January 5, 2026 • 25 mins
In this episode, I explain how inheritances go wrong and lay out a plan to keep wealth private, tax-smart, and protective. We compare wills and trusts, share real examples, and detail tools that shield heirs from probate, overspending, taxes, and outside claims.
• Hidden risks of probate, cost, delay, and publicity
• Living trusts for privacy, speed, and control
• Trust funding steps and trustee selection
• Spendthrift structures to prevent blow-ups
• Rules for age, milestones, and needs
• Roth conversions and the 10-year rule
• Asset protection
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▶️ YouTube: Paradigm Wealth Partners
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Thanks for Listening!
Jonathan
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Episode Transcript
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SPEAKER_00 (00:02):
How your kids inherit your money can either
change their lives for thebetter or quietly destroy them.
Most parents think if I leavethem a big nest egg, they'll be
set.
But I've actually watched theopposite over the last 16 years
as a financial advisor.
Families ripped apart by fightsover money, kids who burn
through an inheritance in just afew short years, and lucky heirs
(00:26):
who wind up more lost anddependent and fragile than ever
before.
And here's what almost no onerealizes: the government, the
courts, ex-spouses, creditors,and even your kids' own worst
habits are all lined up to takea little bit, a small piece of
what you leave behind.
And if you don't structurethings carefully, your children
(00:49):
are set to inherit potentiallymore problems and less tax
efficient than if they were alittle bit more structured and
strategic on the front end.
You don't want that to be thecase.
You don't want to ruin them, youdon't want to cause unnecessary
stress or burden on them.
(01:10):
Your desire is to help them.
What you can't do is not have astrategy in place.
You can't just write a simplewill and hope for the best.
In this video, I'm going to walkyou through the same strategies
that wealthy families use andthat we help people in our
(01:31):
financial planning practice useto pass down money in a
tax-efficient way and to helpprotect their kids from bad
decisions, divorces, andlawsuits while keeping family
relationships intact.
I'm Jonathan Bedner, certifiedfinancial planner, owner of
Paradigm Wealth Partners here inKnoxville, Tennessee.
(01:52):
And today we're going to talkabout how you can help your kids
inherit money potentiallytax-free and without causing
unwanted or unneeded stress.
First, I also want to say I'mnot an attorney.
You know, we don't give legaladvice.
You know, you should consultyour professional advisors, your
(02:16):
attorneys.
But what we are here is talkingabout some strategies.
So let's talk about the hiddendanger that no one talks about
in their inheritance, the hiddendangers of inheritance.
So the so many times we seeclients that we work with, and
(02:38):
you know, they've they've got apretty good family.
There's really not a lot offights, there's not a lot of
arguments and bickering.
And you know, parents seem tothink if I leave them more
money, I've done my job as aparent.
I've set them up, I've provideda legacy.
They've they've got a leg up.
And I think that that'sespecially important.
And what I hear more and morefrom people today with the
(03:02):
economy the way it is, is theywant to make sure that they
leave money in the form of alegacy to their heirs.
And so they just think, well, ifI leave them money, they'll be
set.
All is good.
A simple will will be great, andyou know, they should be
protected.
Relying solely on a will is oneof the most dangerous mistakes
you could make.
Why?
(03:22):
Because a will equals probate.
Probate is a court supervisedprocess, and that process, the
court will validate the will,make sure debts are paid to
creditors, distributes asset,and that's a problem because
it's expensive.
I've seen it cost five to tenpercent of the total estate
could disappear by the time youcount court costs, legal fees,
(03:46):
attorney fees, all of thatreally starts to be a strain on
the assets.
It's slow.
I've seen it take years tosettle the estate.
Now, they're super complicatedwhen they take that long, but
even simple wills or simple uhestates going through probate
can take months.
(04:07):
And that just slows downeverything.
You know, people get frustrated,they don't understand why it
should take that long, theydon't understand the process.
It just it just getsfrustrating.
Uh it's public, you know, itgets put right into the paper.
People can see all the businessof the family when someone
passes away and they leaveassets to family members or
(04:29):
anybody just through the uhthrough a will.
And so, you know, a lot of timesif you want to try to protect
your your family and your lovedones and who you're providing
to, you know, leaving, leavingit, you know, through a will
doesn't have any, think of it assunglasses, you kind of hide
behind them.
It doesn't have any sunglasseson the on the plan.
(04:52):
It just everything's out in theopen.
It's all there for anybody whowants to look it up, to look it
up.
Who who who got what and howmuch they got.
And then finally, it's it's it'sstressful.
There's a lot of paperwork, uh,there's deadlines, there's
family tension, uh, there'sarguing and there's bickering,
and and you know, it just causesundue and unwanted stress.
(05:14):
So, solution could be a livingtrust.
Again, I'm not an attorney, Idon't give legal advice.
I'm just telling you about whata living trust does.
What a living trust does is itholds the assets while you're
alive.
And then once you pass away, itdistributes them privately.
So, unlike the will that puts inthe paper, here's what the
(05:35):
estate was, and here's who'sgetting what, the living trust
distributes that to your heirsprivately.
