Transcript+
Let's be clear, Bitcoin is an international asset. We are spending like drunken sailors. Bitcoin is the only economic entity. Where the? Supply is unaffected by the demand. If you want to preserve your wealth, you have to. Convert. That currency into an asset that's scarce, desirable, portable, durable, and maintainable. The, the Bitcoin is now in the trust, so hopefully you do that before the next 10X, right. So the next 10X happens and all of that growth is happening inside of your trust, not in your taxable estate. Meanwhile, what's in your taxable estate? It's that receivable it's that promissory note that could be a $2,000,000 promissory note. That could be a $20 million promissory note that could be $100 million promissory note. Just how much Bitcoin did you sell to the trust? That's what the notes worth. And so let's just say that that's a $20 million promissory note. So that's in your taxable estate. Meanwhile, 20 million of Bitcoin is in the trust. If we get that tax now the trust has $200 million worth of Bitcoin, your taxable estates just 20. And so we've we've frozen the size of your taxable estate. But not only that, that note is a mechanism by which we can get liquidity back to you. Maybe you're living on a half million, $1,000,000 a year. Well, we can send that money to you. And when we do that, we're paying down that note. And so, you know, let's just say 20 years go by and you pass away. We've maybe paid that note down to 10 million. Your trust is now worth 400 million. None of that 400 million is taxed. The only thing that's taxed is whatever's left on that note in your taxable estate, let's say 10 million. So now I'm out the door with a $4 million estate tax instead of a $160 million a state bill, A state tax bill. One of the biggest challenges with Bitcoin ownership is inheritance planning. I hear this every single day with people that I speak with. They are looking to navigate the best way to transition wealth from themselves to their family. It's interesting because most people in the Bitcoin space view Bitcoin as a multi generational pursuit. We're typically thinking of our children, grandchildren, not necessarily ourselves, not necessarily next year, but 10/20/50 years down the road. Yet Despite that, most people do not have a reliable inheritance plan. So there are many ways we can solve for that at On Ramp. The first is inheritance planning built into every single account. But for investors and clients who want to take it a step further, we launched On Ramp Bitcoin Dynasty Trust Services in partnership with First Covenant. And in this episode, we recorded with Paul and David from first Covenant to really get into the nitty gritty on dynasty trust, the benefits of them and how you can implement this and actually start to protect your dynasty, your legacy here. And don't worry if this is a world that you're not too familiar with. We did keep it high level and provide a framework and also provide more. So just things to be considerate of and watch out for. There's a lot of pitfalls you can run into. And ultimately the big breakthrough here that we did describe as well is the blending of multi institution custody with South Dakota trust laws. Because typically if you want to have a trust set up, you were giving up your Bitcoin to a single custodian and then also giving up control of the asset itself from an investment direction standpoint. So in this solution, you don't have to do that. You get to use multi institution custody and you also can retain control of your investments held within trust. So hope you enjoyed this episode and if you want to learn more, you can book a consultation directly on our homepage here at onrampbitcoin.com. Now I hope you enjoyed the episode and thanks for tuning in. Welcome back to Scarce assets. This week we have my Co host Michael Tanguma and joined by Paul Hoylman and David Green, Paula's partner. And David Green is the Chief Fiduciary Officer at Covenant Trust and Advisors. And we're excited for this conversation for a number of reasons, but just to level set here and then we'll hand it over to David for some opening remarks. And just a little bit more on your background, David, but excited for this conversation because our client base here at Onramp tends to skew high net worth, but it doesn't mean every client's high net worth, but it doesn't mean every client is ultra high net worth either. And so a lot of our clients, they're, you know, professionals, they're smart, they're sophisticated people, but the world of trust in estates is just, it's a whole nother world for many people, including myself before I started. So I have to learn this for, you know, my professional background. And so I'm really excited for this episode because I think it'll be incredibly informative. It'll help people to identify gaps and problems in their estate planning or maybe lack thereof. And ultimately, it'll give them a framework and some actionable next steps to really level up and help them think through how to best protect themselves, their families, etcetera. So thank you, David and Paul, really appreciate the time today. Great to see you all on a Monday morning here. And David, how are you doing? Great. Thanks for having. Me, excellent. Well, if you could just start, David with a little bit more about your background, if you if you could just summarize your career and then speaks more specifically about the work that you do on a day-to-day basis, that would be a great place just to level set and and help the audience understand who we're speaking with here today. Yeah. So as you mentioned, I'm the Chief Fiduciary Officer at First Covenant Trust and Advisors. We're a South Dakota chartered Trust Company. My background specifically, I got started in accounting and undergrad went to law school and kind of knew I was going to focus in estate planning, business tax, not so much the the litigation where I'm fighting with people every day. I was looking for a career that was in the law, but win, win and found that in the world of estate planning, because if, if I do my job well, our client wins, the beneficiaries win, everybody wins. There's more Peace of Mind, there's more family harmony. The only maybe potential loser in that scenario is that the, the, the treasury may not get as much as it otherwise would have gotten. But but that's kind of my personality is I didn't want to be engaged in, you know, fighting. And I had a little bit of experience during law school 1 summer where I was litigation support in, in a lawsuit against a trustee and kind of confirmed that I would rather be on the planning side and, and try to prevent that sort of stuff from from happening. So over the course of my career, I've been involved in private practice helping people and families plan for the next generation. You know, sometimes that's tax planning, sometimes it's business succession, sometimes that's just putting together a plan for for passing assets to the next generation. Some of that involves education of the next generation and not just preparing assets for the next generation, but preparing the next generation for their inheritance as well. Had a little bit of experience doing tax prep. So have some public accounting experience doing 1040s, you know, your personal income tax return 1040 ones, which is the income tax return for estates and trusts and also some transfer tax returns, gift tax returns and, and estate, estate tax returns. But for