ESTATE PLANNING: TRUSTS, WILLS, & LIFE INSURANCE

Summary

Earn Your Leisure Podcast: Estate Planning – Trusts, Wills, & Life Insurance

Episode Release Date: January 21, 2025
Hosts: Rashad Bilal and Troy Millings
Guests: Ian and Tiffany
Podcast Description:
Earn Your Leisure provides behind-the-scenes financial insights into the entertainment and sports industries, highlights entrepreneurial backstories, breaks down business models, and examines the latest finance trends—all through a blend of college business education and pop culture.

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Introduction

In the January 21, 2025 episode of Earn Your Leisure, hosts Rashad Bilal and Troy Millings explore the critical topic of estate planning. Joined by financial experts Ian and Tiffany, the discussion delves into the essentials of wills, trusts, and life insurance, offering listeners a comprehensive guide to safeguarding their financial legacy and ensuring their wishes are honored.

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1. The Fundamentals of Estate Planning

Tiffany opens the conversation by outlining the core components of an estate plan:

"When it comes to your estate plan, I want you to think about a will, potentially a trust, and beneficiaries. Those are like the core components."
[00:15]

She emphasizes that even individuals without dependents or substantial assets should consider establishing beneficiary designations for their financial accounts and life insurance policies to ensure their assets are distributed according to their wishes.

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2. The Crucial Role of Beneficiaries

A significant portion of the discussion centers on the importance of regularly updating beneficiary information. Tiffany shares a personal anecdote to illustrate this point:

"If you are 21 years old, you got a bank account, you got an estate, you know, so put your mama, your cousin, your best friend, your sister, your brother as a beneficiary on your bank account, on your life insurance policy, if you have one."
[00:45]

She warns that outdated beneficiary forms can lead to unintended beneficiaries receiving assets, regardless of changes in personal circumstances. Tiffany underscores the precedence of beneficiary designations over wills or trusts:

"What's on your beneficiaries form trumps everything else. It doesn't matter what's in your will or your trust."
[01:25]

Ian reinforces this by sharing a cautionary tale:

"He [referring to a client] got divorced like 20 years ago and had a new wife and, you know, had like three kids... when he died, he never updated his beneficiary... it went to his ex-wife and she kept it."
[06:09]

This example highlights the non-negotiable nature of beneficiary designations and the potential for significant unintended consequences if not regularly reviewed and updated.

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3. Understanding Wills

Tiffany breaks down the purpose and limitations of a will:

"A will is bare bones, but a will is not going to save you from probate court. You are still going to pay them taxes on tax."
[02:20]

She explains that while a will is essential for appointing guardians for minor children and specifying asset distribution, it does not bypass the probate process or eliminate tax liabilities. This makes ongoing estate planning crucial for those with substantial assets or complex family dynamics.

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4. Trusts: An Advanced Estate Planning Tool

The conversation shifts to the advantages and considerations of establishing trusts. Tiffany differentiates between revocable and irrevocable trusts:

"An irrevocable trust means that it cannot be broken or changed unless everyone who's involved in the trust says okay."
[04:00]

She cites Kobe Bryant’s irrevocable trust as an example, illustrating how unforeseen circumstances can complicate estate planning if the trust's provisions are not meticulously structured.

Ian adds depth by discussing the financial benefits of trusts:

"A trust is like this person that doesn't die. So money, if it's held or your assets are held there, even if you pass, the trust stays alive."
[06:30]

This permanence allows assets to be managed and distributed without incurring additional taxes that typically arise when money passes directly from one individual to another upon death.

Tiffany advises on the financial thresholds for establishing trusts:

"Unless you have at least $100,000 in assets, right? Because $20,000, it doesn't make sense for the cost of a trust."
[04:45]

She recommends that individuals with assets exceeding $500,000 consider setting up a trust to avoid the high costs and public exposure associated with probate court.

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5. Life Insurance in Estate Planning

Ian explores the intersection of life insurance and estate planning, highlighting potential tax implications:

"Life insurance can actually add to an estate planning problem because the money goes into your estate. So if your estate is worth $3 million and you have a $2 million life insurance policy now when you die, actually your estate is worth $5 million."
[06:30]

To mitigate this, he suggests placing life insurance policies within a trust:

"A trust is like this person that doesn't die, so the life insurance is out of the estate and it still goes to the beneficiaries tax-free."
[06:45]

This strategy helps in reducing the overall taxable estate and ensures that life insurance proceeds are distributed efficiently to beneficiaries without increasing the estate’s tax liability.

