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Welcome to The Keenan Roberts Advantage, where we discuss how families and business owners tactically grow and preserve wealth for generations to come. There's a right way and a wrong way to protect your business, grow wealth and transfer it. But most people only learn the hard way when it's too late. The advantage you get here is learning the strategies used by the wealthy, by top business owners, and by those who don't just make money, but know how to keep it. I'm here to break down these strategies in a way that's clear. actionable and most importantly something you can actually use.
I am not a CPA, attorney, or financial advisor. The information in this podcast is for educational and informational purposes only and should not be taken as legal, tax, or financial advice. Always do your own research and consult with a qualified professional before making any financial or legal decisions
[00:00:00] Welcome back to the Keenan Roberts Advantage, where we discuss how families and business owners tactically grow and preserve wealth across generations. There's a right way and a wrong way to protect your business, grow wealth, and transfer it. But most people only learn the hard way when it's too late.
Okay? And today. I'm super excited to talk to you all about a couple of topics that I discovered in the past couple of weeks that I just couldn't hold back., I couldn't hold it in. I really wanted to share it with you. So today we're gonna be talking about what your attorney won't tell you. We're gonna be talking about.
The basics. We're gonna talk about why most people when they decide to generate an estate plan fall into what I would call a trap right from the get go. Okay? And by the way, this podcast is brought to you by none other than [00:01:00] Asset Smart, where we help you craft your legacy for generations through private trust structures.
Today we're gonna be talking about something that may ruffle a few feathers in the estate planning circles,
and that's statutory trust. You know, the ones that your attorney says are compliant. Perfectly legal and based in favorable jurisdiction. I'm gonna use that term quite often today. Favorable. But here's the real question. Are they actually helping you or are they keeping you exposed, taxable, and ultimately trapped?
I mean, I think about the different people that I pay for services or I pay to get something done, and ultimately I have to ask myself, is this really helping me? I play Monopoly probably about twice a month, maybe sometimes more frequent, sometimes less. One of my favorite [00:02:00] games to play by the way, but when I'm structuring a deal with the person across the table from me, I'm always thinking, are they going to leave me trapped?
Are they gonna leave me exposed? Are they actually helping me? Is this deal helping me now? I'm not stupid. I get it. They also are trying to win, right? There's gotta be a win-win in the deal structure,
of course. So I know they're trying to win. They don't wanna put me in such a powerful position that I completely dominate the game, but that's not what we're talking about. My point is, do you ask those that are there to help you? Do you ask yourself, are they actually helping you?
This episode is gonna expose why statutory trust. Even the ones in favorable states, favorable states might just be the invisible [00:03:00] chain wrapped around your wealth. If you're a first generation business owner, I really want you to pay attention if you're a second, third, or even fourth generation. I actually talked to a fourth generation business owner a couple weeks ago, and it was a pretty interesting conversation, but no matter where you are.
Pay attention because this might change the way you steward wealth for the next generation. Okay, let's, let's talk about this illusion of protection. Let's talk about statutory trust. These are trusts that exist within state law. They follow rules set by state legislatures. They're designed to be public compliant, and on paper they actually sound pretty good, right?
You even have some that are irrevocable, some that have some asset [00:04:00] protection, and here's that word again, favorable tax treatment. But another thing I want you to ask yourself, if you need the state's permission to protect your assets. Are they really yours, are they? Now, don't get me wrong, I, I don't think you should own them.
You've heard me say that a million times, but in this case it certainly doesn't sound like you control them either. These trusts require state statutes to define how they work, who can control them, and what powers or control you have. That sounds like less control and more like regulated leasing maybe.
Okay. Which I guess that has its place
even if you set up something like a domestic asset protection trust, which I covered, I believe it was episode two, but even if you got one of [00:05:00] these,
you're gonna have to have a required state trustee and adhere to state law. Okay, let, let's back up a little bit.
A required state trustee, what does that mean? That means that . A trustee has to reside there ,
In a lot of cases, that means it's gonna be some form of a trust company that is listed as a trustee on your estate plan in the trust, which gives them control, discretionary control over your state.
They are rarely ever going to put you in the driver's seat. They are rarely ever gonna make you a trustee, right? And, and that's why I'm calling this out because if there's a required state trustee, guess what? Ask your attorney. It's not gonna be you. Okay? [00:06:00] Moving on. So the question is who's actually in control?
And here's what I want to do. I, I wanna make a comparison that you will not forget. Trust me, you're not gonna forget it. I was at a conference with a very close friend of mine who really gets the trust game. Like this guy, he really understands it. And he said, Keenan, have you ever compared trust this way?