the last 14 years or 14 plus, I guess I've been working at First Covenant doing all kinds of different, different roles. But our our company and our team has evolved to the point where a lot of my work now is in this area of education and training, Whether that's internally focused, kind of bringing new teammates up to speed in terms of some of the substance of what we're talking about, talking to clients and families or are the other advisors about the sorts of topics that you know, that you introduced at the beginning of the show. So that's a little bit about me and kind of how I got to to where I am and looking forward to to kind of unpacking some of these things with you all today. Thanks for sharing that, David. One thing that dawned on me and is I don't know how much you you see it, but I think for me and Jackson, this notion of being a millennial and the concepts that we're going to talk about today are so like the juxtapose are completely different. Because it hit me that as a millennial, you're just trying to make it, let alone you can't even fathom thinking about what am I going to do with leaving my wealth to my family or how do I plan around this. And the interesting part is with time, it's directly correlated, specifically holding Bitcoin with age, the individual getting older, the price appreciating, and then this wealth becoming real. And so this is really where this becomes super timely. And it would only increase as individuals that were once holding $10,000, now it's $10 million. And they're also 10 years older. Like all these things are naturally like there's a confluence of Mac like tailwinds happening. And that now individuals that thought they never would have to think about these things are like front and center. And it has to become, it's a, it's a problem with something to worry about. And so just hit that hit me because for years as you're holding Bitcoin, you're thinking, Oh yeah, the price is going to go to these places, but I'm never going to need it. And now the price, it's at 115 hundred $20,000. And you'll start realizing, oh God, I got to think about this seriously. That's right. I mean, I think there's a natural progression as you age where, you know, certainly as you get old, you start thinking and coming to terms with your own mortality and some of these things that we're talking about more and more important just as you rest through your life. But as you as you do certain things in life, some of these things become more important. Some of those are driven by your wealth kind of as you're mentioning where you know, you you used to not have stuff and now you do, you know, you used to not have a family and now you do, right? There's different. You used to have a long time to think about it and now you have a little less. And this because we millennials now are kind of in middle age and learning to think about some of this stuff more. And there are, I think maybe get into this a little bit, plenty of tax benefits to be had for those high net worth folks to do estate planning. But even if you're not there and transfer tax isn't a concern for you, there are a myriad non tax reasons why having a good estate plan can can be beneficial to the end point of knowing and having a plan in place and the Peace of Mind that that brings to you and for your loved. Ones yeah, no, it's, it's well said. And I think before getting into some of these strategies and the more the nuance that we'll discuss around different types of trust structures. Love to hear Paul, either from you or David or both, just why First Covenant is interested in the Bitcoin asset class. And I'm curious to hear, you know, the opportunity that you see and really how I think Michael touched on some of it, but how that Bitcoin wealth kind of ties into the broader wealth picture and how it ties into the principles and the business that you've built at First Covenant. David, do you want to take it? Yeah. I think one of the things that we've thought a lot about here over the last 6-8, six or eight weeks is we've kind of brought our respective areas of expertise to bear on this question is you know what, what is it about this asset that lends itself to what we do right. And some of the the answers kind of naturally grew out. I mean, one of the most exciting types of assets to plan for is an asset that is appreciating rapidly or has, you know, kind of a nominal or smaller value today, but a prospect for great appreciation in the future, right? Some of the most value that that you can get out of estate planning from a tax perspective is, you know, handling the acorn and anticipating what it's going to look like when it's a, when it's an oak tree, right? And so in, in a sense, Bitcoin is just another asset, right? The, the tax code views it as property. And so we kind of know from a tax perspective how it's going to be looked at and treated from the government's perspective. But then from the investor's perspective, you know, if you've got this, the the bullish or maximalist outlook on Bitcoin, you've got the acorn, right? And there are some things you can do with acorns from a tax perspective that are cheaper than you can do with an oak tree. And so I think those things coming together are are kind of exciting from a planning perspective and provide a lot of opportunities for folks. And one thing I'm realizing as well, David, it's very well said is that, you know, given the nature of Bitcoin as such a fast appreciating asset, it kind of has to it drives a little bit of urgency in people when it comes to planning. Because when you look at typical, you know, traditional assets such as real estate or equities, what have you. And maybe you're looking at, you know, 10 to 15% nominal compound annual growth rate depending on the period you look at versus Bitcoins, depending on where you measure it could be 4050, sixty percent or more. And So what I've seen is a lot of people are starting to become more proactive about the estate planning because while they may not think that they're necessarily close to something we'll talk about is the federal exemption limit, but they may not feel like they're close to that today, but maybe four or five years from now that that window approaches very rapidly. So it's kind of a forcing function in my opinion, Bitcoin is to actually have more urgency, become more proactive as it relates to setting up a trust, trust in the States. That's right. I mean, there's that old Chinese proverb, you know, when's the best time to plant a tree? You know, 20 years ago, right? The second best time is today. And I and I feel like that's kind of what we're what we're talking about where if you've got this asset that is rapidly compounding in value and from a tax perspective, you want to deal with it while it's cheaper, right? I mean, there's, there's a little bit of volatility in there, but in general, the sooner you act, the better off from a tax perspective you'll wind up being. Yeah. Credit to Paul for really recognizing this kind of like confluence of all things, whether it's first covenant Bitcoin and then also what on ramp is doing. Because David, I know you're probably a little bit greener to the Bitcoin space, but for 15 years, the way this asset was secured, you would laugh at when you think about the majority of Bitcoin, you know, like billions of dollars still set on these devices. And the notion of for the next 15 years, that's going to be the natural only way to hold it just doesn't