MtoM #274: How This Doctor Became Mortgage-Free Using Geographic Arbitrage

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All right, we have a fantastic interview today. I love having unique milestones to millionaire episodes, and this one's definitely unique. My guest today on the Milestones to Millionaire podcast is Chelsea. Chelsea, welcome to the podcast.

And then they either run into fertility issues or the only, you know, biological clock only allows them to have one or two kids and they wish they had more. Uh tell us about the the financial challenge then.

We just had to prioritize as a couple, you know, we decided early on that we wanted to raise our own kids and not rely on full time childcare. So that meant My husband stayed home while I was in residency and we have both worked part-time since I got out of residency and just kind of set up our lives in a way that one of us is always here with the kids.

financially, you know, we've always bought old cars and used kids' clothes and our vacations are usually driving somewhere and staying in a hotel for a night or two and You know, we eat a lot of beans and noodles and cheap foods. We don't really go out much, but it's it's worked out. We're really happy.

factor was deciding a year ago to move from where we were living, which was turning into a higher and higher cost of living area, to the Midwest. You know, we we did some geographic arbitrage as you call it and kinda did the math of how much we could sell our home for and how much we could buy land and a home for out here and it just

made financial sense. And so we sold our home for more than twice as much as we bought it for seven years later and then moved here and were able to pay cash for a home and fifty acres and no more mortgage.

Right now nothing's invested very aggressively with what the stock market's doing. So we're just kinda sitting in cash and waiting'til everything settles down. But I leave a lot of that to him.

Which made me feel old. But anyway, so we took the pension payout and just plugged that into our investment accounts and they're letting it grow on on our terms instead of on their terms.

I think open communication with your spouse or partner is super important. You know, my husband basically had to give up his dream of becoming a judge or climbing up high in the legal profession so he could stay home while I was in residency and I've had to make job decisions, you know, to work part time and not seek leadership opportunities because I want to be home with my kids and

And really find that work-life balance that both of us are are happy with and just kind of checking in with each other often to say, is this working for you? Should I be picking up more shifts? Should I be taking less shifts? So I think that open communication is important. And then being open to perhaps moving somewhere where it's not so expensive to live. It was a life changing decision for us. And I'm I'm really happy with with our choice.

Right. You've given up income to have more time so you can spend that with your family. Do you anticipate that changing down the road? A as kids start leaving home, as kids are, you know, old enough to all be in school, do you expect that uh you'll be working more later?

Do you think they're right? Do you think kids have to cost that much? I mean, you're raising eight of them. You should, you know, have pretty good idea what it actually costs to to raise a kid. Do you expect that each of your kids is are gonna cost that much? I mean in sum total that would be something like you know, two to three million dollars uh i is what they would cost i if these studies are right.

Some of it is choosing what you are and are not going to fund for your kids. Like we haven't done private schools, we haven't done expensive vacations, we don't buy name brands. stuff. We don't plan on paying for all of college. We're hoping to make, you know, a contribution towards college, but it's it I think it's kind of choosing You can choose how expensive you want it to be to raise a kid, I guess is how I would answer your question.

something in that ballpark. It's also been really important to us to give back generously. You know, we give uh to a lot of causes and that are important to us. And so being able to keep ourselves in a position where we can continue to contribute to those causes is important.

And that enabled them to have they've got a good income, right? There's nothing wrong with the income they have. You know, that's more than twice the income I had as an attending physician when I was in the military. Uh you can certainly live a very nice financial life on that income. but it allows them both to work part time. How many of you out there would love

to all both be working part time and be able to afford your lifestyle, right? Yeah, they've got a lot of kids. This isn't terribly unusual to somebody who lives In Utah, like me, right? I mean, uh, we've got four kids. The family next door has six, the family next to them has four, the family next to them has four. There's one down the street with thirteen, right? So large families aren't terribly unusual around here, even if they are.

uh, you know, a little smaller on average than they used to be and certainly smaller than the average family in the country. I think we're below replacement rate right now. I think the average family's something like one point six kids. So You know, it it is unusual to have a a family with eight kids, but I'll tell you what.

There are none of my kids I regret having. They're wonderful. And maybe if I'd had twice as many, I'd be happier. I don't know. It certainly would be challenging uh in a lot of ways, and not least of which is financially. Right. I've always been amazed when I see these studies that say how much it costs to raise kids.

