The Estate Planning Mistake That Tears Families Apart (Jimmy Buffett's $275M Lesson)

18:44Roland Frasier:We have another individual who I do trust who will be kind of the acting, you know, steward of that for their, you know, for their benefit. That's the way that the, you know, will and stuff like that, um, is structured. Now, as the kids get older, to me it's very binary um if i believe that you're a good steward then congratulations you're in if i think that you're not and specifically if you're a destructive individual who you receiving this is going to amplify your destructive powers and abilities including not just on the world but to yourself then it's really simple you get nothing right and and i've and i've told my kids this so

19:22Ryan Deiss:you get nothing as opposed to setting something to take care of their basic needs so they're not living out in the street behind a dumpster.

19:29Roland Frasier:It like, like, so for, for right now, it is like at that point, the siblings like do what you can to, to, to take care of your, you know, of your sibling. And that kind of sucks. I know that does put a burden on them, but it's always a burden because it's freaking family. That's just the reality.

19:45Ryan Deiss:But that's that in the law, we would call that precatory language. That is a, we hope you're going to do that, not a, you have a requirement to do that, which would then set up an entitlement. Okay.

19:55Roland Frasier:Correct. We hope that you're going to do it. And that puts a tremendous burden on the family. But that burden, I think, is going to be there. And I do think that that burden, if you have somebody who's truly troubled, is there no matter what, just like if you had somebody who was, you know, ill, you know, they were sick, no fault of their own. As a family, we should rally around that person and help them out. So if we've done a good enough job with at least a few of them, then hopefully, again, I got four kids, then hopefully that's the case. But to me, the thing is always, how can we approach this from the perspective of good stewardship?

20:27Roland Frasier:And what are the entities that are going to be the best stewards of what gets passed on? If I do my job right, if Emily and I have done our job right, then I hope that that is our children. And if that's the case, then I am excited for them to receive the full amount without any sort of restrictions placed upon it. Now, does it make sense for some of that to be placed, you know, in some kind of a trust where, you know, where it's managed in such a way, yeah, maybe fine beyond a certain amount, but that's, that's roughly the approach that we've taken to that without getting into specific, the specifics of structuring and things like that.

21:05Yeah.

21:05Ryan Deiss:Yeah. Yeah. I mean, I, to me that, that it's very similar, right? Just, it's, it's, uh, it is the thought, the, like the, the main thought here would be that whatever you do because I have also seen in my practice where people created foundations and charitable trusts to help them structure and pay less in taxes while they were alive. And I've been through all of that, like the me of 30 years ago or so was structure all that stuff. And I was an estate type attorney. So I, I knew it all. I practiced it all. I, you know, helped, helped set all that kind of stuff up. I believed in it, but then seeing it in practice and seeing how the theory goes into the action, it, to me, like people that set up charitable trusts, you know, took out money that they needed to live.

22:05Ryan Deiss:And then the charity came after them, you know, for taking that, you know what I mean? I can't even imagine how mad I would be about that. It's just so outrageous to To me, it's outrageous for your children to be able to decide how you spend your money in any circumstance and that they should have no entitlement to anything. But if you set up something that gives them the entitlement, it's literally called an entitlement. It's a property interest. They have it. You did it. You got the benefit. You beat the tax people, but you destroyed your family. And it doesn't always happen. Obviously, as an attorney, you see more of the things that don't work out than the ones that do.

22:39Ryan Deiss:and I would say as a percentage, it was a low percentage where it happened, but to me, for there to be any chance of it, because you're really just hoping that not only your kids, but the people that influence their lives, or maybe your kids and then your kids get married and then the spouse has opinions on things and influences them in a way, maybe your child dies and has some right that they're entitled to that now passes to their spouse that hates you. I mean, you know, it's like those are the situations you you are thinking about here. And the real basic rule I felt like that I kind of thought of after thinking about the Buffett thing and all the the other things that we have been talking about is that you just are better off to never create a an estate plan that gives people that you love standing to sue each other.

23:34just, just don't do that.

23:37Ryan Deiss:Don't, don't create that situation. And then you avoid everything. And what that might mean is that your estate, um, has, you know, has, um, taxes now the people that are going to, you know, especially the professionals are going to be like, well, um, you, uh, you, you can, you can protect against that with contracts. I mean, my experience is that if somebody's got a right to sue, they've got a right to sue and you can't stop them from doing that.

