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Nicole Wipp: Welcome to the smart planning 101 podcast, episode 20 I'm Nicole Wipp and I'm your host.

Intro/Outro: Stay in control of your future, whether legally, financially, or with your health learn the latest strategies and best practices from national expert's help. Help mom and dad make the right decisions. Welcome to smart planning 101 here's  Nicole Wipp.

Nicole Wipp: Hello Smart Planners. Today, I am really pleased to be able to bring David Zumpano onto the show. David Zumpano is an attorney and a CPA, and he'll be talking to us today about irrevocable pure grantor trust. And this is sort of one of those things that people don't know anything about. That can be a crucial component of a really good and effective estate plan, but because very few people really understand it.

And this also includes attorneys by the way. It's not necessarily always being used. Although that being said, there are thousands of attorneys nationwide that use the irrevocable pure grantor trust or version of it. And so he's going to talk about. What it is and why you'd want to use it today.

And I'm also going to have him talk a little bit about himself, but I'd like to tell you a little bit about him because he, isn't going to tell you everything that I'd want you to know. Dave is also the founder and senior partner of the estate planning law center, which is an estate planning and elder law center.

That has offices in New York and Florida. His firm serves as a model law firm to hundreds of law firms across the country. And he's also the founder of the Medicaid practice network and Medicaid practice systems, LLC, as well as the co-founder of lawyers with purpose, which. A national network of attorneys that is dedicated to all of these topics, including estate planning, asset protection, Medicaid planning, and business development.

And so David has literally educated thousands of attorneys nationwide on not just this topic that we're going to be discussing today, but many others, because I think that he is considered by many to be. Asset protection and asset preservation specialist. And since that's something that's near and dear to my heart and to many of the hearts of my clients, I really think that this is a great topic for us to be discussing today on a completely different note.

Dave is actually the person that really inspired me. To pursue the practice of elder law and estate planning, because he showed me through the use of this trust and many other things, how I could really make a difference in the lives of others. And some people may think that sounds a little bit cheesy, but I have to tell you that really is what the motivating factor behind all of this is for me.

And so I really thank Dave for that because he really brought me to a place of being extremely happy and a law practice and showing me the way. And I think you'll see why he was able to do that just from this interview because he's really the kind of person that's able to take extremely complex topics and break them down.

Easy. And I digestible ways of understanding, which is really important in order to make kind of good, smart planning decisions. Because if it's really complicated and you don't understand the gobbledygook behind it, you're not going to do it because why would you, that would just be crazy. Dave has a way of really helping you understand.

And so that's what this interview is all about. So in order to understand this very complex topic, I've broken this topic up into two separate episodes. And in this first episode, Dave is really giving us an overview of, you know, what is a revocable living trust, what are tax trusts and what is this irrevocable pure grantor trust, and how do they differ sort of from the thousand-foot view so that you can sort of get an idea of.

What the other trusts are. So you can compare and contrast what they are. He also gives an explanation about why even though you may not have heard about this trust in the past that it works and he knows that it works. And he explains how based on the common law of the country that it works. And so that's the first entire episode. In the next episode, we will be getting to the actual nitty-gritty of exactly. What does this trust do? How does it work and how does it protect your assets and your self and your family? Please join me in welcoming Dave Zumpano to the show. And thank you for listening.

Hello, Dave Zumpano. Welcome to the smart planning 101 podcast.

Dave Zumpano: Well, thank you for having me, Nicole.

[00:05:00] Nicole Wipp: So before we get started, Dave, I just want you to tell the listeners a little bit about yourself, who you are, what you do and why you're qualified to talk about irrevocable, pure grantor trusts with us today.

Dave Zumpano: Well, you know, Nicole I always, it's always a loaded question asking the guy speaking while he may or may not be qualified. But I guess what I can probably do is tell you some of my credentials. I've been practicing a little over 22 years. I'm a CPA and an attorney. And when I came out of law school in 1992, I looked at the Demographics in the set by the year 2010, one in five Americans would be over the age of 65.

And in my community in 1992, we are already at 23%. So I looked at as a, an attorney saying, where do I want to create a career? And I decided I'm working with seniors and it's been a great journey. My journey has taken me to really serving thousands and thousands of clients. And I think that's.

Well is probably one of the most critical things that, that I celebrate whenever I speak about what we're talking about, the trust in particular, because it's all about what the client needs and wants. And after serving several thousand clients and hearing their needs and seeing the reactions, I think that's the best indicator of a qualification.

Secondly, as a CPA and an attorney It, it requires two different disciplines to look at everything. One is from more of an analytical perspective and the other one is more from a personal planning perspective. And so I devoted my whole practice to this area of serving seniors. And I have, as a result, have been a lead trainer for virtually most of the major national estate planning organizations.

