Yeah, I'm holding this document up here that I got from Morgan Stanley at a conference... Not a conference, like a talk once. And it's like, "Here are the better outcomes of using all these strategies." And in this case, it's a crazy one that I'll just run through. Not the numbers, but it said, "If you just set up a basic revocable trust and you transfer money, and you have exactly $45 million, by the time your children get the money 30 years later, you're going to have $281 million, but you'll pay $112 million in taxes, and they'll only get $190 million." And they're like, "But if you go through..." And in this example, they set up a family limited partnership, a GRAT, and a revocable trust, and then two defective irrevocable trusts.

So it's the most complex, insane example that... By the way, if you have $45 or $50 million, you're probably working with someone to do stuff like this. But at the end of the day, it says, "Your net estate post-tax with this example was $500 million versus the $198 million that you would have paid in the previous example, netting you an extra $300 million." So these are just...

We talked about some of these strategies. And while they might not practically be relevant for most people listening, it's pretty crazy to dig into the way they work for certain people and how they're able to unlock in this case, hundreds of millions of dollars of value. There's one more thing that you guys do around stretch IRAs that I think might actually benefit people who are in circumstances like this.

Correct me if I'm wrong. Do you want to talk a little bit about that? Yeah. And just before I get into that, to your point, it's kind of crazy. There's a lot of these things like the Black Arts, where people you hear about these trusts, and for most people, they don't mean much, but the returns are pretty incredible.

In that situation, it's an additional $300 million on $200 million of assets. And these things, whether you have $50 million or a couple of $100,000, there's a lot of these opportunities. Now, the big challenge for most people is... Kind of a sad fact is the US tax code for the last 50 years has grown by 150,000 words a year.

What that practically means for you, your audience, they're smart, they're trying to learn these things. There's just no way you can keep up. And so what this means is unless you have that team of lawyers and accountants, you're going to miss out on these opportunities and you're going to significantly fall behind.

And that's kind of... I mean, not to get too biased, that's the problem we're trying to solve is how do we use technology to help people find and take advantage of these opportunities? Because otherwise, the tax code is not built for someone who doesn't have high nine figures. It's funny, you mentioned someone who has $50 million.

Most of the situations we see in this world is there's folks with that, they don't actually have access to good folks in this, because it's one of the hardest things to get access to is high quality folks who can help you with this tax and estate planning. Because guess what?

All the family offices with billionaires, they tend to snap up the best folks in those spaces because it's just so valuable. You're talking about those results that you're seeing there, that's hundreds of percent of additional value for your children. If you're a billionaire, what price aren't you going to pay?

And there's no way that me or you or your audience can compete on a per hour basis or salary to hire that best person that that billionaire wants. And so that's kind of... It just creates this huge challenge for folks to take advantage of this stuff, despite how meaningful it is.

But jumping to the stretch IRA piece, this is probably one of the most applicable things for most people of tax planning opportunities. For context, most Americans, when they're building wealth for their retirement and their financial safety net, they use either a standard IRA or a Roth IRA. These are trusts, they're actually irrevocable trusts that the government has specifically created and outlined benefits for to help people better save assets for their retirement.

And with a standard IRA, it allows you to contribute pre-tax money and it allows the assets to grow in an IRA on a tax-free basis until you start taking withdrawals after you're 59 and a half. Now, historically, when people pass away and they have an IRA with money, they would do what's called over a stretch IRA or a rollover IRA, where let's say it was my parents.

Their IRA would roll into my IRA. And so it would stay on a pre-tax basis, and it would keep growing and compounding. And I would wait until I'm 59 and a half to start taking distributions and paying taxes. Now, in 2020, there was a law called the Secure Act passed, which essentially stopped people from being able to roll over their IRA between generations.

So now instead of my parents' IRA being able to roll over into my IRA, I have to keep it in their account and I can keep it in their IRA for a max of 10 years. And then when I do withdraw it, I have to pay ordinary income tax rates on all the withdrawals.