24:07Roland Frasier:What protect against it with contract means is that you might win in a lawsuit. Yeah. The other thing important might, but the, but the imperative there is lawsuit. Like there's

24:17Ryan Deiss:going to be, and that's what I think that's what we're trying to avoid.

24:21Roland Frasier:And I think so much of it comes down to just, and you said this earlier, like what I have said to my kids is I said, you should assume that you're not going to get anything. Your mom and I do very, very well. we built up tremendous assets but the world isn't there's a lot of uncertainty on the world and so tomorrow could it all be gone maybe like probably not but like you know there's there's never that i said so for you depend on that is like and and so what we've said that we're going to do for our kids uh and they know this is they get a free education so we're going to to pay for their college they will have no um they'll have no student loan debt um they will get a free car when they graduate and we will help them to your point with a, you know, with a down payment, um, so that they can get into a home, you know, when they're, when they're ready and it's appropriate.

25:06Roland Frasier:And, and by the way, if they want our money, we're going to be someone involved in that decision, right? We get, we need a vote then. So like they don't just get to go buy some like stupid property, you know, or whatever. Like if, if, if we feel like, again, they're a bad steward and they're making a bad decision, then we're not going to give them their money to do that. Um, and, and they know all of that. I said, now what you get when you die, when we die is irrelevant to you because we're not that old. And so you're going to want to have an adult life. You may end up having to care for us. Yeah.

25:35Roland Frasier:You're going to want to have an adult life. And if you're just sitting around waiting for this money to arrive, you're King Charles to wait exactly an incredibly long time. So you're going to have to make your way out in the world. And I'm not going to help you do that any more than what I've already done. Because my job as a parent is to raise adults, not children. So if that's their expectation, And if we've done our jobs right, then hopefully they're good stewards. But I really should be able to dictate most of it. And what I've said is like my goal is to spend as not as much as I can, but to spend generously while I'm alive on the experiences that matter, including us going on trips together.

26:18Roland Frasier:Amen. So I don't have as much wealth right now as I know I would have if I didn't have a beach house that we spend a lot of time with, especially when the kids, you know, are young. If we didn't go on arguably extravagant vacations, right? If I didn't, you know, pay for my kids' colleges and things like that. If I just said, go figure it out. Like, I mean, I'm spending that money now because I want to actually enjoy it while I'm alive. And I think so many people spend so much time thinking about what's going to happen to this when I'm dead. And I'm kind of like you, man. I don't want to say I don't care.

26:51Roland Frasier:Like I'm just flipping about it, but I'm freaking dead. All I want to do is not leave these little, like, it reminds me of when I was a, um, when I moved out of my house, like moved house when I was a kid. And I remember I had a gerbil for like six weeks and the gerbil ran away and we never found the gerbil. Who knows what happened to the gerbil. But I remember after we were moving out of this house, I kept finding these little turdlets all over the house of like little gerbil turdlets like behind things and i just don't want to leave turdlets yeah the next generation i'm more concerned about discover yeah i'm more concerned about that than making sure that they're left with some giant pot of money that if i do my job right they're going to be you know in their 60s or 70s before they even get to it anyway.

27:38Ryan Deiss:Yeah. So let's, let's talk about some of the pushback that, that people might have, including professional advisors. One would be, yeah, but you have a business and, um, that business would likely have to be sold to pay the estate taxes, which would destroy the value of the business. And, you know, maybe even be a fire sale and you'd, uh, you know, diminish the value of the estate and then your kids wouldn't have the opportunity to work in it. Um, let's talk about the non-legal thing before I talk about the legal thing. So how would you respond to that?

28:10Roland Frasier:So I have no expectation that my kids are going to inherit a business. And so as I'm, you know, again, marching towards, like, I can see the slow march towards death. I want to sell as many of the assets, you know, that I can do appropriately. Like, obviously, you don't necessarily want to do that with a house, for example, and have them not allow for the step up and the transfer that you get and things like that. But when it comes to a business, I have seen families torn apart because you have some kids that want to run the business, some kids that don't. My feeling is if somebody wants to run the business, then they should buy the business.