No one sees the family business.
That takes tension and stressand pressure off the family.
It avoids probate completely,which is amazing.
It saves time, it saves money,it saves stress, and it lets you
(05:57):
control how and when the moneyis passed on and who it's passed
on to.
So, four really, really bigbenefits there.
Again, hold your assets whileyou're alive, distributes them
privately once you pass, avoidsprobate, huge benefit, and lets
you control the money from thegrave, let you dictate how and
(06:17):
when and how much uh of yourassets someone gets.
So let's let's talk about aquick example.
Let's say uh John is a retiredengineer, he's got a$2 million
estate.
Scenario A is a will only.
This could take nine months totwo years in probate potentially
at 5%, could cost$100,000 incost to probate this.
(06:42):
There's a lot that goes intothat.
Where do they live?
What state?
Uh, do they have assets inmultiple states?
I mean, this can get messy fast.
So, you know, it's important tothink through some of that.
But there it could be asignificant cost.
So let's just say it's 5% on$2million.
That's$100,000 in cost.
And then finally, everything ispublic.
So scenario B is John created aliving trust.
(07:06):
Assets passed directly to kids,it's fast, private, minimal
taxes, or excuse me, minimalcosts, and avoids probate
completely.
It is a very useful tool that alot of people avoid just because
they don't want to pay a couplethousand dollars on the front
end to have someonestrategically and legally draft
(07:30):
up documents to help theirassets pass more efficiently to
the heirs and charities thatthey care about.
Charities are less of a bigdeal, not that they're not a big
deal, but having that privacyI've found to be important for
people.
And so when you look at a couplethousand dollars for a living
will and estate planningdocuments to be drafted by an
(07:53):
attorney versus potentialhundred thousand dollar costs in
this situation and everything'spublic, it's a no-brainer to
just have a couple of meetingsand get it done professionally
with counsel so that youunderstand the decisions you're
making.
If you come to that table andsay, hey, I'm out, I want to do
will only, okay, that's yourchoice.
I think most people, once theyunderstand the benefits, would
(08:16):
not choose to do that.
So, how do you set up a trust?
Simple roadmap for you.
You should work with an estateplanning attorney.
These are great resources toprovide that counsel.
You should retitle assets intothe trust because if you don't
actually retitle them, eventhough the trust is set up,
nothing flows through it.
(08:36):
So again, you'll want to workwith the attorney to help you
retitle the assets into the inyou're gonna want to name
trustees.
You know, could be you now ifyou're still living and in good
health.
Obviously, you're living, you'reyou're drafting these documents,
but you see what I mean?
You're in good health, you youyou can sound mind, you can make
(08:56):
decisions.
So you can be the trustee now,but you might want to add a
successor trustee on later.
Maybe that's a spouse.
So you're gonna want to namethem.
Again, this is all part of theestate planning attorney's
process, and then spell out whogets what and when they get it.
Now that we've kept your estateout of probate, let's talk about
how we keep your inheritancefrom accidentally harming your
(09:19):
kids.
Uh so in this section, we'retalking about how do we protect
your kids from themselves.
Creating these big lump suminheritance sounds really
generous.
And I have a lot of clients thatlike to do this, passing down
money to their kids andpotential grandkids.
And a lot of times I see itbackfired.
(09:39):
They overspend, they investpoorly, they get influenced by
friends, they just a lot oftimes they didn't earn the
money.
And so they don't have the samerespect for it as someone who
worked and saved and maybe didwithout to accumulate the nest
egg that you did.
And so some of it ends upgetting squandered.
(10:01):
So if you leave a big lump suminheritance, you can actually
hurt your kids, uh, especiallyif those kids are young, they're
inexperienced, they'reimpulsive.
Potentially, what if they'restruggling with addiction or um,
you know, maybe have debtproblems or unstable
relationships?
Those those scenarios can burnthrough money very, very
(10:21):
quickly.
Uh, I've seen someone inherit uhthree million dollars uh at age,
you know, 60, 65.
Their mom, when their mompassed, was uh in her late 90s.
This is a grown child who shouldhave a pretty good head on her
shoulders at you know, mid-60s.
(10:42):
And the money was completelygone in two years.
Every dime of it was blown at uha casino.
And you know, she had anaddiction, she couldn't overcome
it.
And that's where, you know, alittle bit of foresight on the
front end can help protect yourfamily, your kids, your
benefactors from themselves alot of times, but also skip
(11:06):
probate.
So, you know, there's there'ssolutions for this.
And it is, you know, aspendthrift trust, or or uh also
sometimes known maybe as astructured trust.
These types of trusts helpprotect your children or
grandchildren or whoever you'releaving money to, a lot of times
from making their own poordecisions, from creditors, from
(11:28):
lawsuits, from you know,potentially divorced spouses.
Um you know, in the in thesituation that I just talked
about,$3 million gone to thecasino, it would have prevented
her blowing through all thatmoney.
The lady is literally on foodstamps now.
And uh, you know, it's sad tosee someone have so much, have,
(11:48):
have everything she could everwant, and and just be their own
worst enemy.
