Don't Just Make Money— Keep It: Tips for Protecting Your Money with Law Mother (Pamela Maass-Garrett)

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3:15When it comes to our hard-earned money, we all need to keep it. We all need to protect it, which means we all need Lawmother. You may know Pam Moss Garrett, aka Lawmother, from her Instagram account, where she posts these fun skits with legal and personal finance tips. But Pam is a legit lawyer. She runs a law firm, also called Lawmother, and wrote a book, Legally Ever After, which I've linked in the show notes. Today, Pam gives me her tips around protecting money. Plus, she also weighs in on some celebrity legal news that taught me something. Pam Moss Garrett, a.k.a. Law Mother, welcome to Money Rehab.

3:52Thanks so much, Nicole. Glad to be here. Let's do some law mothering and talk about what you do best, money protection. Thank you for doing that. There are so many ways we can lose money by not knowing the rules of the financial game. One really common one, and I know you talk about this, is inheriting a house. You say never let your parents give you their house. Why? Yeah. So when it comes to passing on real estate, the idea is you want it to go in a way that's protected. We don't want to have it go to the wrong people. We don't want to pay unnecessary taxes. We don't want it to go through probate.

4:30And so when we say don't give your kids the house, there's an asterisk there, right? And the asterisk that a common mistake people make is they add their children to title on their property while they're still alive. And the reason they do this is, hey, they found out about probate and they want to avoid probate. Hey, I'm going to go ahead and add my child to title while I'm alive, avoid probate, make things smooth and easy. And the reason we never want to do that is it creates a tax issue. By adding your children to title while you're alive, you're creating a capital gains tax issue. What that means is while you're alive, it's going to continue to increase in value.

5:11And when you pass away, they're going to be taxed on that gain between the time you added them to title and the time that you pass away. So the reason you don't want to add them to title from the tax purpose is that reason, because you want to preserve the step-up in basis. So what should people do instead? Yeah. So what people should do instead is put the real estate in a trust and name the kids, their kids, the beneficiary of that trust. That avoids probate and saves their kids time and money. It avoids that hassle of probate. And then they receive it capital gains tax-free, meaning they don't have to pay those capital gains tax because it's from the time that they pass away that the value is counted.

5:54And what kind of trust are we talking about here? Revocable, irrevocable, and what's the difference? Yeah, so we're talking about a revocable living trust. And for the majority of listeners, that's gonna be where they're gonna put the majority of their assets, and that's where they're gonna stay, what they're gonna stay with. A revocable living trust is revocable, meaning you can change the terms of it throughout your life. And the reason you want it to be revocable, the reason you want it to change throughout the rest of your life is, you know, in a few years, you might have more kids, or you might change who you want to receive things.

6:24Living, you're setting it up in life. So for most people, a revocable living trust is the all they'll ever need. Irrevocable trusts are non-changeable trusts. You can't change the terms of them once you set them up. And so most people, while you're alive, it's revocable. And when you pass away, it converts into irrevocable, right? It converts from changeable to not changeable after you pass away. Some people listening might fall under a scenario where they might want an irrevocable trust in addition to a revocable living trust. Irrevocable trusts come into play when you have assets that you don't care about controlling anymore.

7:01So for those who are high net worth, who want to minimize their estate tax after they pass away, those in higher risk professions that are worried about lawsuits, you have some amount of your estate or your net worth that you don't care about anymore, you don't want to control, and you're putting it in that bucket in an irrevocable trust. So you could have both. You can have both, yes. What about a Lifetime Asset Protection Trust? When would you want to use one of those? Yeah, so Lifetime Asset Protection Trusts we use for our clients. Their revocable living trust flows to a Lifetime Asset Protection Trust.

7:40So when you set up a revocable living trust, when you pass away, you have a few options. You can have it distribute to your beneficiaries outright. So you can have them receive it over ages and stages or outright. Or you can have it flow into what we call a lifetime asset protection trust. What that does is protect their inheritance from future creditors, future divorces. So many trusts. All the trusts. No wonder I have trust issues. So basically, bottom line, keep in mind that a revocable trust should go for protecting your house. Don't put the house in the kid's name. Do it through a revocable trust.