And then I talked to white coat investors on this podcast and elsewhere and they're spending thirty or forty thousand dollars a year per kid in private schools and they've got'em in tribal sports and they've got the greatest latest sneakers and they gotta have the the fanciest newest cars. So they have all the safety features in them and I understand why you could spend a gazillion dollars.

per kid, but uh my parents didn't have a gazillion dollars. I was one of six kids. And uh my wife's parents didn't have a gazillion dollars, she was one of six kids as well. So clearly you don't have to spend that much in order to have a family. I do think it's important if you want to have a family, especially if you want to have a large family, that you get started before you're done with a medical training pipeline. You just don't have enough time.

Right. If you wait until you've been out of residency for a couple of years, you're probably now Thirty three, thirty five, thirty six years old. Um, you know, maybe you can have one or two kids and then you're gonna need an awful lot of help from our uh MFM friends, you know, helping you to get pregnant. That's just the way the biology works. So if you wanna have a larger family.

You have to get started, at least by the time you're in residency, if not in medical school. I love the uh the moves they made though. I mean, uh you know, there's a lot of places that you can move with what you have now in home equity.

and not have a mortgage. You know, all these people moving from California to Utah, they find out a house here's only eight hundred thousand and they say, Oh, only eight hundred thousand, I'll take two. And uh and that's the way probably when you move from Utah to, you know, Indiana or

Wisconsin or wherever, you know, someplace with an even lower cost of living. It is an option. You don't have to stay in your high cost of living area, especially if there's nothing tying you there. If your job's not, you know, the most incredible job ever, if you don't have a bunch of family there. So there's not some recreational pursuit there that you just can't live without, you know, surfing or something like that.

Um, then consider, you know, a little bit of geographic arbitrage. It's amazing how much progress you can make in your financial goals just by moving a few states over.

Let's talk about revocable trusts. First of all, what is a trust? A trust is an entity that's separate from you. Okay, that can own things, that can do things, that can transact in business. Okay, but it's not you, it's something totally separate, like forming a corporation or an LLC. It's something else.

And any trust has got a beneficiary, any trust has got, you know, somebody running it, a trustee, and any trust has a grantor, somebody who puts the assets into the trust, grants them to the trust. And uh the two main types of trusts are revocable and irrevocable trust. An irrevocable trust, once you put the money in there, the trust owns it and you can't get it back.

That's not the case with a revocable trust. A revocable trust, you can put assets into it. You can pull assets back out the next day. You can put them back in the day after that and pull them out the day after that. You can do this the whole rest of your life if you want to. Uh that's the nice thing about a revocable trust is it's not even close to being permanent, right? You can just move things around. So why would anybody use a revocable trust?

Well the main reason is to avoid probate. What's probate? Well probate is a state specific process for looking at your will and determining where your stuff goes. The beautiful thing about a trust. is that it has its own rules that you write about where those assets go when you die. So it it's not in your will. It's something totally separate. And so the beautiful thing about that is you're can put assets in the trust and those assets don't go through probe.

And this is a state specific process. Some states is more painful and more expensive than others. And uh if you want to avoid that, you want to avoid that expense, you can set up these revocable trusts and put your assets in there at some point before you die. You don't have to do it, you know, years before or decades before. If you know where you're gonna die, you can do it just before then.

and avoid this probate process. Obviously a lot of us don't know when we're going to die and we might get a little bit demented or something before then. So it's probably a good idea to set it up beforehand in those sorts of situations. The other nice thing about avoiding probate is probate is a public process. And so if somebody wants to see what you owned, they can. And uh the nice thing about a trust is that's not a a public process. It's very private. Okay. So most people need a will.

Not everybody needs a trust, but a lot of white coat investors are going to want to avoid probate or have their state avoid probate. And so they're going to put a revocable trust in place at some point before they die.

And uh what point should you put it in place? Well there's no you know, there's no awesome rule of thumb. A lot of people say, well, when your net worth's uh seven figures, you should do it. And there's nothing magic about that rule of thumb, but it's reasonable because it's not you're not doing it right at the very beginning of your career, nor are you waiting until your

already well into retirement before you set it up. So I don't think it's an unreasonable rule of thumb. But the point is you got to put it in place before you die and you don't know when you're going to die. And so that's what you want to be considering when you decide when to set one up. Now what does it cost to set these up? It can be pretty inexpensive. But I'd caution you not to just do it willy-nilly necessarily with an online, you know, uh forum or something.