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6. Common Pitfalls and Real-life Scenarios

Throughout the episode, Tiffany and Ian emphasize the emotional and financial turmoil that can result from inadequate estate planning. They share stories of families embroiled in disputes over assets, highlighting the importance of clear, legally binding documents to prevent such conflicts.

Tiffany poignantly advises:

"Don't be like Prince."
[07:20]

Referencing the late musician Prince, who reportedly left no will, Tiffany underscores the chaos that can ensue when an individual passes away without a proper estate plan in place.

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Notable Quotes

• Tiffany on Core Estate Components:
  "When it comes to your estate plan, I want you to think about a will, potentially a trust, and beneficiaries."
  [00:15]

• Tiffany on Beneficiary Priority:
  "What's on your beneficiaries form trumps everything else."
  [01:25]

• Ian on Beneficiary Consequences:
  "So it went to the ex-wife and she kept it."
  [06:09]

• Tiffany on Wills and Probate:
  "A will is bare bones, but a will is not going to save you from probate court."
  [02:20]

• Tiffany on Trust Costs:
  "If you have at least $100,000 in assets, right? Because $20,000, it doesn't make sense for the cost of a trust."
  [04:45]

• Ian on Trusts as Perpetual Entities:
  "A trust is like this person that doesn't die."
  [06:30]

• Tiffany on Estate Planning Importance:
  "Don't be like Prince."
  [07:20]

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Conclusion

The episode of Earn Your Leisure offers an in-depth examination of estate planning, underscoring the paramount importance of wills, trusts, and life insurance in safeguarding one's legacy. Hosts Rashad Bilal and Troy Millings, alongside experts Ian and Tiffany, provide actionable insights and highlight the often-overlooked aspects of estate management. By emphasizing the need for regular updates and thoughtful structuring of estate documents, the discussion serves as a crucial guide for listeners aiming to protect their assets and ensure their intentions are honored after their passing.

Listeners are encouraged to take proactive steps in their estate planning to avoid legal complications, financial losses, and familial disputes, ultimately ensuring peace of mind for themselves and their loved ones.

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For more insights and episodes, visit the Earn Your Leisure website and follow their social media channels. Stay informed and take control of your financial future!

Transcript

[Ian]

Estate planning, very big, yes. When we talk about wills and we talk about putting beneficiaries on things, things of that nature. What are some things that. Life insurance, stuff like that. What are some things that people need to be aware when developing their estate plan.

[Tiffany]

So when it comes to your estate plan, I want you to think about a will, potentially a trust and beneficiaries. Those are like the core components. So a will is like the bare bones. You don't necessarily, if you're 25 years old, you ain't got no kids, you got nothing. You don't necessarily. A will. Right. Well, let's start even before that. Beneficiaries, right? So no matter what, even if you are 21 years old, you got a bank account, you got an estate, you got life insurance, you have an estate, you know, so put your mama, your cousin, your best friend, your sister, your brother as a beneficiary on your bank account, on your life insurance policy, if you have one. That way, if something should happen to you, that is what estate planning looks like when you really don't have much. But. But it's still something. But you want to be mindful. Because if someone is a beneficiary on your bank account, let's just say you put them on when you're 25, your sister, and then at 35, you got kids and a significant other and you have a will and all other stuff, but you never updated that form. If something should happen to you, what's on your beneficiaries form trumps everything else. It doesn't matter what's in your will or your trust.

[Ian]

So.

[Tiffany]

