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So you talked about a state plan with trust and will, so can you explain that a little bit?Because sometimes people get confused on what's the difference between a trust and a will, and do you even need a will, or what's a trust?
That's another thing that has been very popularized on social media.
For sure, for sure. Talk about, like, can you just kind of break down the will and trust situation?Can you do that?
And I'll talk about the difference between revocable and irrevocable trust from a tech standpoint.
Yeah, cool.So from a will standpoint, at the end of the day, you simply want to dictate who is going to get what, who's entitled to whatever you want to leave behind when you're no longer here, right?
The reason why people like the idea of a trust is because you can have a little more control to determine when and how those assets get disseminated once you're gone.
Because obviously, if you have a will, once you're gone, it pretty much dies with you.But that could be good in certain situations.I don't think everybody necessarily needs a trust.
But if you want to ensure that your heirs, maybe at 18, my son has to do this thing before he gets
you know, $15,000 for a down payment on a house or whatever the case may be, the trust can be established in a way to control how that money is disseminated, right?
Especially if you have children that are minors and things of that nature, you want to really make sure that they get what they're supposed to get when they are supposed to get it, right?
So that's kind of the fundamental difference between trust and wills.I think what happens is people like the idea of a trust because of the control piece.But at the same token, you don't want to overcomplicate your finances.
Because sometimes with a trust, like the upkeep, if you do too much, it can be a little bit overwhelming.I know my mother-in-law, before she met me, she had a very complicated trust and just decided not to do it anymore because it was just too much.
So making sure that it makes sense relative to your situation, what is it that you actually want to achieve?
And then that will determine if I just need a basic will or do I need a trust to make sure that I can pass on my assets in a way that's a little bit more strategic relative to who I'm passing them on to.
Yeah, I think the difference between a revocable trust and an irrevocable trust is huge.And I don't think enough people know the difference.
So a revocable living trust, which I think everybody should have at some point in their life, is like a safe that you have the combination to. You can put assets in there.You can take assets out.You can change the assets in there.
You can change the beneficiaries.It has a lot of flexibility.And the purpose of a revocable living trust is so that when you pass away, none of your assets go to probate court.
Because we saw with Chadwick Boseman, he didn't have a revocable living trust, so he lost almost a million dollars of his estate to probate court.
Because just because you say that your family should get something in their will doesn't mean they're going to agree on it.
And the more time they spend arguing in probate court, the more money that the lawyers make and the more money that the court system makes.
With a revocable living trust, it says like, it's stamped saying that all of my assets go to these people, this is how they get it, this is when they get it.So a revocable living trust is huge for avoiding probate court.
Another reason that you want to have a revocable living trust is because it helps us with taxes.So here's an example.If I bought a property at $200,000 and that was worth a million dollars.And I put it in my revocable living trust.
When my kids get it, they get something called a step-up in basis.So in my example, I have $800,000 in gains.I paid $200,000 for it.Now it's worth a million.
So it's an $800,000 built-in gain that if I was to give it to them when I was alive, they would have to pay that $800,000 in capital gains taxes.
When we put it in our Revocable Living Trust, and I pass it away and pass it to my kids, they get what's called a step-up in basis.
So they receive the property with the million-dollar fair market value, and they can sell it the next day and pay no capital gains taxes.
So, by putting the property in a revocable living trust, you help your kids avoid unnecessary taxes on assets that you're trying to pass down.And that's how we build true generational wealth.We don't want to just pass down assets.
We want to pass down tax-free assets, which is very important.An irrevocable trust is, in my opinion, is only used for estate planning purposes.And unless your estate is over $13 million,
You probably don't need an irrevocable living trust because you don't pay estate taxes until your estate reaches that high.So, you don't want to put things in an irrevocable trust before that because you can't benefit from it in your lifetime.
If you put a property in an irrevocable trust that's worth a million dollars and it generates $100,000 a year in cash flow, you can't take that because it's irrevocable.You can't benefit from it.So, it's just understanding what people need.
Personally, I think most people need a revocable living trust until they reach that $13 million mark.
Yeah, I was reading an article maybe last week about Rupert Murdoch.And he's there in court now because he has an irrevocable trust.And I think he, it's based on succession.He doesn't want to pass it down to this heir.
So like, irrevocable, cannot change.
Cannot change.Lock, it's a safe, throw away the key, put it in the bottom of the ocean.
What about an islet?Where it's a life insurance policy inside the trust.Is that a good idea?
It can be.I haven't studied islets that much, but I have heard about them.None of our clients have needed it thus far, but I think it can be a powerful policy, but it has to be structured the right way.
And it's going to cost a little bit of money to get that set up.
Yeah, we were talking about this the other day on Market Mondays, actually, about buying life insurance policies on family members.
I want thoughts around that in terms of planning, I guess, for the future and also wealth creation, because we've seen this happen in other communities, not so much in ours.What's your thoughts?
Yeah, I mean, I think at the end of the day, if we remove emotion from it, right, at the end of the day, we know that our loved ones are going to pass away, right?
And if you have, if your desire is to create generational wealth, right, for your family, it's like, hey, let's just have a conversation about like, what does that look like, right?So, for example, if you have a parent that's aging, right?
You have life insurance on them.Maybe they didn't have opportunity.They didn't have a Market Mondays.They didn't have Earn Your Leisure.They didn't have Melanin money.They didn't have an opportunity to accumulate a lot of wealth, right?
One of the great things about life insurance is that it can close that gap for pennies on a dollar, obviously, assuming, you know, you are in decent health.So I think it can be a great strategy.
Some people even go as far as, you know, having the family trust, right?And then The trust being the beneficiary of the life insurance.And then when you pass away, the money goes into the trust.And then now that can kind of keep the trend going.