So these can be reallybeneficial for people to protect
themselves from these poordecisions.
The trust would own the money,your child doesn't, and the
trustee would distribute moneyaccording to your rules.
And you can make really whateverrules up you want.
(12:10):
It could be by age.
Let's say you want to give them25% at 30 years old, and another
25% at 35, and the remainder at45, or you want to do it by
milestone.
Maybe once they get aneducation, they get so much
money, or they can have so muchmoney to buy a house, or you
know, maybe start a business.
Some of that, it could also beby need, like, you know, if
(12:33):
someone has a health issue,maybe they get some money to
help pay for some of that healthexpenses, or there's an
emergency.
With the with trusty oversight,someone who can say no when
needed helps further protect tomake sure that the assets are
passed down in the way that youwish.
And again, help some of thebenefactors protect themselves
(12:54):
from making bad decisions.
And your goal isn't to controlyour kid's life, your goal is to
make sure that the money helpsthem, not hinders them.
Now, let's take a second to kindof switch gears and talk about
taxes and make sure taxes don'ttake a huge bite out of the
apple, also known as theinheritance.
(13:15):
So, how do we build a taxefficient or tax-free
inheritance?
Most families don't realize howheavily inheritance can be
taxed.
I'm working with with uh aclient now who uh is going to
have a massive tax bill.
It's gonna eat up, you know, 40or 45 percent of their overall
(13:39):
net worth again because theydidn't walk through all of the
steps needed to think through,and and you'll never solve
everything.
Having a plan from 15 years agois not adequate.
These plans need to be updatedand adjusted as your life
changes, as your net worthchanges, uh, if you're an
(14:01):
entrepreneur, if your businessgrows, these things need to be
updated and not just uh aone-time set it and forget it.
Where do these taxes show up?
A lot of times they show up atestate taxes.
The higher your wealth, the moreestate tax you owe.
They can show up as stateinheritance taxes.
Tennessee does not have stateinheritance tax, but some states
(14:21):
do.
It can show up as income tax.
If someone has an inheritedtraditional IRA and um they take
a distribution, there's incometax on that.
So there are a lot of ways thatwe could be more tax efficient
with the legacy that you aregiving to your heirs.
And so it's common, I see thisregularly, where you know, 20 to
(14:45):
40% of an inheritance can vanishto taxes just because they have
poor planning on the front end.
So, what are some solutions thatwe can implement to help provide
tax-free inheritance to yourkids?
The first is life insurance.
And these life insuranceproceeds are income tax-free.
They're often out, oftentimesoutside of probate.
(15:08):
So, and they can also provideliquidity to cover estate taxes.
Actually, the the referencewhere I just mentioned to you,
where you know there was a bigestate and they're going to lose
a lot of that to uh taxes, uh, alot of that is because there is
no uh there was no lifeinsurance.
There was no real liquid money.
It was tied up in a businessthat's going to cause, you know,
(15:31):
if if if they don't come up witha strategy, them to force sell
the business, which is notideal.
The entrepreneur never wantedthat to happen in this plan.
But insurance can life insurancecan provide some liquidity to
help cover some of those estatetaxes.
So you're not forced to sell thecar collection or the business
(15:51):
or the beach condo.
And that way you're able to keepthose assets longer and own them
and carry on uh the legacy thatyour parents or or whoever left
for you.
The next option is Roth IRAs andRoth conversions.
I see this all the time.
Traditional IRAs are huge taxbombs for kids and grandkids
(16:14):
when they inherit them.
Once the Secure Act passed, kidswere no longer or beneficiaries
were no longer allowed tostretch those RMD or those
distributions over theirlifetime.
They had to deplete thetraditional IRA over a 10-year
period.
And so what you do is especiallyfor uh you know people that are
(16:35):
still working and they're andthey're typically 40 to you know
60, they're their highest incomeearning years, and then they
inherit one of these traditionalIRAs, they're forced to take
distributions and it drivestheir tax brackets up higher,
and they end up keeping less ofthe money.
So because these traditionalIRAs are tax bombs, if you can
(16:56):
execute Roth conversions inpotentially a lower tax bracket,
there's some huge benefits foryou or for your kids.
The money grows tax-free, itgrows tax-free, their
withdrawals are tax-free,they're still subject to taking
the money out within 10 years,but they don't get hit with the
taxes.
And so typically, retirees havea lower tax bracket than someone
(17:21):
who is, again, still working intheir prime earning years.
And so doing some strategic taxplanning and Roth conversions
could be a huge benefit and ahuge way to pass on legacy
assets to your children with notaxable, no taxes.
How do we do those Rothconversions?
You know, we do that byconverting pieces of your
(17:42):
traditional IRA into a Rothduring lower tax years.
Uh, I've done another video onthis, and you'll see it here on
the golden window.
And if you watch that video, Iexplain in detail a great
strategy for retirees to use toconvert money to a Roth IRA and
(18:03):
really do it in a tax efficientway.
So, you know, again, if you dothat, you can best to do it
before RMDs start, before youturn on Social Security.
