Money Rehab with Nicole Lapin - How You Can Get Rockefeller-Rich in Two Steps

Episode Date: September 21, 2023

You don’t need to be a Rockefeller to build wealth like them. The money moves they made, anyone can try at home. The most critical of those money moves, the one that really set their family up for generations, was to turn their family… into a bank. Nicole breaks down how they did it, and how you can too.  Want to start investing, but don't know where to begin? Go to moneyassistant.com and meet Magnifi, your AI money assistant, designed to help you make a plan for your financial goals. Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Have you ever wished you could just be adopted by the Rockefeller family? I'm not going to lie, it has definitely crossed my mind a few times. But you don't need to be a Rockefeller to build wealth like them. The money moves they made, anyone can try at home. The most critical of those money moves, the one that really set their family up for generations, was to turn their family into a bank. I'm going to break down how they did it and how you can too.

What the Rockefellers understood early was that taxes are the biggest threat to generational wealth. If you want to leave something behind for the next generation, when you die, your beneficiaries are going to have to deal with inheritance tax, which eats away at what you had planned on passing on to the next generation. So sheltering their money from tax exposure was one of the main objectives of the Rockefeller's family bank. The Rockefeller bank isn't a bank like Chase or Ally Bank. There is no Rockefeller family bank branch where you can go and you can set up your own account or take money out of the Rockefeller ATM, although that would be nice. A family bank in general is a type of trust. You may be thinking, but Nick, I am not a trust fund baby, so why the heck should I care?

Well, neither am I, but you should care because anyone can set up a trust. You don't need to be rich to set up a trust or to benefit from a trust. Really quickly, some lingo to get out of the way before I tell you how to do all of this. The person who sets up the trust is called the grantor, and those who benefit from the trust are called the beneficiaries. Now, the Rockefellers didn't set up just any type of trust for their family bank. They chose to create an irrevocable trust. Let's step back. There are many types of trusts, but the two biggies are revocable trusts and irrevocable trusts. A revocable trust stays under the control of the grantor, and the perk of this type of trust is that they can be changed after it's created.

Say the grantor established the trust when they had two kids, and then a few years later, they had a surprise third. That third baby could be easily added as a beneficiary to a revocable trust, and that's a good thing. With an irrevocable trust, however, once it's created, it becomes an entirely separate entity from the grantor. And it's pretty impossible to change. If the grantor has a surprise kid, let's say, or meets hubby number two and wants to add them to the trust, it's usually impossible to do. So why would the Rockefellers choose an irrevocable trust

then? It's that separation perk. With a revocable trust, because the trust is under the control of the grantor, it's considered an asset that belongs to the grantor. So it can be targeted by lawsuits or used to settle up debt issues. Irrevocable trusts, however, are totally separate entities from the grantor. So if the grantor forgets to turn off the oven and burns down their apartment building, no one will come after the trust for damages. It's protected. But even more important than that, irrevocable trusts are not subject to inheritance tax when the grantor dies. And again, that's because an irrevocable trust is completely separate from the grantor. Okay, so the Rockefellers put their assets in an irrevocable trust,

and that meant when they died, those assets were not subject to inheritance tax. That strategy helped the Rockefellers protect their money for many generations, which is super brilliant. But they did another genius thing to help grow that money over generations. They took out life insurance policies on family members and made the trust the beneficiary. And once again, the type of insurance policy is very important here too. The Rockefellers funded the trust with whole life insurance policies.

Life insurance comes in two flavors, term and whole. Term life insurance policies are inexpensive, but they're in effect for a short period of time, usually 20 years. They can cost as little as $20 a month and can pay your survivors hundreds of thousands of dollars, but they also expire. Whole life insurance policies cover you for your whole life, as the on-the-nose name suggests. They are far more expensive, but they provide several benefits that term insurance doesn't offer. For example, as you pay into it, it begins to function almost like a savings account.

You can withdraw money early and reduce the final payout, or you can borrow money from the policy and then pay it back. Borrowing these funds is tax-free and zero interest. Let me say that again. Tax-free loans with zero interest. Find me a better deal. I'll wait. And this is why I say the way the Rockefellers set up generational wealth is a bank and not just a trust. Because when you set up a trust, you can stipulate that you want your beneficiaries

to be able to borrow from a trust at whatever interest rate you think is fair, say 1%. It's good for beneficiaries to pay a little bit of interest on the loan, actually, so that the trust can continue to grow. And so the beneficiaries do have a little extra incentive to pay the trust back quickly. What this means is that when a Rockefeller buys a car or a house, instead of paying an institutional big bank 6% interest or whatever it is at the time, they pay whichever rate their family has set up on the trust. So with this structure, your family could access credit far more easily and cheaply by going to the family bank, essentially, instead of a loan company. In this way, family members can save money on

interest payments, and there's a nest egg that can benefit future generations. So this is clearly awesome in three main ways. But how do you set it up, you ask? Let's start with the trusts. To establish an irrevocable trust, you can follow the traditional route of going to a lawyer and an accountant and setting up a trust with them. But this is the digital age, so it is possible to do the paperwork yourself and set up a trust on your own online. Tomorrow, you're actually going to hear my conversation with the CEO of the company Trust & Will, which you guessed it, helps people create trusts and wills. So stay tuned for that one. And for the life insurance side of the equation, it depends on your current life insurance status. If you have whole term life

insurance already, then you can transfer ownership of the policy to the trust. But if you're uninsured, you begin by creating the trust and then having the trust take out a policy on your life. Sounds a little spooky to take out life insurance, I know. But again, this is all in service of building your legacy and generational wealth. To pay for the policy, you can either make a large upfront contribution to the trust, which can pay for the policy, or you can make annual gifts to the trust to cover the premiums. Of course, these aren't the only ways to fund a policy, but they aren't actually available to everyone. If you have a serious health condition, have been a

smoker, or had any genetic testing that revealed an increased risk of getting cancer, you may not be able to get the coverage, or your premiums might be too high to make it worth it. Don't worry, you can still use assets to fund your trust like cash, investments, and real estate. Remember, you don't need a large windfall to make this work. This strategy is not just for rich people. This is for pre-rich people too. I mean, who knows? You could maybe be the next pre-Rockefeller. For today's tip, you can take straight to the bank. Usually I don't give out medical advice, but here's a little bit of financial medical advice. And it's sneaky, but it's perfectly legal and totally within your rights. If you're considering getting any sort of

genetic testing to determine your risk of cancer or heart disease or other diseases, get life insurance lined up first. You are required to report the findings if you're purchasing life insurance for the first time, but you can't tell them what you don't know, right? So life insurance first, genetic testing second. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start, or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like

that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host

so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see

that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp. Bank N.A. or Stride Bank N.A. Members FDIC.

SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in Spot Me and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy.

Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you.

No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.