But I think personally, it's a great strategy.I think we're just so emotional about it.And we feel like, oh, that's blood money.You waiting on me to die, right?
But if we remove the emotion from it, and we're like, yeah, this is what we want our family to look like for generations to come.What is the most efficient way for us to do that?I think life insurance can be a great vehicle to facilitate that.
You spoke about something earlier that we haven't spoke about a lot, disability insurance.Just talk about that.Why is that important and what's some details that people should know about disability insurance?
Yeah, so I can speak from personal experience.So when I was 28, I got married and I was having this crazy random back pain.I thought I was maybe deadlifted too much weight or something.
And then come to find out I had a benign tumor in my ninth vertebrae, right?They fractured my spine.I had to relearn how to walk.It was a whole whole situation, right?Wife had to like lock into the valves very early.
60 days, you know what I'm saying?And people don't realize is that you are three times more likely to become temporarily disabled, then you are to die prematurely, right?And so what disability insurance does, it's insurance coverage on your income.
Like, we have insurance on everything.We have insurance on our cell phones.Some of us have insurance on our lives.But what's the insurance if you get hurt or sick and can't work? What's the insurance on that, right?
And so disability insurance bridges that gap.Sometimes if you're employed, you might have insurance and it might cover 50% to 60%, right?But that's also going to be a taxable benefit.
So I always ask people, if I cut your check in half right now, could you live off 50% or 60% of your income?They're probably like, no, I can't, right?
And so having disability insurance and or supplemental disability insurance can kind of close that gap so that if you get hurt or you get sick, you have the ability to still meet your needs.Because you can't call American Express.
You can't call the mortgage companies and say, hey, I can't work right now.Can I defer these bills?They're going to say, ain't nothing we can do for you, right?
So disability insurance bridges that gap to ensure that if anything happens to you, you're OK.
Now, some of the features and benefits of disability insurance that you want to think about are like there are certain policy benefits that they call riders. Right?
And basically the way they work is like, for example, let's say that you are a surgeon, right?And you make your money with your hands, right?
So what you would probably want to do is you want to get special provisions in the disability policy to ensure that, hey, look, I can still go be a professor, right, and teach what I do, but because I can't use my hands, right, I need to be able to still receive income because that was my primary source of income.
Because with disability insurance, it does create a little bit of a moral hazard.The reason why they don't, like, let you get 90% is, like, well, shoot, you know, people don't game the system.And, like, I'm not going to work.Make an injury.Right?
So you just got to be mindful of the riders and the clauses that allow you to take advantage of it.
Like, if you have, like, a special skill set, to be able to still benefit from it, but potentially still earn income in other ways, like, you know, being a teacher or professor, even if you can't— Own occupation?Yes.
Still got it, man.Hey, you still got it, brother.Still got it.
As business partners, right?What about having insurance on each other, right?Or buy-sell agreements?People don't talk about that.But if something happens to Carter, You know, what happens to the business, what happens to the income?
These things need to be discussed.
That's 100% true.Let's talk about it.
We're talking with our lawyers about that in the making right now.And one thing I love about our relationship, we have the tough conversations on the front end.
Like, bro, if you do something crazy or you're not around, like, you know, love is cool, but everything needs to be in writing.
So we are working with our lawyers on our buy-sell agreements and things like that because it's so important because we want this business to be generational.And we don't want to lose it if it's just one generation with us.
So we are putting those things in place literally as we speak to make sure we protect our business and protect ourselves.
Yeah, and from about, just for the benefit of the listeners, like, when it comes to a buy-sell agreement, the reason why you want to have that is because, let's say something does happen to me, right?
Like, if I own 50% of the business, right, and technically that, you know, my wife inherits that, my wife is great, but I don't think she's going to personally tell me, like, yo, all right, so I'm going to start managing this portfolio.
I'm thinking the same thing. You know what I'm saying?She might not be the best person to do that, right?So, and one thing you can also do is you can get buy-sell agreements funded with life insurance, right?
So that way it's like, all right, well, something happens to you, right?My wife, I mean, I would trust and believe that something happened to my wife would be good.
Yeah, you'd be good, brother.
I got you, man.I got you, man.
It's on record.But being able to say, okay, cool.The buy-sell agreement is funded by life insurance.Something happens to you that I buy you out, and then your wife gets those proceeds.But it's important.
From day one, when we formally locked in, we made sure that everything was solidified, all the documentation was squared away.Because I had started the brand first, and I was like, I said, I think it's time for us to go further with this.
He's like, man, let's do it.I was like, okay, cool. and then send us some paperwork, right?But we did it on the front end so we could just documentation beats conversation.
Those things have to be in place if you want to make sure that your business is solidified.
Yeah, and I think business structure is really important as well.I don't think enough people talk about because
The way our business is structured, we could have just been a traditional partnership, which is fine, but there are some tax limitations by having a traditional partnership because if he wants to go to a conference and deduct the expense on our taxes, I'm like, well, I don't want to go to that conference.
I don't want the business to have to pay for that, right?And so if you have a traditional partnership and you and your partner are not agreeing on a specific deduction, then you can't take it. Right?
So the way we set it up is that we have our LLC, which is our Melanin Money, and then we have our S-Corp's 50% owner of that company.
So now I can take all the deductions I want to take in my S-Corp, he can take all the deductions that he wants in his S-Corp, and we only take group BIS deductions in our LLC for Melanin Money, and I see a lot of
new partnership business owners lose out on tens of thousands of dollars in deductions because their financial structure is not the way it should be to maximize their tax savings.Is the Chicken Big Mac still a Big Mac?
It's got two chicken patties, the pickles, the lettuce, ooh, the cheese, the sesame seed bun, and it's got the sauce.It's not not a Big Mac.Get it while you can.And participate in McDonald's for a limited time.
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