Years when you have lower incomeand your tax brackets in the you
know 10 or 12% range, that thatgolden window is a great
opportune time to think aboutyour overall tax strategy, your
(18:26):
overall tax planning, andfurthermore, how you plan to
leave your kids a legacy withoutinheritance taxes.
Even if your kids areresponsible, and even if taxes
are minimized, there's still onemore threat.
Other people coming after theinheritance.
You have to protect theinheritance, your hard-earned
(18:48):
legacy from divorce, fromlawsuit, from creditors.
Even responsible kids can getcaught in the divorce and the
lawsuits, debt, a failedbusiness.
Things happen in our lives thatare unexpected.
Uh, and and even if you have thebest intentions or or you're a
good person, unfortunately, somethings, you know, sometimes bad
(19:12):
things happen.
And so having these assetsplaced in a trust or an asset
protection trust, something likethat, keeps uh keeps these
assets and these legaciesprotected for your heirs.
This would keep inherited assetsseparate from marital property.
That's huge, again, if there's adivorce, pending divorce, or
(19:34):
even divorce down the road.
Once those assets getcommingled, then they become
part of marital property.
So keeping them in some sort oftrust like this would keep those
separated so that your heirsinherit the money and not a
potential ex spouse.
It makes it extremely hard forcreditors to access the money.
Again, a huge benefit if someoneends up filing for bankruptcy,
(19:58):
loses their job, and helps.
Health expenses, health, youknow, costs, skyrocket.
Not that they don't owe themoney, but it makes it really,
really difficult for creditorsto come after it.
And then you're able to controland release money under the
terms and rules that you set.
And I think that's a big benefitfor just kind of the unknown of
(20:18):
what happened.
So it's not that you're tryingto withhold the legacy from your
heirs.
It's that you've got a great wayto help protect them and they
can have the assets.
They can have their cake, whichis the assets, or have their
protection, which is the trustowning the assets, and then they
can eat it too, meaning they canhave access to it under some of
(20:40):
these rules and stipulationsthat you've created.
So it's not about how do we, youknow, cause them frustration and
feel like they don't get theirinheritance.
It's that, as every parent wantsto do, we want to try to help
our kids and our loved ones anddo so by reducing probate,
reducing expenses, making surewe take into account unforeseen
(21:03):
circumstances.
And so that's why these trustsare really, really important in
your wealth planning andfinancial planning, retirement
planning strategy.
So let's put it all together.
Your inheritance game plan.
Here is your roadmap.
Clarify your goals.
Very, very important.
Who gets what?
Do you want to supportgrandkids, charities?
(21:25):
How do you want your money, yourlegacy to be given out?
That's number one.
Number two, you need toinventory your assets, homes,
IRAs, Roth IRAs, investments,business, the car collection,
the coin collection, jewelry,life insurance, business
interests, rental properties,all of the things that you own
need to be inventory.
(21:46):
You need to, you know, thinkthrough and make sure you're not
missing anything.
You need to choose yourstructure.
You need to meet with anattorney who can guide you and
give you uh uh guidance, answerquestions, shed light on
different strategies so that youunderstand the best structure to
make when you're doing yourestate planning.
(22:06):
What kind of trust are you goingto utilize in there, you know,
in this plan?
Build your advisory team.
It's really, really important.
Don't try to go with this alone.
I'm a big fan of this proverbthat says, if you want to go
fast, go alone.
And if you want to go far, gowith somebody.
Have a team.
Go with a team, you know, anestate planning attorney, a CPA,
(22:30):
a financial planner, a certifiedfinancial planner, your family.
Make sure that everyone isinvolved and on the same team
and rowing in the same directionso that you have a really
cohesive strategy and confidentin your plan.
Implement the plan, you know,execute the documents, create
the trust, retotal the assets,update the beneficiaries.
(22:51):
Don't go through all this workto not finish it.
See it all the way through,implement the plan, and then
finally review it.
Again, I see a lot of timespeople just one and done.
It's been 20 years since you'veupdated it.
Life changes, laws change.
Take this out, update it.
You know, review this plan.
It doesn't have to be done everyyear, but review it every three
(23:13):
to five years to make surethings are still the way they
should, passing the way theyshould.
You don't need to make updates.
It's very, very important thatyou know you do not set it and
forget it, but you review thisregularly, just as you would
your investment strategy, yourretirement plan, you know, your
rental properties, anything.
You know, everything has to bereviewed frequently.
(23:33):
So, in closing, a biginheritance without a plan can
hurt your kids, but the rightstructure can protect them,
support them, and preserve whatyou've built.
If you want help building a planlike this, one that avoids
probate, reduces taxes, andprotects your kids, feel free to
reach out.
My calendar is in the about ussection.
(23:55):
You can schedule some time withme there.
I would love to help you.
Thanks for watching today.
If you haven't already liked andsubscribed, please do so.
Be confident in your retirement.
Have a wonderful day.
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(24:38):
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How your kids inherit your money can either
change their lives for thebetter or quietly destroy them.
Most parents think if I leavethem a big nest egg, they'll be
set.