So if you're in California, New York, you may be paying 50% to 55% of those assets. The solution that's come about since the Secure Act was passed in 2020 is people taking their parents' IRA, being willed and rolled over into a charitable remainder trust. And the big benefit of this is when it passes the charitable remainder trust, it can remain in there for more than 10 years and keep compounding on a pre-tax basis.

So you get a lot of the benefits of the stretch IRA, where instead of rolling over from my parents' IRA to my IRA, it is rolling over from my parents' IRA to my charitable remainder trust, but can keep growing on a pre-tax basis and isn't constrained to 10 years.

And once it's in the charitable remainder trust, the appreciation after that rollover isn't taxed at ordinary income rates. So that appreciation isn't going to be taxed at 50%. If you're in California, it'll be taxed at 35% long-term capital gains. So you get more pre-tax growth, as well as you can pay lower tax rates on the withdrawals.

So we see a lot of folks who are, parents are getting elderly and they're planning for how do they pass on these assets, particularly a lot of financial advisors who are trying to help their clients for intergenerational planning, really roll this out to their clientele for them to help create more wealth in the family, preserve that.

And it's also right now, it's because it's Secure Act was just passed in 2020, most folks aren't aware of the best way to deal with it. Because again, unfortunately, the tax code isn't accessible. And so you've got a lot of folks where they have money or they've earned, they've contributed money to their life, but it's really hard to figure out what do I do?

And even though it is meaningful, it's a tough challenge. I mean, you said some of the tax code is not accessible, but on top of that, a long time ago, before I think the kind of myths of the kind of tax avoidance trust to avoid state taxes, which we won't get into now, because I think it kind of came out that a lot of states outlawed them.

I was looking into this and I realized, "Oh, wow." One of the reasons that this isn't easy for people to do is that the cost to administer these trusts and to set up the trust were so high that I spent all this time talking to someone and found out, "Wow, this is a great way to maybe avoid high California taxes," only to find out they were like, "Well, it's going to cost us $25,000 to set up a trust, and you're going to pay 1.5% a year for someone to manage and administer it and do the investments." And I was immediately like, "Well, you should have said that upfront because we're not talking about...

I didn't have enough money for that to make any difference." But can you tell us a little bit before we wrap about how you guys are trying to make this a little bit more accessible and affordable, especially for people that might benefit from the charitable remainder, the charitable lead trust, which aren't necessarily tools for people with $24+ million?

Funny enough, the situation you talked about, that was the reason I started the company, was I went through that exact situation. And when I saw lawyers' costs and accountants' costs, it's what actually made it the ROI negative for me to set it up. And going through that process, you realize there's a better way to do it.

And so the idea behind Valor is we've automated a lot of this setup and administration for these charitable remainder trusts, charitable lead trusts, and graphs so that there are no legal fees upfront. So instead of paying that lawyer $25,000, you're avoiding that. And then also the kind of annual fees to administer these trusts, we've dropped those.

Compared to that situation, we're less than a sixth of their cost. Compared to most of the other folks we see in the market, we're less than half the cost. And the whole idea is by dropping these costs, we can make the ROI worthwhile for more folks and help them build more wealth.

And we've kind of obviously both been building companies in this space. The whole premise of fintech is that you can create more value. You can use technology to enable others to build wealth more efficiently and open up opportunities. And that's kind of what we're doing here is how do you take these kind of black box of irrevocable trust and wealth building structures that historically have only been available to those with nine figures and help everyone build wealth.

Yeah, it's fantastic. The blog posts you guys have written on the Valor site are great. They go into more detail than most companies do. I'm going to link to a handful of them in the show notes so that people can go check them out. If they have any questions or want to reach out to you guys, where should people find you?

Valor.io, V-A-L-U-R.io. Always happy to chat with folks there to answer more questions. We have, as you mentioned, a lot of content. We take calls with folks to help walk them through and understand these structures as well. So that's the best place to reach us. Awesome. Thank you so much for being here.

Really appreciate it, Chris. We appreciate your time and love your podcast.