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  • The benefits of trusts

    There have been several threads here about estate planning recently and, coincidentally, trust and estate planning has been a hot topic with our clients over the last month. So, I thought it might be helpful to write an article on the various ways a trust can be useful (not just for estate planning). I hope you find some of the pointers applicable to your financial planning needs.

    [Here's an excerpt:
    What kinds of trusts do I need to know about? There are many ways of classifying trusts. For the purpose of simplicity in this brief article, I’ve decided to divide trusts into two broad categories:



    • A revocable trust, also called a “living trust” can be altered or terminated during the Grantor’s lifetime. The Grantor, the Trustee and the Beneficiary can be the same person. Because the assets in a revocable trust do not go through probate, they are sometimes used for privacy and to help smooth the transition process after you die. Assets in a revocable trust do notreduce the value of your estate and, therefore, are not protected in a lawsuit.



    • An irrevocable trust cannot be amended without the beneficiary’s permission. By setting up and funding an irrevocable trust, you are transferring assets to a separate legal entity to be managed by a third party. Irrevocable trusts are commonly used for asset protection and estate planning.]



     

    [Post edited due to violation of forum policy (too promotional). As a reminder, forum policies can be found here: https://www.whitecoatinvestor.com/forums/topic/attention-new-posters-read-before-posting/ and the relevant one is cited:

    It is okay to place a link to your site or your business in your signature, but it is not okay to publish posts or comments primarily as a method of soliciting business nor to send out multiple private messages soliciting business.

    Encouraging forum participants to sign-up for your email list crosses an admittedly gray line.]

     
    Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

  • #2
    Good review and overview!   May want to add that probate does cost some $ and can hang up the proceeds for a year or more where Living Trusts helps guide that though relatively easy.

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    • #3
      I already wrote 2 articles on this on my site...I used Legal Zoom. It worked pretty well and it was mainly to avoid probate on my home if I bite the dust.

      Comment


      • #4




        Good review and overview!   May want to add that probate does cost some $ and can hang up the proceeds for a year or more where Living Trusts helps guide that though relatively easy.
        Click to expand...


        Agreed. That is why I mention that probate varies from state to state. In some states (such as KY), it is relatively simple and the process can be completed in a matter of weeks or a few months. In others (NY is such a state), the costs and complexity indicate the use of a living trust. Another consideration is that the state you live in now may very well not be the state of residence at death. You could pay $3k - $5k+ to set up living trusts and then retire in a state with a very simple probate process.

        As Michelle discusses in the related video, living trusts come with their own set of issues, and the rules are not always adhered to. In parrticular, assets that go into the trust must be re-titled and it is common for the grantors to not follow through with this process. This leaves the trust "unfunded", negating the benefits.
        Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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        • #5
          So true, an empty trust is just that.   In name only with no benefit.   A competent lawyer would never let you leave the office without those title changes and bank account requests along with beneficiaries signed and submitted for you.

           

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          • #6


            A competent lawyer would never let you leave the office without those title changes and bank account requests along with beneficiaries signed and submitted for you.
            Click to expand...


            ...and finding a competent lawyer can be just as difficult as finding a competent financial planner. Competent being, of course, the bare minimum in a professional.
            Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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            • #7
              Meh, it would be worthwhile to mention the tax treatment of irrevocable trusts and the (small) marginal increase in asset protection compare to qualified funds & homestead exemptions.

              You lose control of the assets.  In exchange, you have to pay a professional trustee ongoing fees, likely accept lower returns, and pay taxes at the 1041 rate.

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              • #8




                So true, an empty trust is just that.   In name only with no benefit.   A competent lawyer would never let you leave the office without those title changes and bank account requests along with beneficiaries signed and submitted for you.

                 
                Click to expand...


                Even worse, in some states a trust may be invalid unless it has assets upon creation, such that future transfers and retitling to said empty trust isn't even a completed gift, since the trust was invalid upon creation.  And generally this isn't discovered until a probate court or the tax man unravels this many, many years down the road.

                Comment


                • #9
                  With regard to irrevocable trust, I thought Grantor has complete freedom to move assets in/out at his discretion with no input from beneficiaries. I thought it becomes irrevocable at death of Grantor. Do titles and accounts have to be retitled at time of creation of Trust or at death of Grantor?

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                  • #10


                    With regard to irrevocable trust, I thought Grantor has complete freedom to move assets in/out at his discretion with no input from beneficiaries.
                    Click to expand...