But I've actually watched theopposite over the last 16 years
as a financial advisor.
Families ripped apart by fightsover money, kids who burn
through an inheritance in just afew short years, and lucky heirs
(00:26):
who wind up more lost anddependent and fragile than ever
before.
And here's what almost no onerealizes: the government, the
courts, ex-spouses, creditors,and even your kids' own worst
habits are all lined up to takea little bit, a small piece of
what you leave behind.
And if you don't structurethings carefully, your children
(00:49):
are set to inherit potentiallymore problems and less tax
efficient than if they were alittle bit more structured and
strategic on the front end.
You don't want that to be thecase.
You don't want to ruin them, youdon't want to cause unnecessary
stress or burden on them.
(01:10):
Your desire is to help them.
What you can't do is not have astrategy in place.
You can't just write a simplewill and hope for the best.
In this video, I'm going to walkyou through the same strategies
that wealthy families use andthat we help people in our
(01:31):
financial planning practice useto pass down money in a
tax-efficient way and to helpprotect their kids from bad
decisions, divorces, andlawsuits while keeping family
relationships intact.
I'm Jonathan Bedner, certifiedfinancial planner, owner of
Paradigm Wealth Partners here inKnoxville, Tennessee.
(01:52):
And today we're going to talkabout how you can help your kids
inherit money potentiallytax-free and without causing
unwanted or unneeded stress.
First, I also want to say I'mnot an attorney.
You know, we don't give legaladvice.
You know, you should consultyour professional advisors, your
(02:16):
attorneys.
But what we are here is talkingabout some strategies.
So let's talk about the hiddendanger that no one talks about
in their inheritance, the hiddendangers of inheritance.
So the so many times we seeclients that we work with, and
(02:38):
you know, they've they've got apretty good family.
There's really not a lot offights, there's not a lot of
arguments and bickering.
And you know, parents seem tothink if I leave them more
money, I've done my job as aparent.
I've set them up, I've provideda legacy.
They've they've got a leg up.
And I think that that'sespecially important.
And what I hear more and morefrom people today with the
(03:02):
economy the way it is, is theywant to make sure that they
leave money in the form of alegacy to their heirs.
And so they just think, well, ifI leave them money, they'll be
set.
All is good.
A simple will will be great, andyou know, they should be
protected.
Relying solely on a will is oneof the most dangerous mistakes
you could make.
Why?
(03:22):
Because a will equals probate.
Probate is a court supervisedprocess, and that process, the
court will validate the will,make sure debts are paid to
creditors, distributes asset,and that's a problem because
it's expensive.
I've seen it cost five to tenpercent of the total estate
could disappear by the time youcount court costs, legal fees,
(03:46):
attorney fees, all of thatreally starts to be a strain on
the assets.
It's slow.
I've seen it take years tosettle the estate.
Now, they're super complicatedwhen they take that long, but
even simple wills or simple uhestates going through probate
can take months.
(04:07):
And that just slows downeverything.
You know, people get frustrated,they don't understand why it
should take that long, theydon't understand the process.
It just it just getsfrustrating.
Uh it's public, you know, itgets put right into the paper.
People can see all the businessof the family when someone
passes away and they leaveassets to family members or
(04:29):
anybody just through the uhthrough a will.
And so, you know, a lot of timesif you want to try to protect
your your family and your lovedones and who you're providing
to, you know, leaving, leavingit, you know, through a will
doesn't have any, think of it assunglasses, you kind of hide
behind them.
It doesn't have any sunglasseson the on the plan.
(04:52):
It just everything's out in theopen.
It's all there for anybody whowants to look it up, to look it
up.
Who who who got what and howmuch they got.
And then finally, it's it's it'sstressful.
There's a lot of paperwork, uh,there's deadlines, there's
family tension, uh, there'sarguing and there's bickering,
and and you know, it just causesundue and unwanted stress.
(05:14):
So, solution could be a livingtrust.
Again, I'm not an attorney, Idon't give legal advice.
I'm just telling you about whata living trust does.
What a living trust does is itholds the assets while you're
alive.
And then once you pass away, itdistributes them privately.
So, unlike the will that puts inthe paper, here's what the
(05:35):
estate was, and here's who'sgetting what, the living trust
distributes that to your heirsprivately.
No one sees the family business.
That takes tension and stressand pressure off the family.
It avoids probate completely,which is amazing.
It saves time, it saves money,it saves stress, and it lets you
(05:57):
control how and when the moneyis passed on and who it's passed
on to.
So, four really, really bigbenefits there.
Again, hold your assets whileyou're alive, distributes them
privately once you pass, avoidsprobate, huge benefit, and lets
you control the money from thegrave, let you dictate how and
(06:17):
when and how much uh of yourassets someone gets.
So let's let's talk about aquick example.
Let's say uh John is a retiredengineer, he's got a$2 million
estate.
Scenario A is a will only.
This could take nine months totwo years in probate potentially
at 5%, could cost$100,000 incost to probate this.
(06:42):
There's a lot that goes intothat.
Where do they live?
What state?
Uh, do they have assets inmultiple states?