make any sense. In the same way that as the asset grows, it doesn't make any sense to leave it on a single custodian because the amount of capitals is growing and it's just data. At the end of the day, it's private keys and you wouldn't want to trust all your data with what party. We already don't like it when our Pi gets leaked with what happens when it's tied to 10s of millions of dollars. It's really that simple. So now you have this notion of multi institutional custody. You can, you know, legacy plan, somebody goes away, you have redundancy, fault tolerance. But I think I know Jackson's prepared, but just to like call out why this is so powerful is because there's like, in my view, 3 core components that all Bitcoin holders have been have as part of their philosophy for this asset that had been weren't apparent in a trust product. So the ability to direct or manage the asset, right? Because there is sovereignty involved in that asset that has historically been completely way. And I think about my friends at whole large positions and if they're going to listen to this, these are the things that I want them to know. So the ability to direct is a big deal, right? You can still access accessing liquidity. We'll talk a little bit more about that, but Pulse and clean from our team and put together really good resources on how you can still tap into liquidity, you know, U.S. dollars against that and then really protecting your Bitcoin. And when it's think protector Bitcoin from two key aspects, there's multiple where it ultimately goes. God forbid something happens to you if you actually have a succession plan and it's not just going off into the wind with whoever finds it or whoever, you know, Paul's, you know, famous example is you give it to your child, your child's going through a divorce. Now his wife has half of your bitcoins, like just rolling over your grave kind of stuff. And then how much you get to protecting it ties in and how much your family actually gets to your point. The Treasury Department taking 40% of your Bitcoin is something that I don't think anybody that's holding this asset would want, but it's going to happen if people don't start thinking about this. Yeah, I think those are crucial aspects, you know that you're talking about one of the things that I think makes what we're talking about bringing the together with the idea of the concept that together and that last a long time and. Wide that. Level of direction and goal and protection, potentially for generations. Yeah. I mean, that's that's the critical thing here as well as one thing that's always surprised me is the gap between how an investor may perceive Bitcoin to be a generational type of investment, right. They're typically not thinking about themselves or thinking about their children, grandchildren, etcetera. But there's typically a gap between the seriousness in which they approach the asset long term and the seriousness of which they have approached their estate planning. And not to say that they don't take it seriously, but I think there's a lot more thought that goes into, well, you know, I'm going to allocate this much to Bitcoin or I'm going to look to accumulate this much Bitcoin because I think it's going to set, you know, my children, grandchildren up for, you know, this type of, you know, prosperity, etcetera. But then there's often a lot of challenges or gaps with actually executing a plan to get there. And I think that's what Michael is referring to, where a lot of people don't really have a robust plan beyond maybe some instructions or maybe some very basic. And in many cases, people don't have any trust, but maybe some very basic estate planning where typically there are gaps, whether it's from an asset protection standpoint or maybe it's probate you end up having to deal with or you know, there's all sorts of, you know. Potential pitfalls that people could run into. And so David, I think that helped to just kind of paint a picture of how people are generally thinking about the services that you provide at first covenant. And one thing I wanted to touch on, I think it is really important is the first part that Michael mentioned and Paul's pointed this out too, is the ability to actually have control over the investments in the trust. So if you could please walk us through maybe set the stage in terms of how this differs compared to most types of trusts and then help define what an investment directed trust is. Because ultimately this is for many, for many people in the Bitcoin space, probably non negotiable. They want to have control over the investments in trust. Right. Yeah. I think it's talking about setting the stage, important to think about, you know what, what we're really talking about. I mean, you mentioned at the beginning that a lot of the folks that we're, that we're talking to have some experience in business and finance and, and Bitcoin, but maybe not so much in the estate planning and trust world. And so one of the things that I, that I say a lot to people is, you know, I, I think there's a misconception that a trust is a trust is a trust, right? And I said, well, let's think about maybe an analogy of a trust being like a dog, right? You, you think of, OK, here's a Great Dane and here's a Saint Bernard and here's a golden retriever and a Cocker spaniel and A and a Chihuahua, right? They're all dogs. They all have some common dog Ness to them. But if you looked at a Chihuahua and a Great Dane, right, very different animals, right, Even though they're both dogs. So I think one of the things to to come kind of start with foundationally is the idea that trusts are like that, right? Trusts have things in common with one another, but one trust may be designed to do something much different than another trust. And so when you're talking about basic estate planning and probate avoidance, one of the most common tools that you'll see out there is a revocable living trust, right? And I think of a revocable living trust, it's kind of a basket where if if I have assets that I own personally and I pass away, well, no one has access or control to those assets until my will goes through the probate process. And the judge grants my executor, personal representative legal authority to go in there and, you know, grab hold of those assets and then follow the instructions in my will and the into the legal protocol in the state where this person passed away to deal with that. One of the ways that we can't avoid probate is to take those metaphorical eggs, right? Whatever my assets are that are in my name, that will be unavailable to people or frozen at my death is to put them in a revocable trust where I can, I can manipulate that while I'm alive. I can change it. I can change my mind, I can revoke and at my disability or upon my death, there's a successor trustee that can come in without the action of the court, right? Because it's written in the in the trust document, right? If David is disabled or after David's death, Paul Hollman is the successor trustee and he has authority to, you know, fill in the blank. Whatever I've decided when I create my trust. Now Paul can take that basket and follow my instructions with that right. And it might be Paul the person or it might be first covenant trust and advisors and institution. Because Paul's also an individual. He may fall I'll before I do or be unavailable for some other reason. So that's one of the benefits of of having a corporate trustee. Another