The American Academy of estate planning attorneys, the national network of estate planning, attorneys, wealth counsel the American association of attorneys, CPAs, and a whole myriad of other national legal organizations, financial institutions, I've been training over the last 15 years, since about 2000, about 13 years, since about 2000, 2001 timeframe.

And as a result, I've been sought out and quoted in the wall street journal than interviewed on national public radio. All in the area of estate planning, asset protection, and Medicaid. And but my passion is people. I really anchor it back to my own grandparents and having to deal with my grandparents as they age.

My grandfather died peacefully at the age of 81 and my grandmother living 15 more years spending the last several years of her life in a nursing home and really contrasting those two experiences personally and living through it has made me make, made a commitment to make sure. Everyone that we'll go through this as fully informed and as in full control to ensure they get the best result possible,

Nicole Wipp: right?

Because in elder law, that really what it comes down to on some level is helping the clients remaining control when they actually are not in control any longer. There's some element of helping them retain control, even in that instance.

Dave Zumpano: Yeah, I think it really comes down to three issues when it taught, when we talking about planning for seniors, it's unfortunately become so commoditized by people trying to make a quick dollar.

We lose the industry loses the vision of what we're trying to accomplish. One of the reasons I created with lawyers with purpose as an organization was to focus on the client and really there's three key things. We're going to look at. Number one is to preserve the legacy of our seniors.

What is it about your life? What is it about what they, I know somebody seniors, they walk around the house and shut the light off behind each other to preserve that few extra cents to be able to leave their family? What else did they do over the left that they want to make sure is captured and shared with their family other than just their money?

So really preserving their legacy and giving access to their family, to learn their story and understand what made them, who they are. The second part, which I think is where most people focus is protecting their autonomy. That means making sure that our seniors are able to stay in control. And. Care, they need at home if possible least restrictive means to meet their needs.

But most importantly, to get the care they need early on. So they don't need advanced care. A lot of times, most people in nursing homes are there because they failed to plan appropriately earlier. And to delay that by virtue of the little things they could do along the way to provide that infrastructure in their lives alleviate the need for more care down the road.

So that's the second most critical part. Preserve the legacy, protect their autonomy, both personally and financially, making sure they have the way to never become a burden to their loved ones. And then the third thing we want to do as we want to prepare them for the rest of them most people have been sold into a bill of goods that you're going to work here.

Go turn 65. You're going to retire. And then you're going to plan your long-term exit strategy today. 65 is not a long-term exit strategy. We're probably most seniors. Don't like to hear this, but [00:10:00] we're probably expected to live well in excess of 100. Currently, there are about 50,000 centenarians and over the course of the next 25 years, we expect that to grow tenfold to about a half a million.

And so most people are thinking, oh, I just, you know, I retired now. I got to figure out how I'm gonna make it till I die. It's really very different. It's how do I live the rest of my life, which is going to be long and prosperous. Many of us in today's society will be retired longer than we worked. And so how do you prepare for that?

And what's at risk in this new lifestyle. And one of the key things comes back to what you said, Nicole, which is about protection asset protection, because if we're going to live long-term, now we need to make sure we have the financial resources to do now again, that's a critical role, not the sole role as you.

And I know, but that. Financial security and protection enable us then to focus on our personal security in our legacies.

Nicole Wipp: That's right. So that is one of the reasons why this irrevocable pure grantor trust, which we. We affectionately know, as the eye pug is so important as a component of that strategy, but a lot of people have no idea what it is.

So can you give us a little idea of what is an irrevocable pure grantor trust and how does it differ from a traditional irrevocable trust?

Dave Zumpano: Oh, okay. I was gonna say, how many hours do we have? No. I think I could do this in about five minutes. And let's talk, first of all, let's get away from the legal terms irrevocable pure grantor trust is a legal technical term that really relates to tax law.

I want to get away from that term for right now. And let's talk simple talk which really explains what these trusts are. If we look at trust planning and we look back 10, 15 years, Really there. If you look over the history of time, there was basically. One trust out there. It was an irrevocable trust and this trust has been around for probably well over a century.

You know, the DuPont's, the Kennedy's, you've heard of them having these trust funds, the big wealthy ultra-wealthy and those trusts were have the longest standing. And they really relate to one single topic. Tax state tax planning and what that ultimately came down to is during the 20th century, during the 19 hundreds, it became very expensive to die with money at some points when you died with over amounts that exceeded certain levels.

And they could have been as little as a hundred thousand dollars as little as 20 to 30 years ago. If you dealt with more than a hundred thousand dollars or something of that nature. You could be giving as much as 60% to the government when you died. So what happened was people started setting up these irrevocable trusts.

To avoid the estate tax when they died, because it was so confiscatory, it just took so much of what the people had worked for. Now that is traditionally the trust that has existed for well over a hundred years. And these trusts really had one single primary purpose. To minimize or eliminate the federal estate tax.