8:20Most likely, maybe an irrevocable trust if you have a lot of money. Yes, I'm always about keeping it simple. For most people, a revocable living trust is what they're going to set up in life. They're going to want to control their assets. And when they pass away, they're going to decide where it's going to go, if it's going to flow to another trust or if it's just going to flow outright. That's the simplest way for the majority of people listening. And there's really two main types of trust, like we talked about, revocable and irrevocable. And then when you get into higher net worth individuals, there's lots of different types of irrevocable trust for different types of goals.

8:54And for most people, when you get over right now about$13 million in assets, that's when you're going to want to think about irrevocable trust. irrevocable trust. There are exceptions. Folks listening who have special needs beneficiaries, you know, we have special needs trusts because you want to preserve their assets, make sure they're still eligible for government benefits. But yeah, trying to keep it simple, but it's a lot of information for sure. I think those are really important best practices for inheriting a house, for figuring out what that flow looks like. What's another big mistake that you see people make that leaves their money unprotected?

9:32One of the best ways that I tell people to get started because this is a common mistake, the common mistake I see is whether people have a plan or they don't have a plan, they don't have a list of what they have and where everything is. So I always share a good friend of mine, her father passed away unexpectedly a few years ago and he had nothing in place. And so she had to go through all of his mail, computer files, boxes, trying to figure out what he had and where it was. And she was a young mom with kids, worked a full-time job. She felt like this was a full-time job, just finding everything.

10:08And this is how assets get lost. The big mistake is just not having everything organized in one place and telling people where it is. And so whether you have no plan or you have a plan, but then you put it on a shelf and forget about it, those are where I see people making mistakes. So is there a system that you would recommend to put all of your accounts, all of your assets, maybe all of your passwords in one place? A simple way to get started is just grab a file folder and put the first page of your real estate deed, your life insurance, your bank accounts, your investment accounts, put it all in one place physically and tell someone where it is.

10:45And then every year when you're doing your taxes, take a look at it and update it. For those that are digital, it can be a digital file. So as soon as you get into the digital world, right, then we start getting into password protecting it, making sure that someone can't get access. So for assets like your bank accounts, your life insurance, your retirement accounts, that's one category. And then there's this other category, which you alluded to, which is passwords, like our digital legacy, everything besides that. Do we want people to have access to our phone, our Facebook, our social media, all of that?

11:17For those, I really think digital account managers make things much easier for a lot of reasons. Being able to use a password manager. Password manager works really great as a business owner just in general. If you're off on vacation and someone needs to access things, I have a password manager. So definitely recommend using technology if you're comfortable with it. If you're not comfortable with it, we do have plenty of clients. Do the good old-fashioned password book. Yeah. Yeah. So you mean password managers like Dashlane or LastPass or those types of services? Yeah, OnePass, all of those. In your book, thank you for writing it, Legally Ever After.

11:55It's so important because we work so hard for our money to protect it. You give a lot of great best practices around asset protection. And one you say to avoid is fraudulent conveyance, which is legally. So what does that mean? Yeah, so fraudulent transfer or fraudulent conveyance is once a harm occurs, you start moving assets, you can be accused of making fraudulent transfers. And every state has a fraudulent transfer statute, and then we have a federal fraudulence asset statute. And the idea is if someone has a legitimate grievance against you, you've caused a harm. And then after the fact, you start moving things to try to avoid paying it.

12:38The government says, hey, the law says you can't do that. That's fraud. And in some states, you're penalized for it. You can get increased damages against you. You can get your assets frozen. So I had a client who was injured. Actually, she was on the back of a motorcycle, to give you an example. and she was going through an intersection with this group of motorcyclists and a woman in a car ran a red light and crashed into her. Young mom of three, badly injured, had to have her leg amputated. And I got the case right before trial. I was a trial attorney on it. So I argued the case at trial. And I was looking into the woman who hit my client online and saw that a week after the accident, she had transferred the deed to her home to her brother for$1 and red flag went off, fraudulent transfer, fraudulent conveyance.