type of trust is an irrevocable trust, right. And when we're talking about planning for transfer tax minimization, a lot of times what we're talking about is taking assets that we have, right. And in this context, we're talking about Bitcoin, although it applies to other types of assets as well, especially once again, like I said, that are poised to grow where you take that asset, you put it into an irrevocable trust, which doesn't mean it can never be changed. It just means you can't pull those assets back just by, by your own of Fiat if you want to, if you want to say that. So there's more permanence to it, right? You put them in this irrevocable trust and now, right, for transfer tax purposes. And when I say transfer tax, I mean estate tax, which is buttressed by a gift tax and a generation skipping transfer tax. They're not mine, right? But if I play my cards right and if I designed the trust right for income tax purposes, right, those assets still are mine. And so that's one of the the key things to think about when we're talking about control, right? When I put assets into an irrevocable trust that I can't just snap my fingers and get back, well, what control have I given up right? There is something that I've lost, but in in South Dakota and now several other states, South Dakota was a leader. There is this concept of directed trusts, right? The old concept was, hey, when I, when I put these assets over into an irrevocable trust, my trustee is in charge of everything, right? Every duty that a trustee might have or everything that needs to happen in that trust, the trustee has to do. So the the choice of trustee was was very important and it still is. But what directed trusts allowed us to do was to kind of carve out some piece of that. If you think of a pie graph, right, of all the duties of a trustee being the whole pie, well, we can carve out a slice and give it to somebody else. That's not the main trustee and specify which duties and responsibilities and control that that separate fiduciary haves, right. And we talked about those in terms of a primarily investment direction, but there can be other powers of direction as well. So in terms of retaining control over an irrevocable trust, this idea of an invested investment directed trust is, is crucial, right? I can give that over, but I can retain the power to direct the trust with respect to what it owns, when it trades it, how long it holds it, what it does with it and those sorts of things. So that's a that's a critical aspect, right? Non negotiable, like you're talking about that when we're dealing with an irrevocable trust, it's going to be, it's going to be critical to have. And that's something that South Dakota has had for nearly nearly 30 years, right? They were one of the first states to have, I think, maybe the second state to have a directed trust statute. And so the whole legislature and the executive branch and the judiciary is familiar with the concept of directed trusts and allows a lot of flexibility for people who are designing trusts to kind of pick and choose who's going to do what, right? We need some connection to South Dakota to be able to have a South Dakota trust, but I don't necessarily have to turn over that control over the investments to my South Dakota trustee because of this power of direction that I can either retain or or give to someone else that I trust. Yeah, I think one thing that keeps, you know, coming from building into the space for for a while now, realizing there's nothing real new under the sun. So you wrench and pick one as property. This notion of directed trust, investment director, you know, I was taking a step back from Bitcoin. You can imagine anybody that was a specialist in their field and made capital in some way and they gave their wife or family the assets. They may not have the same appreciation or understanding of how to manage those assets. So it'd make complete sense for them to give it if it was textile manufactured and it was a textile business or whatever it is to hand it in the same way that we're describing here as the individual, maybe the director that's still alive to move those assets because they understand the asset. They understand where, you know, when they want to sell, whatever the case might be that a lot of individuals would not have because we were only been 15 years in this asset class. So I think that's just an important distinction to call out that this isn't necessarily just because of Bitcoin. This is related to just trust law and managing well. That's right. I mean, one of the one of my favorite things to talk about when I'm talking about investment, investment directed trust is a lot of people that we deal with are entrepreneurs, right? And they've built their wealth doing something that they've gotten good at doing, right? And now their business is growing, right? It's not the Bitcoin acorn, it's the textile manufacturing acorn or the real estate development acorn or the what you know, fill in the blank. It's their business, right, which has has accumulated some momentum and now they want to put that in an irrevocable trust because it's growing so quickly. But Paul and I don't know about how to run a textile manufacturer, right. We know how to administer trusts. And so a really nice tool for those people to use again, whether they're holding Bitcoin or some other specialty type asset is, hey, I don't want David and Paul to be managing my business. I want them to be running my trust, right? And not only that, one of the things that as a trustee that we're thinking about a lot is diversification, right? But if what goes into our trust is a as a big pile of stock in one company, right, that's closely held, that's the reason the trust was created, right? Hey, the reason the trust is created is because, you know, I have a bunch of Bitcoin and it's concentrated and that's what I want, right? I don't want a trustee to immediately diversify out of my business or out of my position in Bitcoin. I want to be able to control that, right? That's a level of control I'm not willing to give up or it's not wise to give up. And so I'm going to carve that out and let my director handle that aspect of the trust administration. So if you're looking to get more information, we did publish a report with First Covenant. It just came out with the launch of these trust products. And in this report, you can find more information and also case studies about the benefits of setting up a dynasty trust in South Dakota and really blending that with the foundation of multi institution custody. So some of the information you can find in here goes into tax avoidance. So mitigating that 40% tax bill at the federal level, privacy and confidentiality, investment control and direction. So still having control of your Bitcoin in the trust and then also asset protection from things like creditors. So if you want to check that out, just hit the link down below and you'll be able to download this report, flip through it, review in detail. And then of course, if you have any additional questions, you can reach out to me directly Jackson at on rampbitcoin.com or you can book a consultation directly on our website. Hope you enjoy the rest of this episode. Yep. Real quick, Paul, on your side, can you describe it a little bit from your take on what makes this solution a little bit different or special than the market? Because I do think it's fair that from my experience, something like this has existed, but it is, is existed in two, two things that are just left a lot to be wanted by the market. 