Now there is three main criteria of these irrevocable trust. One was that once the person created it, they could no longer benefit from that trust. So I would have to take my money, put it in this truck, and never again, be able to receive any benefit from it. The second criteria was that once I created.

I could not ever change it. So I set it up for my kids or whoever, and it was set up and it couldn't be changed. And the third criterion was that I could not control it any longer. So once I created this trust, I had to set my terms. I could never change them. Once I created it, I would have to give my money up, put it in the trust, be controlled by the rules.

I said, and I could never, ever again have any say in how it's managed or what occurs with it. So those trusts, obviously not many clients prefer them, but if you think about the confiscatory rates of an estate tax, people would prefer to give up their money and give it to their family, give up control and the right to change it.

And then exchange for not having to lose 60 or more percent. The government adapt. Now, even today, the estate tax is 40%, but it's on a much higher number. It's currently with people more than $5.3 million or 10.6 if you're married. So if you look at that it doesn't apply to many people anymore, but the problem is when most people think of irrevocable trust, those are the trust they think of ones you can't control, you can't change and you can't benefit from, and that's what people, most people's perception is of an irrevocable trust. The truth is that is an irrevocable trust, and this is the most long-standing type of variable we'll trust, but it's not the one used very much anymore.

There's another type of trust, an irrevocable pure grantor [00:15:00] trust, which I'm going to talk about. But before I talk about this other vocal trust, I want to go back to a second type of trust. It's really only about 25 years old. It probably started coming out in the late eighties. And late eighties, early nineties, we came to know the revocable living trust.

Okay. And basically, that was the trust you created while you were living in a revocable living trust, serves a different purpose. This, when this came out, the primary benefit of it to the participants was that the person who created it could control it could change in any time they want. And they could benefit as much as they want.

So this is the complete dichotomy, the exact opposite of what we have come to know as an irrevocable trust. And so people loved revokable trusts because they can control, change it whenever they want, obviously until they died now. The use of revocable living trusts was predominantly twofold. Number one was to avoid probate in many states, the process of getting a will approved by the courts and getting the executive point of that process called probate was very complicated and costly.

People started utilizing the revocable living trust to avoid probate so that upon their death, the assets can go directly to the people of their choice without the unnecessary burden or cost of probate. Now, the secondary reason for a revocable living trust is if you became disabled I always tell clients in the old days, it was simple.

You lived and then you died, right? But life ain't simple anymore, you don't die anymore. Now we know we all die, but before we live and when we die, there's this whole middle period now called incompetency. And so this whole period of encapsulating really in the old days, if you go back to the seventies and eighties, and even my own experience, when my grandfather died in 1981 and the early nineties when my mother needed nursing home, it was looked upon.

It was frowned upon by the family to even consider putting a loved one in a nursing home. You took care of your own. Now in today's society, we know it's so complicated. It's very difficult to try and take care of your own. But in any event, the revocable living trust was secondarily used as a way to manage your assets when you became incapacitated.

So it gave authority to someone else to make decisions about your money. Consistent with whatever you wrote in the trust document. So the revocable living trust was the opposite of what we've known as the irrevocable. So the traditional irrevocable trust was a tax planning vehicle. No control, no right to benefit.

No right to change. If we go back and look now at the revocable living trust, which is relatively new phenomenon. This was a trust you could create, you could control, you could change and you could benefit from think of it as an open box. You can put stuff in and take stuff out whenever you want. So those are the two dichotomies of trusts that have existed you know, for a long period of time.

Well, in 2001 something happened that president Bush and Congress passed the EGTRRA economic recovery act of 2001, which significantly changed the estate tax rules. So back when actual was created, you know, prior to extra. An estate of $675,000 or more would be subject to an estate tax of an excess of 50% after EGTRRA and actually eliminated the federal estate tax by 2010.

But as we know the rest of the story, it didn't stick because past the, you know, the administrations after the Bush administration changed all that predominantly the Obama Administration. It again, and in 2000 where we had a 675,000 limit today, we have a $5.3 million limit. So it affects far fewer people.

In fact, statistics shows the state tax planning really applies to only two in 1000 people. Two-tenths of a percent. Wow. Yeah. 99.8% of Americans. Aren't concerned about estate taxes at the federal level. And so what happens is this a state tax that we've, I'm sorry, the irrevocable trust that we've all heard about for so many years, it's no longer relevant to 99.8% of the people.

Now on the flip side, everybody loves the revocable living trust. It becomes a whole wave. And the eighties and the nineties and the two thousand. And it's become like, you know, a number one tool used by people. The problem with the revokable trust on the call is if it's an open box and the number one rule on asset protection is if you can get it.

So can your creditors and predators, and that's where the IPUG was created because what I did in the early two-thousands, I looked at how trusts are designed. And I said, well, why we have to create a trust with all those tax rules on the tax don't apply. But lawyers for so many generations had been trained in the tax application of trust.