13:33So the prior attorney hadn't noticed this. The reason this had gone to trial was because it was a she said, she said situation. The driver of the car said she had the green, my client said she had the green light and there was nothing about the accident where they could tell there was no cameras, there was no other witnesses, all of that. So that's why I went to trial. I was able to file a separate lawsuit against her and her brother for fraudulent transfer. At trial, the jury got to hear evidence that this woman had made this transfer to show consciousness of guilt. And at trial, the jury agreed with my client and awarded her $4 million in damages.

14:07And so that's that worst case scenario, right? You have done something, something has happened, and you start moving things. The law allows you to start protecting your assets before something happens. You can do legacy protection. You can create that generational wealth. You can put plans in place to protect you from fraudulent lawsuits. All of that, the timing is important. You can do that now. But once the harm has occurred, it's often too late and you can be accused of fraudulent transfer. I mean, could it be done by accident? Let's say you're being sued, but it just happens to be at the same time that you're putting your life savings into buying a home.

14:43Would that be fraudulent conveyance? I mean, the$1 transfer is very sketchy. So that doesn't look legit. But could it be legit? It can be legitimate. It can be legit. And ultimately, it's going to be up to the judge to decide. Anytime clients, you always want to work with an attorney to get the best advice for your specific situation. So I always got to throw the disclaimer out there, Nicole, because I'm a lawyer, right? This is education, not advice. But yeah, it's very fact-specific. Are there situations where you can be doing it and it's not fraudulent transfer? Absolutely. But I have clients that come to me for exactly the same reason.

15:18They're in litigation, but they just have never gotten around to doing their estate planning. And they want to do estate planning. They want to do it for the right reasons. They still want to pay the lawsuit. They're not trying to do anything. And I'm always weighing that with them of what the jury is going to perceive and what can we do now and how can we start having the conversation with the other side while the litigation is pending because it's all about the optics, right? How do people see it? So yeah, there's absolutely legitimate reasons for making those transfers, buying homes, things like that.

15:48You just want to be advised in that situation. Makes sense. You also say that insurance is key to asset protection. It gets a bad rap as being a non-sexy topic, but I think there's nothing sexier, Pam, than keeping your money safe, in my opinion. Oh, yes. I don't sell insurance. And I'm with you, Nicole. I think insurance is sexy. Before I became, when I started off as a lawyer, I worked in the government sector as a DA. And then I worked on the defense side, representing developers and different type of subcontractors against lawsuits. And then I worked on the plaintiff side, representing consumers who were injured.

16:24So I've worked on both sides. And everybody, the complaint after the fact is, I wish I had had better insurance. So anytime people are coming to me, asking me, they see some video on YouTube and they're like, I want to get a trust. I want to do asset protection. They want to do all these things. I'm always saying, Hey, I don't sell insurance, but your money is best spent. If we start with insurance first, that is the foundation. Your money is going to go farther. So I'm a big proponent of insurance in different ways to protect. And I know right now insurance is more expensive than ever, right?

16:57But it's still the best use of your money. So, you know, there's a few things for people to keep in mind when it comes to insurance and protecting the people they love and protecting their money. If you're at a stage in life where you don't have a nest egg, if you were to pass away tomorrow and your spouse and your children don't have the money from your estate to be able to live, right? That their lives would need to change, that they wouldn't be able to pay the mortgage. Life insurance and term life insurance is a no-brainer. And term life insurance is affordable, it has low fees, and you're really securing your loved ones, protecting them during your wealth building years.

17:39If you were to pass away tomorrow, what amount of money would allow them to get by? So I always say start with term insurance, term life insurance. When we get into whole insurance, I don't know, it's much more controversial. A lot of people have different opinions. I would just say work with your team of professionals, make sure it's the best use of your money. There's some good products out there. There's some high cost products out there, but term life insurance is pretty much for most people, a no brainer. And then when it comes to other risks, it really depends on who you are and what's going on, right?

18:11Getting, if most of us are driving vehicles, getting a good auto policy, good underinsured motorist policy is very important. If you're a business owner, having good liability protection, having good umbrella policies. If you own real estate, all of that is also important as well. Yes. Underinsured and uninsured motorist coverage really helped me. I got in a car accident and it covered so much from the guy that slammed into me on the highway that he didn't have. And so my insurance, it took care of that. So yes, that is important coverage. You call that out in your book too. You also say that when it comes to insurance.