1 is they're good friends of mine, but they offer these kind of services. But they're generally for folks that have over 50 to $100 million in assets, like just to get out of bed, it's about $100 million. And then the other one is they're generally are going to give up the underlying asset BTC, it's going to end up at Anchorage like full stop. They're going to give it to a third party custodian. That's what they say they have to do. And that also becomes a very like a big barrier for a lot of individuals. So Paul, just curious if that resonates or any anything you can explain around multi institution and really be one of those missing pieces for all of this? Yeah, sure. You know, there's lots of different ways to structure these and to accomplish these goals where you, you retain the investment control over the trust assets. And so it can be as simple or as complicated as you want to make it. You know, we've certainly seen, you know, that this LLC holds the assets and this other LLC manages that LLC And you know, all the LL CS are owned by the trust. And you know, again, lots of ways to do it. But I think what we're looking at is, is a little bit simpler and, and you know, more easily private structure where, you know, it's really made possible just with technology. So we, we're going to own Bitcoin in the trust. We're going to give the, the Grand Tour of the trust or, or the the investment director of their choosing. So if you create one of these trusts and you put your Bitcoin in the trust, you can name yourself as the investment director and keep that control. Maybe you know, you're health is not great, but your brother's phenomenal. You can name your brother. Maybe you've got a great relationship with your wealth management firm and and they're they have a unique approach with Bitcoin and understand that and you want to name them. So whoever you want to name is the investment director, you do, but we're holding this Bitcoin directly in the trust using multi institution custody where it's verifiable on chain and rather than these complicated LLC holds an LLC holds Bitcoin, all of it owned by trust. You still have to take a hard look at how are the private keys maintained? And I think that is a huge, you know, I don't care if you've got 10 LLCS, at the end of the day, one of them's got Bitcoin and and somebody's got to take care of the private keys and how is that being done? And that's where I think the multi institution custody comes through, as, you know, just the right choice for a fiduciary that wants to sit on millions of dollars in Bitcoin for the benefit of, of the beneficiaries of the trust. I mean, that's their job. And so it's to me, it's, it's simpler because I don't have to have 10 LLCS to get to privacy. I mean, that's one of the reasons you do that. We when we put these assets in the trust, the trusts are automatically private. And if there ever was litigation over, you know, trust assets, you know those documents are automatically sealed in South Dakota. So we don't have to go to these great links of layering LLC upon LLC upon LLC. We can hold assets in the trust directly. You as the investment director can retain control over the investment strategy. Do you want to borrow against the Bitcoin? Do you have other portfolio assets, privately held businesses, private placements, option strategies, whatever you want to do with, with all of your trust assets, you keep that control. But I think a huge, a huge undertone is how are the private keys managed? And that's where we're, you know, happy to be with on ramp and multi institution custody because it just, it gives that fault tolerance. It gives the on chain transparency and and we're not having to set up, you know, for LLCS in different states to get there and to get that privacy. Yeah, this goes bi directionally as well. We haven't really talked deeply about it, but whether it's a trust planning or IRA's, there's usually fragmentation of the space because you have the Trust Company, the qualified custodian. They ultimately don't have necessarily the technical jobs for Bitcoin. So they sub custodian and out and then that's, and it's a single custodian and that's when you see the prime trust fortress trust situations. And so this natural version of redundancy and fault tolerance hasn't necessarily been mirrored there. And so I think as more trust companies start to recognize that they can offer services while also not being susceptible to who the third party custodian is and do they lose the assets, it's going to just bring a lot more adoption across the board because that's a big like we're still so early that custody in the digital asset space is looked at as like secondary for most people. So when they get into it, they're like, oh, we'll just park it wherever. But it's actually, it is the most important thing when you think about the underline and it is just data has to be treated a little bit differently. So I think this is we're excited to see kind of where this goes as well from interest from just anywhere across the board when it comes to, you know, regulated trust companies looking to do things the right way. Yeah, I mean, it's hard to to really do that justice because Bitcoin is such a unique asset class from an ownership and custody perspective. And so you can't really apply what was just said to, you know, a typical portfolio or traditional assets, right? I think of a property as an example, a home or some sort of commercial property. And just because like some paperwork associated with that property is not properly backed up or missing doesn't mean that the ownership of the asset or the asset itself cease to exist. You can imagine with Bitcoin, if the private keys to that Bitcoin are are compromised or lost, it's irrecoverable. And so when you're thinking about long term ownership of this asset, it really is a non negotiable to to not have a single point of failure with your Bitcoin custody. And so that's why to Michael's point and Paul, yours as well, I think there's been, you know, a hesitant hesitancy from investors to step into these types of trust structures because it's ultimately had to require them to also give up both investment control of the asset, but also total control of the asset from a custody perspective too. And so when you pair those two things together, a lot of people just weren't comfortable with those trade-offs. And that's why I think it's really remarkable here what between the two firms we've been able to accomplish. And ultimately, you know, just in those two weeks since we initially launched, it's been really great from a feedback perspective. And Paul, I know we've been on a lot of conversations just last week. Yeah, it's been incredible to see the the inbound demand. I will I would never, you know, kill a confidence in a a friendly conversation. But I was sending these we we've been around for a while. So we know folks that have sizable material amounts of it quitting the cherry and this stuff with them. And one of the common thoughts where it came back was like, I'm I'm more like a Tony Soprano duffel bag, you know, in the in the wall kind of guy. And that's like, look, just just look at it. This is what I, you know, initially thought, but not only look at this, but the reality that I think most people has missed. And I know, David, this would be a little bit funny