They didn't understand. They thought I talked to foreign language. But with my upbringing and my drive, I don't go away easily. So I continued the conversation and in 2001 I introduced the IPUG nationally and I'm proud to say it's been used in over 40 states for the last 13 years. And what makes it a very unique trust is listen.

There's other versions of it out there now. [00:20:00] IPUG is our trademark name, but what I'm gonna do, I'm gonna explain to you what an IPUG is and how it's different. So if we think back about the tax trust, an irrevocable trust where there's no control, no right to change it, and no right to benefit from it.

Nobody likes those. The other side of it is we have the revocable trust where you can have full control change at any time you want, and you can have full access. Well, when I started looking at people in the nineties and serving. Clients during the nineties, when I got the 2000 and realized, you know, there's another way to do this.

So in the legal world. So I'm going to turn into a lawyer here for a minute and the legal world. There's three different things. There's state planning. That's the lowest level that we do. So that could be as simple as a will, a healthcare proxy, and a power of attorney estate planning is making some plan for your estate financially.

While you're alive and after your death. So traditionally that was done with a will and power of attorney and healthcare proxy. So that's what I would call the first tier level of estate planning. Now that is advanced to things now that we know as a revocable living trust, that is estate planning.

And it's just another tool we use now, in addition to wills, health care proxies, and powers of attorneys. Now we have a thing called a revocable living trust, but again, that is an estate plan. The third level. So I'm gonna skip the second level. The third level is tax planning, and we're talking about estate tax planning.

If we have to avoid the state tax. Now, again, we said that applies to 0.2%. So that was kind of out of the picture. So we have this whole middle section where people want more than estate planning, but don't need tax planning. And we call that asset protection planning. So this middle genre of planning.

Is really a higher level than estate planning, but a lesser requirement than tax planning. And so when I looked at this, I looked at the law and how it applied. And a lot of lawyers fought me for many years and still fight me to this day. I'd be honest to tell you saying, you know, A snake oil sales manner that there's some craziness about this.

The beauty is there's one distinction between me and them. A lot of lawyers rely on the law, but they don't read it. They just do what they've always done because that's what they were always taught. I did what I was always done, but I also learned a lot and the reasoning behind. So that when things change, you can figure out what can change in the document.

And what's exciting is over the last 13 years, over 40 different states, over 500 to a thousand law firms have used these trusts. And we're still here. And there's not been a single case because they're not based on anything radical. In fact, in 2010, too quiet all the naysayers. I actually did a law review article.

Now, most clients don't understand what a law review article is, but it's a written analysis, a legal analysis that is written. I wrote mine at Syracuse University about a thousand people requested and 11 people got to do a law review articles. So obviously they liked my topic and I did a complete legal analysis of all the objections that traditional lawyers would have to an IPUG.

And we showed under the law of all 50 states, why they work and here's, why they work essentially Nicole because what happens is an IPUG not rely on any state-specific law. It relies on the common law of the nation. Now the common law actually goes back to the year, 1,532 with the statute he uses the common law with regard to.

So we have long histories of how trustworthy, so the, so for the client, what does the common law mean? Well, we have two types of law. We have statutory law and we have common law, statutory laws, the laws where there's a law on the books. So you can only go 55. You have to have the health inspector. And if you're running a restaurant, those are all laws and rules that the government creates.

That's called statutory. But you understand living in America, you can't have a law for every single thing. So that's why there's lawsuits in courts. Courts are what we call the courts of equity and they resolve the lawsuits of which there's no specific statutory answer. So they say, well, based on the statutes that exist and based on your fact pattern, here's how we think it should apply.

And so this common law is really the law of the courts over hundreds of years. What if courts traditionally ruled in these areas? And in my law review article, I did a complete analysis of the common law in all 50 states and showed how all of the elements of the iPod trust are absolutely 100% consistent with the common law, all the treatises, all the legal treatises that have been written.

On the topics of trust and basically distilled all these, this insanity that people were thinking that what I was doing was out of the ordinary. In fact, all I was doing is what the law provides, but I let go of all the tax planning, see people had been habitual. Train and taxes, but again, it doesn't apply to anybody anymore.

Well, that does the 0.2%. So for the 99.8% of Americans, we had to create a way for them to [00:25:00] protect what was important to them and still give them some of the things they like. So the result was the iPod trust and here's what it does.

Nicole Wipp: This concludes part one of my interview with Dave Zumpano about irrevocable pure grantor trusts.

In part two, Dave is going to dive into the specifics of how an irrevocable pure grantor trust works and why you may want one. And he's also going to give some examples of times that it should be used to read the show notes from this episode and to access Dave's law review article that he talks about.

Please visit smartplanning101.com/20.

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