Uh by the time you're interested in setting up trust for your state plan and you're usually fairly wealthy, you can afford to get good advice. Go to a high quality estate planning attorney in your state. to set up trusts and talk about what else you might need to do. And maybe you want to set up some other things as well. Maybe your will needs revised. Maybe you want to put together, you know, a living will or some of those other documents.

power of attorney and those sorts of things. And that's also the time to look and see if you have a state tax problems and might need to consider some irrevocable trusts or more exotic techniques there. Um, but that's usually the time when people put together revocable trusts as well. And then of course, like any estate planning technique, you want to review it every year or two or three to make sure it still meets your need.

Now how do you find a good estate planning attorney in your state? Well You can start with Google like anybody does and you can interview two or three of them if you like. You can ask for referrals if you know people in your area that have done uh estate planning. You can ask them if they uh liked who they used and

And uh, you know, and and take referrals that way. Um, there's no great database that rates them all or anything like that. So when you interview them, make sure you're asking questions like, is this all you do? Are you doing other types of law as well? How many estate plans have you set up in the last year? How many clients like me do you have? You know, those sorts of questions are the important ones to be asking an estate planning attorney.

Now, you have to fund the trust. Just setting it up doesn't do any good. You have to actually move the assets into them. And the way you do that is by retitling the assets. So if you have a brokerage account that you want in the trust, it has to be not in your name, it has to be in the name of the trust. Likewise, if you want to put your car in the trust, you need to title the car in the name of the trust. Likewise, bank account.

your home, et cetera. They all need to be titled so they're owned by the name of the trust. And that can be a hassle, but it's really silly to spend the money to get a trust set up and never put anything in it. So make sure you fund your trust if you're going to go to the trouble of actually putting them together.

Now, revocable trusts is a general rule. These are passed through entities to you for taxable purposes. Now you can still have some types of irrevocable trusts. You know, they're called intentionally defective grantor trusts. That actually pass through that income to you as well for tax purposes. But pretty much every revocable trust, you just pay the taxes on your personal tax return. You don't have to get into these trusts.

you know, uh tax rates, trust tax returns. After you die, that trust exists separate from you though. And so a trust tax return will need to be filed then and it will be subject to trust tax rates, which can be fairly high on relatively small amounts. of income. So keep that in mind as you set up your trust.

Now a lot of people worry about asset protection, and they think trusts are a great way to keep creditors from being able to get your money. But remember, asset protection is a process that usually requires you to declare bankruptcy to really use most of its techniques. And some states allow you to keep things in bankruptcy that uh that you know you want to keep, like retirement accounts are a very common one. Maxing out your retirement accounts is a great asset protection technique.

You know what is not a great asset protection technique? Putting stuff into a revocable trust. That does not help you. You know, a revocable trust, sometimes called a living trust, is useless. as an asset protection technique. Okay. It's for avoiding probate. It's not for asset protection because if you can revoke it at any time, if you can move the assets out of it at any time.

The judge is going to expect you to do so in the event you have a judgment against you. And if you declare bankruptcy, all of the assets in your revocable trust are going to be accessible to your creditors. So it's nice for state planning purposes, no use in asset protection whatsoever. If you want to think about trusts that help you with asset protection, we're talking about irrevocable trusts with their additional costs and downsides. So keep that in mind.

I hope that's helpful to you as you understand the purposes and benefits of putting together a revocable trust.

This podcast was sponsored by Bob Bayani at Protuity. One listener sent us this review. Bob has been absolutely terrific to work with. He's always quickly and clearly communicated with me by both email or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications and underwriting process in a clear and professional manner.

Contact Bob by calling nine seven three seven seven one nine one zero zero, emailing info at protuity dot com or just going to whitecoatinvestor.com slash protuity to get your disability insurance in place today. Thanks for listening to the Milestones to Millionaire Podcast. If you'd like to be a guest on the podcast, you can go to whitecoatinvestor.com slash milestones and apply today. Thank you so much for what you're doing. We'll see you next time. Keep your head up and your shoulders back.