I mean, this can get messy fast.
So, you know, it's important tothink through some of that.
But there it could be asignificant cost.
So let's just say it's 5% on$2million.
That's$100,000 in cost.
And then finally, everything ispublic.
So scenario B is John created aliving trust.
(07:06):
Assets passed directly to kids,it's fast, private, minimal
taxes, or excuse me, minimalcosts, and avoids probate
completely.
It is a very useful tool that alot of people avoid just because
they don't want to pay a couplethousand dollars on the front
end to have someonestrategically and legally draft
(07:30):
up documents to help theirassets pass more efficiently to
the heirs and charities thatthey care about.
Charities are less of a bigdeal, not that they're not a big
deal, but having that privacyI've found to be important for
people.
And so when you look at a couplethousand dollars for a living
will and estate planningdocuments to be drafted by an
(07:53):
attorney versus potentialhundred thousand dollar costs in
this situation and everything'spublic, it's a no-brainer to
just have a couple of meetingsand get it done professionally
with counsel so that youunderstand the decisions you're
making.
If you come to that table andsay, hey, I'm out, I want to do
will only, okay, that's yourchoice.
I think most people, once theyunderstand the benefits, would
(08:16):
not choose to do that.
So, how do you set up a trust?
Simple roadmap for you.
You should work with an estateplanning attorney.
These are great resources toprovide that counsel.
You should retitle assets intothe trust because if you don't
actually retitle them, eventhough the trust is set up,
nothing flows through it.
(08:36):
So again, you'll want to workwith the attorney to help you
retitle the assets into the inyou're gonna want to name
trustees.
You know, could be you now ifyou're still living and in good
health.
Obviously, you're living, you'reyou're drafting these documents,
but you see what I mean?
You're in good health, you youyou can sound mind, you can make
(08:56):
decisions.
So you can be the trustee now,but you might want to add a
successor trustee on later.
Maybe that's a spouse.
So you're gonna want to namethem.
Again, this is all part of theestate planning attorney's
process, and then spell out whogets what and when they get it.
Now that we've kept your estateout of probate, let's talk about
how we keep your inheritancefrom accidentally harming your
(09:19):
kids.
Uh so in this section, we'retalking about how do we protect
your kids from themselves.
Creating these big lump suminheritance sounds really
generous.
And I have a lot of clients thatlike to do this, passing down
money to their kids andpotential grandkids.
And a lot of times I see itbackfired.
(09:39):
They overspend, they investpoorly, they get influenced by
friends, they just a lot oftimes they didn't earn the
money.
And so they don't have the samerespect for it as someone who
worked and saved and maybe didwithout to accumulate the nest
egg that you did.
And so some of it ends upgetting squandered.
(10:01):
So if you leave a big lump suminheritance, you can actually
hurt your kids, uh, especiallyif those kids are young, they're
inexperienced, they'reimpulsive.
Potentially, what if they'restruggling with addiction or um,
you know, maybe have debtproblems or unstable
relationships?
Those those scenarios can burnthrough money very, very
(10:21):
quickly.
Uh, I've seen someone inherit uhthree million dollars uh at age,
you know, 60, 65.
Their mom, when their mompassed, was uh in her late 90s.
This is a grown child who shouldhave a pretty good head on her
shoulders at you know, mid-60s.
(10:42):
And the money was completelygone in two years.
Every dime of it was blown at uha casino.
And you know, she had anaddiction, she couldn't overcome
it.
And that's where, you know, alittle bit of foresight on the
front end can help protect yourfamily, your kids, your
benefactors from themselves alot of times, but also skip
(11:06):
probate.
So, you know, there's there'ssolutions for this.
And it is, you know, aspendthrift trust, or or uh also
sometimes known maybe as astructured trust.
These types of trusts helpprotect your children or
grandchildren or whoever you'releaving money to, a lot of times
from making their own poordecisions, from creditors, from
(11:28):
lawsuits, from you know,potentially divorced spouses.
Um you know, in the in thesituation that I just talked
about,$3 million gone to thecasino, it would have prevented
her blowing through all thatmoney.
The lady is literally on foodstamps now.
And uh, you know, it's sad tosee someone have so much, have,
(11:48):
have everything she could everwant, and and just be their own
worst enemy.
So these can be reallybeneficial for people to protect
themselves from these poordecisions.
The trust would own the money,your child doesn't, and the
trustee would distribute moneyaccording to your rules.
And you can make really whateverrules up you want.
(12:10):
It could be by age.
Let's say you want to give them25% at 30 years old, and another
25% at 35, and the remainder at45, or you want to do it by
milestone.
Maybe once they get aneducation, they get so much
money, or they can have so muchmoney to buy a house, or you
know, maybe start a business.
Some of that, it could also beby need, like, you know, if
(12:33):
someone has a health issue,maybe they get some money to
help pay for some of that healthexpenses, or there's an
emergency.
With the with trusty oversight,someone who can say no when
needed helps further protect tomake sure that the assets are
passed down in the way that youwish.
And again, help some of thebenefactors protect themselves
(12:54):
from making bad decisions.