to you, but it's like there's a lot of people holding Bitcoin that expect like the state or the tax like apparatus to just go away, like eventually just to die off. And not saying that won't or will happen, but it's just the notion that that'll eventually happen and then your Bitcoin won't have any kind of tax basis and you'll be free to do it all. And the reality is you're probably going to want to spend your Bitcoin before that happens. And it's going to be such a large amount that it will move. It won't move markets, but it'll move whatever whoever's monitoring it, right? Whether you're buying something of of size, somebody's going to ask where is the provenance in that capital came from? Or there's enough like chain analysis and things that if any kind of bitcoins moving, they're going to be able to tie something back to somebody. So point mean is that this is just a real like fundamental planning or you're just not going to really be able to move your Bitcoin or there's going to be like repercussions if you don't figure it out now, because where we all know this asset's growing, it's going to mean that we have material balances and you're going to want to plan ahead of any, you know, tax consequences. You know, one, one thing we've been talking about that I just think is a, it's a great parallel to think about these dynasty trusts is when you create that trust, you're, you're creating the protocol for, for what happens with your Bitcoin when you're not around anymore. I mean, regardless of what you think happens at the sovereign level, you're probably going to die. And so you know what, what governs what governs your, your Bitcoin after you're gone. And so with these trusts, you've got the ability to set up a protocol and set up mechanisms that, you know, allow for succession, whether that's the investment director role, the investment control, maybe a distribution director, a trust protector. You know, you're setting that protocol. And it's just, it's kind of similar to Bitcoin in a sense, right? I mean, Bitcoin was created with this protocol that that kind of self governing. And you know, nobody's at the helm steering the ship. It's got protocol. And so I view the trust in a similar way. It's it's very parallel, very parallel, I guess example. But you know, you name the trustee, you name the investment director, the trust protector, you know, those are the nodes that are that are validating the transactions against the protocol you set out that are making sure that what happens with those assets matches the protocol. So just think that's an interesting way to think about it because, you know, regardless of where everything goes, you know, if you have a lot of Bitcoin, it's going to outlive you. And so how do you want it governed after you're gone? And, and how do you want it custody and how do you want it held and how do you want it spent? And how do you want it borrowed against or invested or what else do you want done with it? You know, you have the ability to kind of set that up up front in a way that can maybe be modified, you know, similar to maybe a fork, but but can't be, you know, totally derailed or, or or changed. Of, you know, planning in general, right? It's people think estate planning, OK, I'm going to get a will done and the will says here's who gets the stuff when I die, right? But if you take that a step further, like Paul's talking about, especially if we're talking about big positions in Bitcoin and not just, OK, here's how much my kids are going to be at. It's, I want this to be in a place where it can benefit my beneficiaries for the next generation, but also the 2nd, 3rd, 4th right on down to the, you know, to the generations or, or charitable, you know, and philanthropic beneficiaries or whatever it is that your legacy vision is for the future, right? And then you, you build that into your state plan. And that's, I think that's what Paul's talking about when he's talking about protocol is here are the boundaries, right? Here's the vision, here are the goals and we can put that in place. And again, right, I think there's this when you're doing the statement real rigid on one side, this is what you're going to do in one. On the other side, here's some principles and guidelines that we want future fiduciaries to adhere to, right? Somewhere on that spectrum, you design your protocol. And, and now we've, we've got some flexibility, right? We've got some structure as well, like the skyscrapers, right? They they sway a little bit when when we've got a, an earthquake, but they don't crumble, right? Because they're built to last. And we want these trusted people to last. We want that division to be encoded into the DNA statement for the benefit of whoever it is. Yeah, maybe you spend it all and it doesn't matter. But if you don't, right? There's a lot of hypotheticals out there that may or may not happen, but one that is more of a question of when and not if is grantor dies, right? That's going to happen at some point. It may be soon, it may be a long time from now, but it very like very likely that that's going to happen at some point. And thinking through those ideas and plans of what is the goal for this long term, isn't it is maybe one of the more difficult pieces of estate planning, right? The tax rules are what they are. Trust laws are what they are. But if you don't know what you want, right, it's hard to get that into that protocol, to define it and put some some syntax around that and instruct the future fiduciaries to make sure that you're are achieved. Yeah, I think this reminds me, we talked about it last pot is like a as a no brainer. It reminds me of Bitcoin in the sense like if you've heard about Bitcoin or you understood you're like, well, it's a no brainer, I should buy it. And this is like the derivative of that. It's like once you get it, it's like, well, then you got to protect it. And it also just I think this is early in the same way, this is like buying Bitcoin at 10 bucks or $100 in the sense that we're early, first covenants early on ramps early, but this will just be a standard. I think you guys can probably see this is like if Bitcoin is going to continue to persist and grow in value, will these products and services will naturally grow. And it's just mainly because of a lot of the, when you're breaking down, David, some of the codifying the trust and, and also you, Paul, there's a no shortage of amazing reports that the team's been working on. There's some that aren't out yet that really go back to hundreds of years of like where trust came from, how they've been managed and no shortage of very wealthy individuals that are public out there that have managed their assets via trust. I haven't read it yet, but there was a link that was sent to me about the Rolex family as well, like managing all of that in the, in a trust. So I think I, I share that mainly to, to this isn't related to Bitcoin. This isn't related to, I mean it is in some capacity, but this is, these are things that have have been around for hundreds of years and they're just the way you protect assets. One question that I wanted maybe Paul or David to just hit on that it comes up a lot is around the client needing to be in South Dakota and then a lot of attorneys just feeling a little apprehensive or just saying like maybe they don't need it. I think that's something we've could naturally seen just on the a few initial calls I think some of you were on that you could