28:50Roland Frasier:And you can figure out how to do that in a favorable way, but they should figure out how to buy the business so that the people who don't want to run the business can receive the present value of their portion of what that business is based on how they own it. But I wouldn't just want to leave a fully functioning business just to go and then be the beneficiaries. Maybe if it's a massive corporation that is truly run and its dividends are kicking out and stuff like that, but for just a private company that's closely held, let's try to liquidate as much of it as possible before you die. I feel the same way about a lot of property.

29:25Ryan Deiss:But what if you and your wife go down an airplane?

29:30Roland Frasier:Now, tomorrow. Yeah, I mean, well, obviously, we've got a, you know, partnership agreement that's like there's going to be some type of value in life insurance and things like that to help to. So let's say they get, they get, they basically get bought out of the business.

29:48Ryan Deiss:Let's say that that's all in place. But they don't have the business at that point. And one of them wants to run it.

29:56Roland Frasier:That sucks. Okay.

29:58Ryan Deiss:I mean, that's how I feel about it.

29:59Roland Frasier:Like it's, it's not, here's the question.

30:02Ryan Deiss:Do you believe that they need to be treated equally? Like to me, if, if one of them's into the business and the others don't care about that asset and you've got enough assets that they're all getting a bunch of money, do you feel like they have to be treated equally?

30:17Roland Frasier:The, I think if somebody really believes in the business, then they should believe in the upside of that business. And so if the other people are passive partners in the business, then, you know, I guess a lot of it depends on how long has that person been working in the business? Like, do you have a kid that's been working in the family business for 15 years and has grown it? And you got, let's say you got three siblings, one that's been active for 15 years and the other two, then no, it shouldn't be equal. Right. That shouldn't be equal. I'm not talking about they worked in the mailroom for a summer job and, you know, therefore they're like, ah, I should get all that.

30:51Roland Frasier:Yeah, no, no, no. But again, the way that you would take care of that is the way that you would take care of any executive leader of a company. They should get some additional stake on the cap table beyond what the estate gets as a result of the work that they've done at the company. So they essentially get to kind of double dip like that. There's the passive piece that the estate has that's represented on the cap table, but then you represent that particular family member's contribution on a separate aspect of the cap table where they likely own it personally or through their entity.

31:26Ryan Deiss:Yeah. So, so I think that, that, that makes sense. I don't feel like there's a need to treat equally. I think I want to, but if there's like, like I have things that different, you know, that, that one of my kids likes because they have that interest and I have a whole lot of money invested in that. I don't really think I have to take half the value of that out of the remaining estate. I think I can leave those things to that child. If you've got jewelry or collectibles or wine collection or a car that one of them particularly likes or any of those kinds of things, to me, I feel like that all comes off the top.

32:06Ryan Deiss:If I know you have an interest in that, I'm going to give it to you so you can enjoy it. I'm not going to penalize you from that by making you now make a decision that you have to sell part of it because you don't have enough money. I don't think that'll be an issue.

32:18Roland Frasier:Certainly if it's stuff, if it's illiquid. The thing that's hard about a business is there's potentially so much value there that I would want to feel like if one of the kids was getting all of the company to run, that there was something showing up somewhere else for the... Unless you had$100 million outside of that. That's what I'm saying. If you have more outside of it, then they're going to be fine no matter what. I can tell you right now, we're dealing with this a little bit as a family right now, where Emily and her siblings are, again, through the drama the past month as alluded to earlier, and they're talking about it, and it's like, you got a grand piano, right?

32:57Roland Frasier:And one of the kids, one of the siblings really wants a grand piano because they love piano. They love a piano, and they play piano, and we don't need another grand piano. So it's like, sure, take the piano. And we're not going to say like, well, what's the value of the piano, and how do we make sure everything? It's like, you love that, you want that, you should have that. like that's fine and if somebody else just wants you know a a watch that has sentimental value but it's valued way less we're not going to get into that into that whole thing this by the way though is why i think it's important give stuff away while you're still alive yeah like yeah give it away especially if you're not using it as much like give it away to the people who you know are going to enjoy it so you can watch them enjoy it right right like do it do it now don't wait i mean I think a lot of that simplifies a bunch of it.