18:48Sometimes the biggest mistake people make is get a million dollar umbrella policy and think they're good and they're covered, but that's not always the case. Yeah, absolutely. I always tell people to look at the exclusions page of their policy with whatever type of insurance they're doing. I own a property that's a corner property here in Colorado, so I'm always concerned about slips of falls on snow and ice. I know it's not the same where you're at. And so I spoke with my insurance provider and told him that. And he said, really nice guy, sent me a policy. And I turned to the exclusions page.

19:22Exclusions page just says, hey, this is not covered. And I'm one of the few people that read it and read down to where it's good. Slips and falls aren't covered. So I called him back up. He was very apologetic. He was just going through it quickly. He didn't even notice. It didn't cost me anything in addition to get that coverage. So I'm always telling people, one, work with someone that is a professional, that understands your business, understand your investments, understand your risks, and then go through the actual exclusions page of the policy line by line and make sure you have the coverage, you understand what's not there.

19:56It's really going to save you in the long run. And when it comes to umbrella policies, that's where people get in the biggest mistakes is they get this umbrella policy. They think umbrella, umbrella covers me for everything. And then those same exclusions are there and it's not there for them when they need it. It's so important to try to read the exceptions page. It is so dense, but there are things that you think you're covered for like flood or in California, we don't have like the slips and falls on the ice, but earthquake insurance. And so that might not be covered, which is just, it kills me when I hear stories about people who thought they were doing the right thing, but got screwed because there was like some thing that it didn't cover.

20:37And that's the thing that happened to them. Yeah, absolutely. I have friends and family in California that have had the same experience with flood and fires. And it's unfortunate with what the options are, but being prepared, knowing it about in advance, knowing what your options are. So you're not surprised. How often do people come to you with YouTube videos and Instagram reels and say, oh, I need this or somebody told me to get this? All the time people come to us. And I think part of it is when I tell people, it's the, if it sounds too good to be true, just the common sense that we are all taught by our parents, if it sounds too good to be true.

21:14I think the big one that I see out there is this idea that putting things in a trust means you don't have to pay taxes anymore. And trusts are expensive to set up. Yeah. So like, hey, I'm going to set up a trust and I won't ever have to pay taxes anymore. And no one can sue me. And it's like, yeah, you know, and then you go on the website and the person isn't licensed. And yeah, the IRS usually shuts those operations down. It just takes some time. Yeah. So a lot around misconceptions around taxes and asset protection for what's on the online for sure. So many asterisks, as you say, and asterisks don't play so well on YouTube.

21:57It's very quickly.

22:03Hold on to your wallets. Money Rehab will be right back. And now for some more Money Rehab.

22:15Pam, I would love to get your take on some celebrity news stories as a legal expert. Okay. Cool. All right. Let's go through a few. Megan Fox and Machine Gun Kelly announced that they're pregnant. I saw that. Yes. Congratulations to them. If you were their lawyer, What would you tell them that they should have in place before their baby comes? Ooh, are they married? I think they're engaged. They're engaged. Okay. The first thing that I tell all my pregnant mamas is to get incapacity planning documents in place, which is very emotional to go through. I know with my last pregnancy, I updated all of that.

22:52And even being doing this every day, I really did enjoy doing it. Thinking about if something were to happen to me in the hospital, what do I want, right? What do I want? end of life decisions? Who do I want to control things? Hopefully I would recover just fine. So I'd say that's the first component. Yeah. While you're pregnant is a very emotional time to be going through that. I can match from firsthand experience, but yes. So, so advanced directives and those types of. Advanced directives, who you want in control of your financial and your medical decisions if something were to happen. And hopefully you'd recover just fine.

23:26But if something were to happen, either way, what do you want to have happen? Who do you want to manage and control everything? What are your end of life decisions? All of that, getting that in place. So when a kiddo comes into the picture, you also want to think about wills, life insurance, less fun topics too, but still important. Yeah. So I would say for everyday people, the conversations should be around life insurance. For those two, I think financially, they're probably okay if something were to happen, right, for those kiddos. Guardianship documents, if something were to happen to the two of them, who do they want to step in and take care of the kiddos is a good piece.