just touch on like how it works. And so individuals don't necessarily have to use this, but at least they know to be prepared because that's what we found. Unless the individual is really willing and wanting to do something like this, their traditional attorney or their traditional kind of, you know, whoever they're working with is going to be a little bit apprehensive at best on trying to set up a structure like this. Yeah. I think that's where, you know, mostly what, what we've seen with with clients that, that want to get this set up, you know, some of them have a, you know, a good local attorney, some don't have any, you know, legal relationship. But generally what we would do there if they had that local attorney is, is we're going to plug a South Dakota attorney in and just make that introduction where the South Dakota attorney can draft the dynasty trust. They can put the South Dakota investment direction provisions and language into the document, decanting provisions, other things that that they would be uniquely qualified to do. And you know, that doesn't replace the local attorney. You know that in most cases where you've got that local attorney, they're, they're still doing your will and your revocable living trust. Like David mentioned, power of attorney documents, they're doing that. The South Dakota attorney comes in and and is able to put this together and it doesn't have to be in conjunction with the local attorney. We can set people up just to set up this out to go to trust and be done. If that if they're, you know, back to Jackson's point about urgency, you know, if you knew Bitcoin was going to 10X in the next 12 to 24 months, you'd need to do this right now, right? I mean, you want to capture this before the assets have grown, you know, too much. And so if you know that that next valuation is coming in the privately held sense, then then you would want to do this now. And so you could just set up the South Dakota Trust where we're just working with South Dakota attorney, we're just getting that document done or we can work with the local attorney. It's going to be few and far between that the local attorney say in Texas or North Carolina or wherever Massachusetts is also licensed in South Dakota and has expertise on these directed tracks. That's going to be unlikely that we run into that. So David, I don't know if there's anything you want to add to that, but. The best possible scenario is collaboration, right? Because the South Dakota attorney knows federal tax law. He or she knows the, you know, all the sort of tools that we have in our South Dakota toolbox, but may not be well versed in Massachusetts estate tax, right? Or the insurance and outs of some wrinkle that another jurisdiction has that South Dakota doesn't have, where a local attorney may not know all the other stuff that happens in South Dakota, but knows their own state really well. So the best, you know, the best answer is we get multiple people looking at this right from their own perspective. And there can be some, you know, Michael, you were talking about reticence of a local attorney to, you know, to do some of this. And some of it's just this is not what I know, right? And so there's there's kind of that I don't want to wade out into something that I don't know. And that and that makes sense. But there's also, you know, legal ethics rules that govern the practice of law that says if you're not licensed in South Dakota, you shouldn't practice law there, right? You shouldn't give advice on South Dakota law if you're not licensed there. And so the, you know, the South Dakota people don't want to practice Texas law and the Texas law don't want to practice South Dakota law. And so that's why this collaboration is really effective because nobody gets out of their boundaries from a, you know, licensure perspective. The client gets the best of both worlds because they're getting advice that's related and relevant to their, you know, their local residential jurisdiction, but also the benefit of the, you know, the benefits of a premier trust jurisdiction like South Dakota, right? And to your point, there needs to be some connection with South Dakota in order to avail yourself of its laws, right? That's kind of one of these constitutional ideas of full faith and credit is each state's going to recognize the laws of another state even if they don't match, right? But in terms of connection to that side, us, if, you know, if you don't happen to have a a brother or an uncle or a niece or somebody that lives in South Dakota, you need a professional trustee, right? And we've talked about a lot of reasons why that makes sense in this context anyway. But if you have that right, if you're working with First Covenant as your trustee, all these tools that exist in South Dakota that may or may not exist in other places or certainly don't exist in the same combination become available right for your planning wherever you happen to be. I know we got a wrap here soon. I think it would just be helpful as well. Just quickly, Paul, if you could touch on just the cost to set this up upfront, because I think there is this perception of I need 100 million or I need $50 million for this to be worthwhile. And the reality is that you don't need to be anywhere close to 100 or 50 million. So Paul, if you could speak to just ballpark where we typically see those costs, I think that'll be helpful as people, you know, think through the next steps for their trust and estates plan. Sure. Yeah. And you know, disclaimer there, you know, there's no set up charges on the on ramp side or the covenant side to get this set up. Your, your setup costs are basically those attorney costs. And so I don't want to give, you know, 2 detailed numbers, depends what attorney you work with, how complex your plan is. But as a general range, just to set up a South Dakota dynasty trust, I would say a good range is somewhere between 5 and 15,000. Most of the time we're going to be under 10,000 with those attorneys. It's not impossible that it would be more than that, but I would say most of the time we're under $10,000 in that 5 to 15 band, you know, depends how fast you go, but could be set up in, you know, weeks, not months. So it's not something that that is, you know, you can check out online and buy it. It does take a little bit of time and, and, and a commitment, but you know, not not overly expensive to, to start. And I think as far as asset size, you know, all of the tax laws in, in terms of dollars. And so whether you've got, you know, 10 Bitcoin or 20 Bitcoin or or five Bitcoin or 50 Bitcoin or 500 Bitcoin, as Bitcoin continues to appreciate, you're going to keep running up the bands of the tax law. And so, you know, you could be maybe a couple $1,000,000 between Bitcoin and portfolio assets and real estate. And it you like what we're talking about and you you're you're bullish about your Bitcoin position and or other assets and you want to take advantage of some of these structures. So I would say that, you know, this could be done for, you know, with somebody with as little as, you know, a couple $1,000,000, you know, and then as we go higher that that estate tax planning becomes more imminent, you know, at $2,000,000, that's not an imminent thing. It's Bitcoin 10X's now you're at 20 million and it is. And so that's why I think again, we, we, we can't really think in terms of how many Bitcoin does this make sense for. It's really how much is it worth