And your goal isn't to controlyour kid's life, your goal is to
make sure that the money helpsthem, not hinders them.
Now, let's take a second to kindof switch gears and talk about
taxes and make sure taxes don'ttake a huge bite out of the
apple, also known as theinheritance.
(13:15):
So, how do we build a taxefficient or tax-free
inheritance?
Most families don't realize howheavily inheritance can be
taxed.
I'm working with with uh aclient now who uh is going to
have a massive tax bill.
It's gonna eat up, you know, 40or 45 percent of their overall
(13:39):
net worth again because theydidn't walk through all of the
steps needed to think through,and and you'll never solve
everything.
Having a plan from 15 years agois not adequate.
These plans need to be updatedand adjusted as your life
changes, as your net worthchanges, uh, if you're an
(14:01):
entrepreneur, if your businessgrows, these things need to be
updated and not just uh aone-time set it and forget it.
Where do these taxes show up?
A lot of times they show up atestate taxes.
The higher your wealth, the moreestate tax you owe.
They can show up as stateinheritance taxes.
Tennessee does not have stateinheritance tax, but some states
(14:21):
do.
It can show up as income tax.
If someone has an inheritedtraditional IRA and um they take
a distribution, there's incometax on that.
So there are a lot of ways thatwe could be more tax efficient
with the legacy that you aregiving to your heirs.
And so it's common, I see thisregularly, where you know, 20 to
(14:45):
40% of an inheritance can vanishto taxes just because they have
poor planning on the front end.
So, what are some solutions thatwe can implement to help provide
tax-free inheritance to yourkids?
The first is life insurance.
And these life insuranceproceeds are income tax-free.
They're often out, oftentimesoutside of probate.
(15:08):
So, and they can also provideliquidity to cover estate taxes.
Actually, the the referencewhere I just mentioned to you,
where you know there was a bigestate and they're going to lose
a lot of that to uh taxes, uh, alot of that is because there is
no uh there was no lifeinsurance.
There was no real liquid money.
It was tied up in a businessthat's going to cause, you know,
(15:31):
if if if they don't come up witha strategy, them to force sell
the business, which is notideal.
The entrepreneur never wantedthat to happen in this plan.
But insurance can life insurancecan provide some liquidity to
help cover some of those estatetaxes.
So you're not forced to sell thecar collection or the business
(15:51):
or the beach condo.
And that way you're able to keepthose assets longer and own them
and carry on uh the legacy thatyour parents or or whoever left
for you.
The next option is Roth IRAs andRoth conversions.
I see this all the time.
Traditional IRAs are huge taxbombs for kids and grandkids
(16:14):
when they inherit them.
Once the Secure Act passed, kidswere no longer or beneficiaries
were no longer allowed tostretch those RMD or those
distributions over theirlifetime.
They had to deplete thetraditional IRA over a 10-year
period.
And so what you do is especiallyfor uh you know people that are
(16:35):
still working and they're andthey're typically 40 to you know
60, they're their highest incomeearning years, and then they
inherit one of these traditionalIRAs, they're forced to take
distributions and it drivestheir tax brackets up higher,
and they end up keeping less ofthe money.
So because these traditionalIRAs are tax bombs, if you can
(16:56):
execute Roth conversions inpotentially a lower tax bracket,
there's some huge benefits foryou or for your kids.
The money grows tax-free, itgrows tax-free, their
withdrawals are tax-free,they're still subject to taking
the money out within 10 years,but they don't get hit with the
taxes.
And so typically, retirees havea lower tax bracket than someone
(17:21):
who is, again, still working intheir prime earning years.
And so doing some strategic taxplanning and Roth conversions
could be a huge benefit and ahuge way to pass on legacy
assets to your children with notaxable, no taxes.
How do we do those Rothconversions?
You know, we do that byconverting pieces of your
(17:42):
traditional IRA into a Rothduring lower tax years.
Uh, I've done another video onthis, and you'll see it here on
the golden window.
And if you watch that video, Iexplain in detail a great
strategy for retirees to use toconvert money to a Roth IRA and
(18:03):
really do it in a tax efficientway.
So, you know, again, if you dothat, you can best to do it
before RMDs start, before youturn on Social Security.
Years when you have lower incomeand your tax brackets in the you
know 10 or 12% range, that thatgolden window is a great
opportune time to think aboutyour overall tax strategy, your
(18:26):
overall tax planning, andfurthermore, how you plan to
leave your kids a legacy withoutinheritance taxes.
Even if your kids areresponsible, and even if taxes
are minimized, there's still onemore threat.
Other people coming after theinheritance.
You have to protect theinheritance, your hard-earned
(18:48):
legacy from divorce, fromlawsuit, from creditors.
Even responsible kids can getcaught in the divorce and the
lawsuits, debt, a failedbusiness.
Things happen in our lives thatare unexpected.
Uh, and and even if you have thebest intentions or or you're a
good person, unfortunately, somethings, you know, sometimes bad
(19:12):
things happen.