33:44Ryan Deiss:So with the, it also, uh, you know, to the extent that at the time you give it away, it goes out of your, your estate. That is a way to do estate planning. Now, if you're waiting until it's appreciated a lot, you know, because you're hanging on until you don't want it anymore, cause you happen to enjoy it, then, you know, you, you, you are going to pay, you're going to increase the value that, you know, might be subject to estate taxes. But here's a few things to think about. One is that there's generally a rule that you can pay the estate taxes on a business over 14 years. um, after the death.

34:13Ryan Deiss:So it doesn't have to be immediate. Maybe, you know, that at least worst case gives you the ability to find a partner, fund to sale, you know, uh, pay in installments, um, or even work a payment plan, you know, to, to do it. There's a lot of options that you have there where you wouldn't have to sell the business tomorrow. You definitely wouldn't have to fire sell it. If you can't sell it over 14 years, it's probably not worth much anyway, which would argue towards what the value is, you know, for state tax purpose, which you do also get to do by the way. And then the other would be islands. So irrevocable life insurance trusts are the perfect way to fund what we were talking about with respect to one of your children is working in the business and the others aren't.

34:53Ryan Deiss:Then fund the ability for that child to buy out the interest of the others at your death. and then that's easy because nobody's going to get into a fight over a term life policy that has no value that's in a life insurance trust and you've created the funds but the funds don't exist to fight over until you die and they're not going to be fought over because your trust is provided they're going to buy the other person out and they get the money. A couple of other things to think about would be...

35:24Roland Frasier:For the record, by the way, Roland, just on that, the reason I think that that is so smart to do is because... now there is a, you're going to get this much when I die for your portion of the business. Because that's what I've said it's worth right now. And here's the formula.

35:37Ryan Deiss:Yeah. And here's the formula and here's the thing. And it just goes to the whole, if you, if you love your family,

35:44Roland Frasier:talk about this stuff before you're dead. They should not find this out after you die. And not that there is like a formal reading of the will, like they do on TV. That's a TV thing, but, um, they shouldn't find out about this stuff after you're, uh, after you're dead. And now some probate attorneys like, Hey, so here's kind of what's working. And there should be no surprises.

36:02Ryan Deiss:Yeah, I agree. I think that's important. And, um, and I think that's the simplest way to do it. Like if you've got time to do it and you can fund it with an islet, that seems like a very, very simple, nobody's getting standing to sue anybody else. Nobody has anything to really fight over. You're providing for a mechanism to get, you know, whatever equal distribution or whatever fair distribution you're trying to get. And that, to me, that kind of works really well. The other thing that I think is important is, and this would be applicable, this, I think, could have eliminated a lot of the fight in the cases that we mentioned in at least two of them.

36:45Ryan Deiss:And that would be like, if there is a trustee, like you said, you have someone that you trust, don't forget to give your beneficiaries the ability to remove that person and replace them with someone else that is determined by a court because you if if you get somebody that's in there because you know i mean six million dollars in fees sounds like a lot to me i don't know what all they're doing but you know million seven over one year with you know that that sounds like a lot but it's a$275 million trust. So maybe it takes, you know, a team of 30 to work on it. I don't know. It's, you know, the headline sounds bad.

37:24Ryan Deiss:The reality might be you actually got a deal, but let's just say that in certain circumstances, I have seen people who were trustee type people take advantage and you're basically locking your family in a cage where somebody else holds the key to the finances. And that's a terrible position to put them in. So the easy solution to that is rather than them having to file an action and go to court, remove them, give them the right to do it. Give them the right to do it like once a year, you know, if it need be. So that way it can't be just like, you know, excessive. But anybody that is, that they're not happy with, they don't have to say, well, we don't like it because they took too much money.

38:03Ryan Deiss:And now we have to go to court and prove that they were mismanaging and breach their fiduciary duty and all that stuff. That's again, setting up a fight, rip it all out and just say, you know, Hey person, I trust you're it, but I've given Emily, you know, I've given my wife the right to remove you. I've given my kids the right to remove you if, you know, a majority of them want to do that, um, or, or for their respective trusts, um, to replace with somebody else. And then, you know, you can suggest someone, and if they don't like that, then they can just go to court and ask the court to end up to appoint an independent trustee.