So that's really important. I remember, like, so my husband, when I met him, he had a daughter already, she was seven. So he and her mother were together. And he had. He has, like, he works for the city, so he has a pension. So the other day he was like, babe, my friend is trying to figure out how to change his beneficiaries on his pension. And I was like, all right, well, you know, let's update. Well, let me show you how to log in. Cause I do all of our financial stuff. So we log in to changing beneficiaries. And I'm like, hold up. It don't say Tiffany on here. It said baby moms on here. Now don't get me wrong, me and baby moms is real cool, but not that cool. I said, bruh, what if you would have died and left your pension to her? I would have had to raise you up from the dead, kill you back dead again. But I just say all that to say respect. It's so important to make sure those forms are up to date. So then next level will. If you have children, you have to have a will. Who do you want to raise your children? It's not enough to be like, oh, that's my godmother. No, no, no, no, no. Legally, you have to assign because you know us. That's definitely the conversation. Yes. Like, oh, that's a grandma. If something happened to me. No, no, no, no. And this is all in my ridiculous money. And so, yes, you want to make sure that you have, you know, like, you legally have some papers drawn up to say, this is what happens to my minor children when I'm not here. Because let's just say you're Muslim, right? And your parents are Christian, and you really don't want your parents to raise your kids or your sister to raise your kids, because you want your kids to be raised in a Muslim household. So you really want your brother, you know? But if you want that to happen, you have to put that down. So a will is bare bones, but a will is not going to save you from probate court. You know, you are still going to pay them taxes on tax. On tax on taxes. Right. But I will say this. If you have a trust is not for someone, I would even consider a trust because of the cost. Unless you have at least $100,000 in assets, right? Because 20,000, it doesn't make sense for the cost of a trust. Now, if you have assets of 500,000 or over, you must have a trust because the amount of money you're going to lose in probate court, plus probate court is embarrassing. It's like ringside seats to like, oh, how much Ian got. Oh, okay. Oh, Ian got what exactly? You know what I mean? And so that part is important. So a trust. What makes a trust so special is that a trust locks things away behind closed doors so no one can see unless you decide to share. Unlike a will where everybody can see. But also, trust is like a person that never dies. When money goes passes from one person to another person because of death, there's a tax involved. But a trust is like this person that doesn't die. So money, if it's held or your assets are held there, even if you pass, the trust stays alive. Even if someone else passes, the trust stays alive. So you don't have to worry about the tax incurred going from person to person. But you want to be mindful what kind of trust that you want to have an Irrevocable trust or revocable trust. An irrevocable means that it cannot be broken or changed unless everyone who's involved in the trust says okay. Right. So, for example, Kobe Bryant had an irrevocable trust. Right. So the problem was that he. So he and his wife every. When their children turned one, they added that child to the trust. But we all know he passed away when his baby was still younger than one, so she was not in that trust. All of that wealth he had set aside, so she had to petition the courts to say, I know this is irrevocable, but let's be real, Kobe would not want the baby not to be in here. So they granted her that. So you just want to be mindful, you know, what kind of trust you want to have. But estate planning, we tend not to do it. But it's actually more expensive not to, you know, like, it just is. And so if you. If you have just a little bit of something, you want to put something down, you want to get it notarized, and you want to fund it and sign it. So if something happens to you, everybody knows what your desires are. Don't be like Prince. Yeah.

[Ian]

And it prevents all the fighting at three passes. I just want to. I just wanted to add one thing to that, because everything you said was right on point. And me as a financial advisor, one of the things when I first came into the industry is this guy. Well, they was speaking and they was talking about a guy that worked a job for like 30 years, had like a big pension and all of that. And, you know, he got divorced like 20 years ago and had a new wife and, you know, had like three kids and all that. And when he died, he never updated his. His beneficiary. And like you said, the beneficiary supersedes everything. Yep. And it's no negotiation. Nothing you can do about it. So it went to the. It went to his ex wife and she kept it.

[Tiffany]

Yeah. She didn't have to give it up. So sad. Too bad.

[Ian]

Yeah. So you. You have to. You have to update your beneficiaries, and everything should have a beneficiary, including bank accounts. And then also what you speak about as far as the. The trust is extremely important. The irrevocable trust. We spoke about the. I spoke about the ILIT before, which is the irrevocable life insurance trust. And I love how you say a trust is a person that can't die, because that's really true. It's treated like an outside entity, as A person. So, you know, especially when we have more advanced conversations about tax shelter, because life insurance can actually add to an estate planning problem because the money goes into your estate. So if your estate is worth $3 million and you have a $2 million life insurance policy now when you die, actually your estate is worth $5 million. So that can actually be counterproductive because it's going to add to your tax bill. So that's why people, sometimes people will put the life insurance in a trust because now that 2 million is not part, is not part of the estate, it's out of the estate and it still goes to the beneficiaries tax free because of the life insurance is tax free. So yeah, everything that you speak about is extremely important. And like you said, it's not something unfortunately that we have really thought about a lot of. It's like, yeah, most of the time it's just like, all right, figure it out when you die. And then, you know, that leads to all kinds of issues. And as you said, it's actually more expensive not to have it mentally and financially because mentally, you know, family members got a fight, breaks up families all the time. It's pretty common. You know, your grandmother has a house and then there's like four kids and they're fighting over the house. So all of this stuff, we talk about stocks, we talk about investing, all of that.

[Tiffany]

The fundamentals are critical.

[Ian]

Yeah, you got to have the fundamentals down. My graduates from my school being Forbes. Backdrop, backdrop mic.

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[Ian]

Drop back.

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[Tiffany]

Hey, mom, you seen my toothbrush? Yeah, I'm almost done with it.

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