Looking back over the first 20 years of my career as a financial advisor and meeting with thousands of people, very few strategies or financial products were thought of as “must haves.”
Wills and trusts are the closest thing to it, meaning whenever I asked if they’d thought about them, most everyone told me they had. Despite that, very few people have them.
So, even though most everyone thought wills and trusts are a good idea, they had done nothing about it.
There’s a lot of reasons for that including complexity, cost and access. Fortunately, there are many new providers who are addressing those roadblocks.
You’re here because you’re trying to determine if you should have a family trust. I’m going to help you answer that question and more.
Here’s what I’ll cover:
Before going any further, let’s talk about what a trust is.
A Trust is a legal three-party agreement that allows the first party (the settlor, also may be referenced as trustor or grantor) to give the second party (the trustee) rights to hold assets and property on behalf of and for the benefit of the third party (the Beneficiary). So, you’re the settlor, you select the trustee (often a bank or company) to hold on to your assets and distribute them to your beneficiaries (your loved ones).
Primary benefits of a trust
There are a lot of reasons people set up trusts. They create more certainty, offer more control, provide protections and tax benefits. As we move on, please keep in mind the world of tax and estate planning is complicated, and the right trust for you and your family will depend on your personal situation.
Professional management. This can take several forms. If there are investable assets in the trust, the trustee may provide professional investment management. The trustee may also provide other management services, alleviating any potential burden from the trustor. This can help protect beneficiaries from mismanagement.
There are also a lot of compliance requirements for managing trusts. Designating a professional manager can help alleviate that burden as well.
Tax benefits
Trusts can also provide tax benefits when structured properly. The estate tax rules are constantly changing, and a trust can help to minimize liability.
Depending on the type of trust you select, you may also enjoy additional tax benefits.
Probate avoidance
When someone dies without a trust, their estate goes through the probate process which is a time when creditors can make claims on the assets of the estate. This process can be long and expensive depending on the estate. Having a trust allows you to bypass the probate process.
Asset protection
No matter how smart a child is, it’s not a good idea to give an 18-year-old a bunch of money. Children and grandchildren can be spendthrifts, they often make poor decisions. Some fall victim to substance abuse, and leaving money without a plan can lead to infighting, which can tear a family apart.
Should a beneficiary get divorced, their divorcing spouse would not be able to get money from the trust. Should a beneficiary be sued, the assets of the trust would be protected.
Ensures the completion of your wishes
A trust controls the distribution of assets and is set up in advance. For example, if you have four children and 8 grandchildren, you could decide to leave a certain amount of money to each child and a different amount to each grandchild. You could set parameters for how, when and what the money is to be used for.
Bottom line is this; you can set a trust up to do whatever you’d like.
Questions to ask when thinking about setting up a trust
Why do it?
Estate planning is important for many reasons. One of the biggest reasons is because it makes sense to make the decisions about what you want to happen when you’re gone, while you’re healthy. Waiting until you’re dying to make these decisions can lead to confusion and suboptimal results.
Simply put, planning today ensures your tomorrow turns out just as you want it to.
A properly prepared Estate Plan and trust will lay out your wishes exactly, in the most tax-advantage manner, so you’ll know there won’t be any questions, misunderstandings or misconceptions about what you want. We’ve all seen the movie about heirs fighting over money once someone dies.
Who should do it?
If you own a home, are married or have children, you should consider setting up a trust and going through the estate planning process.
How does it fit into my overall financial situation?
We all go through the same three stages of our financial lives; protection, accumulation and distribution.
During the protection phase, we’re thinking about our cash flow, budgeting, emergency fund, insurances and this is when we’re getting started with our estate planning.
The accumulation phase is when we’re saving money for our financial goals and priorities-think planning for annual vacations, saving for the downpayment on a home or a kid’s college, and long-term retirement planning.
The distribution phase is when we’re getting ready to retire and designing our retirement income. We once again start thinking about our estate planning needs and what we want to happen when we’re no longer here.
How to set up a trust
Get started by taking an inventory of all of your assets and writing all of them down. A pen and paper works, an Excel document is even better.
I really encourage you to think deeply about your overall goals and values. You can access our Goals Course and our Values Course at no cost.
Next, think back to the protection stage of your financial life and do all the things in order to protect your family. Create a budget, manage your cash flow, set up an emergency fund and make sure you’ve got life, health, disability and property and casualty insurance (Money Alignment Academy’s Academy Partners can help).
Next, decide on which aspects of an estate plan you need. If you’re single and just getting started, your needs will be different than an 80 year old worth $100 million.
If you have children, name a guardian. You should speak with the person you decide on to make sure they’re willing and able to perform this important role.
Think about and set your directives. Who will handle your financial matters, how do you want your medical care handled and what are your end of life desires?
Next, name the beneficiaries of your estate.
All that’s left to do at this point is to find a provider (which I’ll get into in just a moment), create your estate plan, get it signed and notarized, decide on and notify the person who will be the executor, decide a safe location to store your documents (fire safe or safe deposit box) and make sure you review them once a year, updating them as necessary.
Finding the right provider
There are a lot of ways to get your estate plan done. Certain parts of it can be DIY’d online by companies like USLegal Forms. I also encourage you to reach out to your human resources department at your work to see if there are any estate planning employee benefits available to you.
The traditional way estate planning has been done is through an attorney. Should you decide to go with this option, I encourage you to ask upfront how much the cost of the process will be. Many attorneys do estate planning for a flat fee.
Finally, I recommend one of our Partners Trust & Will. They are a new breed of company that has risen to fill the increased need for easy to understand, low-cost estate planning. Check them out, I think you’ll find they’re easy to use.
Conclusion
If trusts and estate planning have been on your mind, I hope I’ve given you the right amount of information to move forward. The roadblocks of complexity, cost and access have been removed and the process is fairly straightforward.
That being said, if you’d like some additional help, you can access our Plan Your Estate Course at no cost.
If you’d like to chat with someone who can help you complete your estate plan and get your trust set up, have a no-cost call with one of our Partners.
We’ve also done several episodes of the LifeBlood podcast focused on estate planning and trusts, I’ll list them below.
Resources mentioned
Plan Your Estate Course
Money Alignment Academy’s Academy Partners
Podcast episodes
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