38:33Ryan Deiss:That's a one and done, uh, no fight, like thinking about those things that you can do to avoid the things that are going to create the conflict and stop everyone from going about their lives and be living in this legal nightmare. I think that's really a, that's just one of the simplest things you can do that I think is so smart and so often overlooked by attorneys that are setting these kinds of things up.

38:57Roland Frasier:Yeah, I wasn't, I hadn't thought about that one. I'm going to definitely make some phone calls and get, get that put in place. That's, that's smart. You're pretty, you're pretty smart. Hey, you ever think about Um, just leaving all this business stuff behind and going back to being, uh,

39:12Ryan Deiss:Oh my God, that sounds terrible.

39:14Roland Frasier:But, uh, you couldn't see this unless you were watching it, um, uh, on YouTube, but Roland literally did just vomit in his mouth right now. I can see him choking a while back down.

39:24Ryan Deiss:Oh man, that, that, uh, yeah, that sounds horrible. Um, the other thing that I wanted to mention that, uh, that is important is, uh, when somebody dies, you might be under the threshold to file. Like if you're married and one person dies, you may well be under the threshold of having to file a 706, which is the estate tax return. If you don't file it the way the law is right now, within I think nine months of death, then you lose the spouse's$15 million exclusion because the way it works is if everything goes to the surviving spouse, which it usually does, there's an unlimited marital deduction.

40:09Ryan Deiss:So there's no estate taxes when the first person dies. But then the question is, well, now it used to be$30 million between the two of us. Now one of us is gone. So is it now only 15? And the answer is no. if you file the 706 and check a box. But if you don't file the 706 and check the box within the nine month period of time, which subject to change and I could be wrong, but within that period of time, then it goes away. You just lost it. So you've added$6 million, 40 % of$15 million under the current regime, of taxes that you didn't have to because you didn't file that simple form and check that one box.

40:50Ryan Deiss:So don't forget that. There is a five-year late filing option, but the thing is, is that very often, usually the man dies first and the wife lives longer than five years. And so even there, you would have missed it. So that's really something to think about. And then when you do that, the 15 million gets locked and the surviving spouse is getting indexed. So maybe theirs goes from 15 million to 20. And now you've got 35 million when that spouse dies. So like, so that's something to know, I think as well. And then as you mentioned, you can always get under that threshold. If the, you know, if somebody's died and you don't need all the money and you want your kids to enjoy it and stuff like that, then give some of it away.

41:36Ryan Deiss:If you've got so much money that you have the rest of your life taken care of and then some, why not consider giving some of the then some to the kids now so you get to experience it with them, so they get to enjoy it, so you get to see them enjoying it. And at the same time, you're stopping the government from taking 40 % of the excess value. I mean, all of those things to me make total sense. It's just the, we're going to stop the government from getting any money from us. And we're going to set up all these complicated structures. And it's going to create rights that you're probably not even understanding you're creating when you do it.

42:14Ryan Deiss:And then you have to count on the entire family to get along and see things on the same page and not be influenced by any outside sources. And that just doesn't always happen.

42:24Roland Frasier:Yeah, the number of people I've seen drop six figures on fancy trust setups who,

42:30Ryan Deiss:who had a$10 million or less or a$5 million estate or a million dollar estate.

42:35Roland Frasier:I think, man, I, and that's to be weird, but like, I know you, I've been working with you for a long, we've been consulting the other for a long time. Like, you're going to be fine. Like good news, bad news, man. Like you're going to be fine. You don't, you don't need all that stuff. But, um, I think that there's this posture around, um, around just, I don't want the government to get it. And look, I get it. I do. Um, but what you also don't want is for an unscrupulous attorney to get it because they sold you something that, that you don't actually need.

43:09Ryan Deiss:Do you know what though? I, I will say because of being the attorney and I felt like I was pretty scrupulous. Um, the, uh, I don't think, I don't think they're thinking about it that way. I don't think most professionals are doing anything other than what they've been taught. They've been taught, you should, you should reduce, I have this, you know, with our, our mutual friend Grant, I have this spirited debate because he's like, you know, yeah, and they can do a GST, a generation skipping transfer trust and this and that and the other. And I'm like, man, I hate all that. So, you know, charitable trust, but that's, that's what you're taught.