And I think it would really help people understand them. So I'm going to share with you the comparison that they gave me. Okay. So blame my friend because it was his idea, but it's really important that you get it. So think about the term statutory rape. Now stay with me. Okay? I get it. I promise to you I will not get graphic at all.
But
in legal terms. Statutory rape happens when a minor consents to something. But the law [00:07:00] says they're not capable of giving full consent, so the older party still holds all the power. I told you I wasn't gonna get graphic, but follow me. That's what statutory trust law does to you. You maybe the first generation builder, second or third or fourth, doesn't matter.
You're the entrepreneur, you're the business owner, you're the wealth creator. You in this case. You're the minor. You walk into the attorney's office and say yes to a structure that the state permits, but the state, the IRS, the courts, they're the adult. They decide what's enforceable, how your trust operates.
Now, don't get me wrong, there are rules in every game. The thing is you've agreed to a relationship. Where you've already lost power and control. Get it. The question is, why [00:08:00] would you consent to being the minor in your own estate plan?
Yeah, yeah, yeah. Happens every day. Happens all the time. Think about it. Teenagers in that statutory rape situation, they don't know what they're doing. They have no idea. They have no clue. They're ignorant. Their mind isn't even fully developed. Now, I'm not comparing you to the teenager in that way.
I'm just saying that the adult typically is gonna take advantage of that. So , there's a hidden price of ignorance that exists and you're gonna pay the price and the attorney in a lot of cases. Maybe it's a bank. Whoever has more control over you, you're agreeing to a relationship that you're just, in a lot of cases, you're uneducated, you're unaware.
, And don't get mad at me for saying you're uneducated. , Listen to me, like, get what I'm saying here, level with me because. [00:09:00] Most people pay attorneys because they don't wanna do the work and they don't understand it. Okay. So don't look at me or listen to me and think , I'm trying to, , abuse you , or insult you.
I'm just saying, most people, don't have the, , they don't have the education. They, they're, they're completely ignorant to how trust work. And so they're quickly and willingly willing to say yes. And sometimes in a lot of cases it's like the brother-in-law who's the attorney, or maybe the attorney's been in the family for many years and it's like family ties and connections, like all that.
, And that's cool. That's fine. But I want to make sure I provide the education to you about how trust works so that you don't tie up your wealth in ways that you don't control it. Somebody's gonna pay the price. It might be your grandkids, it might be your kids.
Now, I'd be remiss if I didn't tell you the solution. Of course, and I've told you it. I've told you the solution to this. Every single time that I've had a [00:10:00] podcast episode, put yourself in the trustee position if you're being offered any type of trust and you are requested to be a settler or grantor. In a self settled, irrevocable trust.
Maybe it's even a revocable trust and it's statutory. You already know something's not right, because you shouldn't create anything. You shouldn't have to. There's very, very, very little cases where you do, and that's another conversation, but most cases you don't make sure that you are in the trustee position first and foremost.
Second of all. After this episode, you should, there should be a clear indication that you should be looking somewhere for a private trust, private trust contract, private trust agreement, nons, statutory, and you can't find that in a lot of places, but they exist. Okay. And I'll probably have to do an episode on that.
[00:11:00] I, you know, what are some really good private trust options out there? 'cause really there's a lot of fluff when it comes to that too. But ladies and gentlemen of the Keenan Roberts Advantage Podcast, put yourself in the trustee position of a nons statutory trust. Hope that was helpful.
So the reason why I wanted to bring that up, the reason why I wanted to share that with you is because when it comes to trust, a lot of us are already set up to fail when it comes to business. A lot of us are already set up to fail because of what we don't know. And I was. Working yesterday, and I got a call from [00:12:00] a friend of mine who had a question for me and he said, he said, Hey Keenan, I've got this client. They have an insurance policy that they're paying on, and the spouse was the insured of this policy and. The spouse ended up dying, passing away, and the wife who the one that was actually paying into the policy was refused the death benefit.
And I thought, that sucks. That's very unfortunate. I'm sorry to hear that for her. And he called me, he said, I'm trying to figure out why. How does that even happen if she's listed as. A beneficiary on the life insurance policy. And I said, well, let's figure it out. Let's, let's look into this a little bit.
So my first thought [00:13:00] is maybe she's not the wife anymore, right. And that was the reason, actually, that was the reason why they denied her the claim because she wasn't the wife. And so we had to figure, okay, so she's not the wife anymore. How does that make sense? And that sounds kind of rude. Oh, your husband passed away.