And so having these assetsplaced in a trust or an asset
protection trust, something likethat, keeps uh keeps these
assets and these legaciesprotected for your heirs.
This would keep inherited assetsseparate from marital property.
That's huge, again, if there's adivorce, pending divorce, or
(19:34):
even divorce down the road.
Once those assets getcommingled, then they become
part of marital property.
So keeping them in some sort oftrust like this would keep those
separated so that your heirsinherit the money and not a
potential ex spouse.
It makes it extremely hard forcreditors to access the money.
Again, a huge benefit if someoneends up filing for bankruptcy,
(19:58):
loses their job, and helps.
Health expenses, health, youknow, costs, skyrocket.
Not that they don't owe themoney, but it makes it really,
really difficult for creditorsto come after it.
And then you're able to controland release money under the
terms and rules that you set.
And I think that's a big benefitfor just kind of the unknown of
(20:18):
what happened.
So it's not that you're tryingto withhold the legacy from your
heirs.
It's that you've got a great wayto help protect them and they
can have the assets.
They can have their cake, whichis the assets, or have their
protection, which is the trustowning the assets, and then they
can eat it too, meaning they canhave access to it under some of
(20:40):
these rules and stipulationsthat you've created.
So it's not about how do we, youknow, cause them frustration and
feel like they don't get theirinheritance.
It's that, as every parent wantsto do, we want to try to help
our kids and our loved ones anddo so by reducing probate,
reducing expenses, making surewe take into account unforeseen
(21:03):
circumstances.
And so that's why these trustsare really, really important in
your wealth planning andfinancial planning, retirement
planning strategy.
So let's put it all together.
Your inheritance game plan.
Here is your roadmap.
Clarify your goals.
Very, very important.
Who gets what?
Do you want to supportgrandkids, charities?
(21:25):
How do you want your money, yourlegacy to be given out?
That's number one.
Number two, you need toinventory your assets, homes,
IRAs, Roth IRAs, investments,business, the car collection,
the coin collection, jewelry,life insurance, business
interests, rental properties,all of the things that you own
need to be inventory.
(21:46):
You need to, you know, thinkthrough and make sure you're not
missing anything.
You need to choose yourstructure.
You need to meet with anattorney who can guide you and
give you uh uh guidance, answerquestions, shed light on
different strategies so that youunderstand the best structure to
make when you're doing yourestate planning.
(22:06):
What kind of trust are you goingto utilize in there, you know,
in this plan?
Build your advisory team.
It's really, really important.
Don't try to go with this alone.
I'm a big fan of this proverbthat says, if you want to go
fast, go alone.
And if you want to go far, gowith somebody.
Have a team.
Go with a team, you know, anestate planning attorney, a CPA,
(22:30):
a financial planner, a certifiedfinancial planner, your family.
Make sure that everyone isinvolved and on the same team
and rowing in the same directionso that you have a really
cohesive strategy and confidentin your plan.
Implement the plan, you know,execute the documents, create
the trust, retotal the assets,update the beneficiaries.
(22:51):
Don't go through all this workto not finish it.
See it all the way through,implement the plan, and then
finally review it.
Again, I see a lot of timespeople just one and done.
It's been 20 years since you'veupdated it.
Life changes, laws change.
Take this out, update it.
You know, review this plan.
It doesn't have to be done everyyear, but review it every three
(23:13):
to five years to make surethings are still the way they
should, passing the way theyshould.
You don't need to make updates.
It's very, very important thatyou know you do not set it and
forget it, but you review thisregularly, just as you would
your investment strategy, yourretirement plan, you know, your
rental properties, anything.
You know, everything has to bereviewed frequently.
(23:33):
So, in closing, a biginheritance without a plan can
hurt your kids, but the rightstructure can protect them,
support them, and preserve whatyou've built.
If you want help building a planlike this, one that avoids
probate, reduces taxes, andprotects your kids, feel free to
reach out.
My calendar is in the about ussection.
(23:55):
You can schedule some time withme there.
I would love to help you.
Thanks for watching today.
If you haven't already liked andsubscribed, please do so.
Be confident in your retirement.
Have a wonderful day.
Thanks for joining me on anotherepisode of What the Wealth.
If you enjoyed the episodetoday, smash that subscribe
button.
It helps me more than you think.
(24:15):
Also, if you found this episodeinsightful and a light bulb went
off, share it.
Your friend Aunt Judy, therandom guy in the office who's
always talking aboutinvestments.
Wealth isn't about just thechicken.
It's about our choices, chances,and changing our financial
futures.
The information in this podcastis informational and general in
nature and does not take intoconsideration the listener's
(24:38):
personal circumstances.
This podcast is not intended tobe a substitute for specific in
financial, legal, or tax advice.
You should consult the approvedqualified professional prior to
making a final decision.
Security is offered through LPLFinancial, member FINRA SIPC.
Paradigm Wealth Partners is theother business name for
Independent Advisor Alliance.
Investment advice offeredthrough Independent Advisor
(24:59):
Alliance, a registeredinvestment advisor, Independent
Advisor Alliance, and ParadigmWealth Partners are separate
entities for LPL Financial.
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