43:46Yeah.

43:46Roland Frasier:That's what you're

43:47Ryan Deiss:taught. And you're, and you're advocating to help this person minimize their taxes because that's what they come to you and say they want. I think what is missing is the human side and the experiential side of living through a few of these things and actually saying, well, hey, just so you know, if you do this, here's what could potentially happen. And so you need to ask yourself, are you making a conscious decision that you value the tax planning more than the potential family disruption. That's what it comes down to. Yeah.

44:22Roland Frasier:Let's not spend money today to simply create more reasons for the people we love to fight tomorrow. Yeah. But especially,

44:32Ryan Deiss:wouldn't it be nice if a lot of them said, I'm looking at your estate right now, it's$7 million. It's going to have to 4X before you even get close. Plus, it's going to be indexed. Why don't we revisit that part then and we can, you know, we can do it then because it's a, it's a combined things like the estate and gift tax, right? So you could just elect when you're getting to 28 million, you could say, Hey, I'm going to transfer some of it now so that it brings it down. It's going to be indexed. So it's going to continue to go up. So as the value goes up, you know, you, you can play that. Then you're at least actively monitoring it and saying, I'm just going to try to keep it right under that threshold.

45:19Ryan Deiss:If that's important to you, I think you can definitely do that. But right now, it means... Yeah, certainly if you're kicking it right at the threshold. Say again?

45:25Roland Frasier:Certainly if you're kicking it right there at that threshold, which let's be honest, most businesses, this is a luxury problem that a lot of people don't have. And so if you do, then it's stuff worth looking at. If your assets are well in excess of$30 million, okay, then let's talk about it. Let's have those conversations, figure out what that is. If they're substantially less than that right now, then please just focus on making more money. Yeah. Focus on making more money. Focus on creating this problem. Yeah. Let's create the problem and solve the problem. You don't have to have everything perfectly planned and structured today.

45:58Roland Frasier:I love it. Well, I hope anything else you want to say on it? No, I would just, I love the distinction there is always be careful of all advisors. And lawyers do this, accountants, CPAs, finance people, managers. Yeah. Yeah. All of them are going to give you the right answer based on what the spreadsheet says. You're still the one that needs to sleep at night. And there's still the human element there that they're not going to take into account most of them. And they won't even ask you the question because they're just like, this is the right way to do it. Paint my numbers. And I don't say that in a disparaging way.

46:32Roland Frasier:They're just doing their job. And that's kind of the scope of their job. So if nothing else, go and ask the questions and say, if we do this, what are the risks that after I'm gone, the people I love the most are going to be in conflict? And how do we avoid that, even if it means costing, paying more in taxes? Put that scenario out there in all of these things, like what's the potential downside that we're not considering? And how could we avoid that, even if it means creating this additional risk that I know we're trying to mitigate? Just that question is going to get the advisors that you have thinking a bit more creatively and holistically about your situation.

47:10Ryan Deiss:Yeah, I agree 100%. Very cool. Well, I hope you guys got something out of this. Please, please, please, you know, think about your estate plan. Think about that clause that we talked about giving, you know, beneficiaries the ability to remove the trustee. Think about asking your estate planning attorney who is charged with filing the 706 to be sure that we get that unused spousal exemption. I think it's a DSUA is what they call it deceased, no, DSUE, deceased spouse, unused exemption. Don't forget to check a box that cost you$6 million. And then think about all, you know, funding things through life insurance trusts to provide for whatever liquidity is going to be needed at your death, because none of those things create standing between two different people who you love.

48:03Ryan Deiss:You don't want to create standing between you and someone you love. You don't want to create standing between people you love. And you don't want to create standing between any third party and you or people you love. That's easy to do if you think about it, but easy to forget when you're just following the normal advice. The status quo advice is not designed to think about the human aspect. It's designed to think about, as Ryan said, the numbers in the spreadsheet. So I hope that was helpful. If you guys found it so, let us know. If you didn't, you know, then let us know too. and we will see you next time on Business Lunch.