You're not the wife anymore. Like there's gotta be more to that. So peeling back the layers a little bit, we figured out that in certain states, I believe 26 states, there's a rule, there's a code that says that. I think it's the an IRS code, 2 8 0 4, it's basically says that on divorce there's a law that automatically revokes the insurance policy beneficiary designations in favor of an ex-spouse, but to avoid automatic revocation on divorce. You and your spouse may say, in your collaborative marital settlement agreement, you intend to designate one or the others as beneficiary.
. In this case, if they got a divorce, the husband, if he owns the policy, has to re-designate [00:14:00] her as a beneficiary since they, she's no longer the spouse. Right. So he has to actively go and do that. Otherwise, it's automatically gonna revoke the spouse as a beneficiary since they're no longer married, which makes sense.
That was basically the reason why they said they denied the claim because they. Wife was no longer his wife. And so I'm sitting here like, wow, that's not cool. So I'm thinking, okay, well then what happens with the, claim? What happens with the death benefit? And they said, well, this is gonna go to the insured's estate.
I thought that's also interesting because if she owned the policy, she's paying into it. She thinks she owns it. If she owns the policy, Shouldn't it go to her estate? Well, no, because. Although she could own and pay in on a policy that he's insured, well, he is the policy holder and the insured, which is why he would be the one to need to [00:15:00] re-designate, , her as a beneficiary again.
But he didn't, and he passed away and she was not listed as a beneficiary. What an unfortunate event. And of course. The mind that I've got, I'm thinking about, okay, what if this is all set up in trust? , How would this have played out? Well, first of all, the death benefit would not have gone to probate because it would went to his estate, which went to probate.
Second of all, if a trust was the beneficiary of this policy, and they had agreed when they developed this trust. The trust would get the death benefit and it would not go to probate, . Also, if a trust held the life insurance policy, it would not go through an estate tax.
So what I'm saying is if they were setting this up through trust, they [00:16:00] could have avoided this disaster. Maybe he didn't want her on as a beneficiary. Maybe he was trying to stick it to her. I don't know. But people stay married, first of all, just just stay married. Second of all, set things up in a way that is civil, that is right, and that does not go to probate.
That helps. No one, that money could have went to his kids. If he had any, that money could have went to someone something, but instead it's gonna go through to attorney fees, it's gonna go to probate, which can last easily up to two years and it's gonna cost a lot of money.
Okay. So we, we got that out of the way. I wanted to clear a couple things up there. Hopefully didn't really rattle, rattle any feathers, but, you know, it is what it is., Another thing that I wanted to, to [00:17:00] discuss with you and share with you is something that could have avoided.
This insurance disaster, potentially divorce, who knows? But one thing I've learned about generational wealth preservation, aside from making sure that you have control over it, is the nuances that come with who's involved. I once talked to a man who's got an irrevocable dress set up for his son. Because , he didn't want his son's wife to take anything if something bad were happen 'cause he just doesn't trust her.
The stories you hear, I'm like, dude, hey man, at least you got an irrevocable trust set up. Of course it will self settle. Not gonna go too deep into that right now. But either way,, he started somewhere and I'm learning more and more about a topic that is very well discussed. At a [00:18:00] high level.
, And that's family governance. Family governance is so important. That, and I'm quoting this from a gentleman named Thomas Deans. He said Silence is the number one killer of a family business. Hmm. So if 90% of businesses failed by the third generation, it wasn't just because taxes, estate tax.
It wasn't just because a lawsuit or poor education, but it was communication, your wishes, your desires. Planned out, discussed across the dinner table with your family. Having meetings instead of conflict during the holidays, like get out there and start your business, but [00:19:00] don't do it alone. Incorporate your family.
Have those tough conversations 'cause it will save you. Thousands of dollars and hundreds of thousands of dollars. Millions of dollars if you have the right plan in place. So I'm gonna do an entire episode on family governance. I'm gonna do an entire episode on facilitated family meetings, all these things that you don't really hear about generally,
but , if you take anything away from this episode, it's figure out are you the one in control for one.
Like truthfully, you're not just handing it off , you're handing it off to someone to run and manage, but you don't control it. You don't make the decisions. At most, you might be an investment advisor, [00:20:00] but you still have to get discretionary consent.
If you enjoyed this episode, if what I'm saying to you is starting to track. And you think someone else should hear it, go ahead and share it with them. Whether they're a first generation business owner or a fourth generation business owner, all it takes is the right information to fall on your lap.
You're listening to the Keenan Roberts Advantage. I will see you next time. Thank you for tuning in.