                    You are describing a revocable trust, which becomes irrevocable at death. It is possible, however, to set up an irrevocable trust in your lifetime, rather than simply via the LWT. A revocable trust is permanent,  no matter when you set it up (dead or alive).
                    Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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                    • #11
                      OK, I'm floundering here. My spouse and I set up Revocable Living Trust 11 years ago. My thinking was my spouse and I have complete control to modify things while we're BOTH alive with respect to our Trust. The reason I'm asking about this distinction is because I'm suggesting to my parents that they set up an Irrevocable Trust to eventually shield my only sibling from creditors after our last parent is gone, provide for sibling's retirement post nasty divorce and sibling's offspring education. Without assets from Irrevocable Trust, I'm worried that any other structure will enrich my sibling's creditors and random attorneys. My parents suggested 50/50 but my family doesn't need their assets and my sibling could use a hand, eventually. We're hashing this through now. I'm only grateful that our father seems to be on the same page in meeting objectives. Also, my sibling while a physician, knows zippity doo dah re: any financial matters. Thanks for clarifying these not so basic concepts. I've done tons of reading on the internet but I'm not sure any of it is sticking. I see you're in Kentucky. Is there a directory that you respect so that I could possibly consult an estate attorney Florida West Coast. Looks like you participate nationally, anyone you'd personally recommend?

                      Also, thank-you for article of 6/2017. Very informative. Forwarded to my parents.

                      Comment


                      • #12


                        I already wrote 2 articles on this on my site…I used Legal Zoom. It worked pretty well and it was mainly to avoid probate on my home if I bite the dust.
                        Click to expand...


                        You won't know if it worked pretty well until after you die.

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                        • #13
                          Well said, but then I won't care. So the reality is that my beneficiaries won't know if it worked until I died, but I suppose that can be true with anything.

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                          • #14




                            OK, I’m floundering here. My spouse and I set up Revocable Living Trust 11 years ago. My thinking was my spouse and I have complete control to modify things while we’re BOTH alive with respect to our Trust. The reason I’m asking about this distinction is because I’m suggesting to my parents that they set up an Irrevocable Trust to eventually shield my only sibling from creditors after our last parent is gone, provide for sibling’s retirement post nasty divorce and sibling’s offspring education. Without assets from Irrevocable Trust, I’m worried that any other structure will enrich my sibling’s creditors and random attorneys. My parents suggested 50/50 but my family doesn’t need their assets and my sibling could use a hand, eventually. We’re hashing this through now. I’m only grateful that our father seems to be on the same page in meeting objectives. Also, my sibling while a physician, knows zippity doo dah re: any financial matters. Thanks for clarifying these not so basic concepts. I’ve done tons of reading on the internet but I’m not sure any of it is sticking. I see you’re in Kentucky. Is there a directory that you respect so that I could possibly consult an estate attorney Florida West Coast. Looks like you participate nationally, anyone you’d personally recommend?

                            Also, thank-you for article of 6/2017. Very informative. Forwarded to my parents.
                            Click to expand...


                            A properly structured Revocable Living Trust should include the evil-Step-mother situation.  This happens with spouse #1 passes and locks in the proceeds to the named Beneficiaries.

                            A good start would be to get your sibling reading this site and  a good financial advisor from here.

                            Comment


                            • #15


                              Well said, but then I won’t care.
                              Click to expand...


                              If you don't care whether or not your estate gets to the right people, and if you don't care if your estate avoids unnecessary taxes, then it's certainly ok with me.

                              However, if you want to maximize your assets, and make sure that your wishes are carried out, I would pay an estate attorney, ie someone who does this for a living, to do this for you.

                              As it happens, I am very concerned that my spouse and my kids get as much of my estate as possible and pay as little in estate taxes as possible.  I want to make sure that my kids' money is protected against the actions of a future step parent, and I want to make sure that their money will be  protected from the actions of their guardians.

                              I just spent a few thousand dollars having this done, and in my opinion this was money well spent.  It's easy to fill out the forms from Legal Zoom.  The problem is knowing which forms you need.  You don't know what you don't know, and  if you do it yourself you will never find out, but your heirs may suffer.

                              The attorney also advised me against trying to do certain things that I wanted to do, and steered me towards other choices. He litigates other peoples wills and trusts on a regular basis, and has seen other people's mistakes.  I felt that it would be foolish of me to assume that his knowledge is superfluous.  I learned a lot in my meetings with my estate attorney.  Lots of small issues came up.  Special language needed to be used to set up sub-trusts for minors to have stretch IRAs, for example.  This also required back and forth with Fidelity on how to title these, etc.  Many more issues came up which I won't list.  Suffice it to say that I would have been blissfully ignorant had I done it myself, but my children would have suffered.

                              On the other hand, I DIY my investing.  I think I have an advantage over most financial planners, in that I have more actual experience in investing than almost all of them.  I have had decades to learn about finance, and I know that no mistake I make is likely to have devastating or permanent impact.  But a mistake in a will or trust can have a major devastating permanent impact on my children's future.

                               

                               

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