in in relativity to the tax law? Just a quick break, if you're enjoying this episode, could you please leave a like? Please subscribe, leave a comment. We'd love to hear your feedback, your thoughts on the episode. We do spend a lot of time reaching out to guests, recording, preparing, editing, distributing all the podcasts. It does take time. It's a lot of work. And if you could just show a token of your appreciation, please rate the show 5 stars on Spotify or Apple. Subscribe if you haven't done so already on YouTube. And if you could leave a like, again, really appreciate it, the likes and comments, the help with the algorithm helps to get our message out there more. And so if you enjoy the content and think other people should hear it as well, just please do us a favor. I really appreciate it and hope you enjoyed the rest of the episode. Well said, well said. Well, gentlemen, I know we have to wrap here. Any final thoughts from the group before we close it out today? What I realized is we didn't go over any of the actual implementation of it, but there's something to explaining the asset today, what you getting into the trust ultimately means once the price appreciates and then there's potential death taxes and then also the lending. You know, so as far as mechanics, you know, starting with that attorney and that that introduction, you know, we do that. We get your trust set up. You, you name yourself the investment director, you know, first covenant opens that account with on ramp multi institutional custody in the name of your trust, and then you are transferring Bitcoin into that trust. And if there's other assets, portfolio assets, privately health, whatever, we can help you with that. And at that point, that trust is funded and that's that matters when we get that done, because you know, how much were those assets worth when you transferred them into the trust? We've got a, you know, next year a $15 million gift tax exemption. So we can use that. We can also sell assets into the trust and that's something, you know, we wanted to talk about a little bit. So let's just say that you gift a few $1,000,000 into your dynasty trust for your wife and kids, but then you also sell an additional few $1,000,000 into that that same trust. And you might, you might, you know, be scratching your head, you know, sell into the trust. How does the trust buy it? Are there tax implications? In short, the trust gives you a note back for that, for that purchase. So let's just say that you sold, you know, 20 Bitcoin into the trust and you take a promissory note back. There's no tax implications on that sale because it's your grant or trust. It's kind of a disregarded transaction for, for income tax purposes. The, the Bitcoin is now in the trust. And so hopefully you do that before the next 10X, right? So the next 10X happens and all of that growth is happening inside of your trust, not in your taxable estate. Meanwhile, what's in your taxable estate? It's that receivable? It's that promissory note. That could be a $2,000,000 promissory note. That could be a $20 million promissory note. That could be $100 million promissory note. Just how much Bitcoin did you sell to the trust? That's what the notes worth. And so let's just say that that's a $20 million promissory note. So that's in your taxable estate. Meanwhile, 20 million of Bitcoin is in the trust. If we get that 10X, now the trust has $200 million worth of Bitcoin. Your taxable estate's just 20 and so we've we've frozen the size of your taxable estate. But not only that, that note is a mechanism by which we can get liquidity back to you. Maybe you're living on a half million, $1,000,000 a year. Well, we can send that money to you. And when we do that, we're paying down that note. And so, you know, let's just say 20 years go by and you pass away. We've maybe paid that note down to 10 million. Your trust is now worth 400 million. None of that 400 million is taxed. The only thing that's taxed is whatever is left on that note in your taxable estate, let's say 10 million. So now I'm out the door with a $4 million estate tax instead of $160 million estate bill, estate tax bill. So you know, from a timing standpoint, we want to we want to get the assets into the trust before the next big hockey stick move. And and even if it's after depend on what's going on, you still can sell into that trust. Take a note back. That's one way to tap liquidity. Another thing that we've we've looked at and, and we'll be putting a piece out on soon that's super powerful is the ability for the trust to borrow against the Bitcoin. And I think we want to approach that, you know, conservatively with a, with a, with a small loan to value. We don't want to get, you know, over over leveraged by any means, but if we had a substantial amount of Bitcoin in the dynasty trust, we can collateralize, we can borrow against it to generate cash, maybe to be used to pay down that promissory note or to make distributions to other beneficiaries, your wife, kids, what have you. But in, in doing that, in borrowing gets the Bitcoin to to fund annual note payments or annual lending expenses or distributions to beneficiaries. By doing that, we're able to not pay capital gains tax. We're able to not sell Bitcoin. And so we can continue to compound our Bitcoin stack. If that's 20 Bitcoin, 100 Bitcoin, 500 Bitcoin, whatever that is, we're able to not sell that as it continues to appreciate. And then, you know, maybe a piece for another podcast, but we can leverage things like general power of appointment at the death of the beneficiaries to allocate some of Bitcoin, you know, to your estate tax exemption to get a step up in basis, pay that note off. In effect, we can set this up where we dodge estate taxes forever in a perpetual dynasty trust. And by using Bitcoin to borrow against, we're able to dodge income taxes in perpetuity as well. So really powerful structures. If you don't like paying taxes, there's, there's lots of things we can do. So Michael, I don't know if that covered all the things you had in mind there, but just some, some, some levers. We've looked at some really powerful tools. It was incredible. I think we might end up having to splice it and just start the beginning of the show like that. So then everyone's interested in the actual mechanics of how it works. But we'll we'll figure it out. But no, that was that was very well said Paul. Well, David and Paul, thank you very much for the time today. Excited for this partnership and appreciative of you both taking an hour out of the start of your week on a Monday morning to go through a lot of the mechanics, a lot of the foundational things that people need to know as they think through this next leg of state planning here. Thanks for having us guys. Thank you. Thanks for listening to this week's episode of the show. If you found the information valuable, please share the episode with a friend or leave a rating on your favorite podcast app. All the links we discussed in today's show will be in the show notes inside your podcast app. Before we finish, a quick reminder that Onramp Media is for informational and entertainment purposes only, and nothing should be construed as investment or legal advice. Regardless of where you are on your Bitcoin journey, we'd love to hear from you. Visit onrampbitcoin.com contact to schedule a consultation with one of our private client advisors.
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