Do You Need a Trust - YouTube

Today's Cardinal Lesson we're talking about  Trusts in Estate Planning. And you know,  

so a Trust I'm all for it, as long as there's  a purpose. And we have people come to us  

that they say, ‘I think I need  a Trust,’ or ‘I need a Trust,  

and I need this kind of Trust because somebody  told me so.’ And so, the first place I'm going,  

what do you want the Trust to do for you? What's  the purpose? And so I'm just going to give you  

a little list, quickly, of what some of the  things you could accomplish with the Trust:  

is you know if you wanted to manage your Money  and your Assets beyond the grave. If you wanted  

to remove some Assets from your Estate. If you  want to avoid publicity, so you didn't want  

people sticking their nose into whatever  assets you had and who you're giving them to.  

If you want to set up future care for yourself or  for your Heirs. If you wanted to bypass Probate.  

Maybe you have a spendthrift in your family  that you're worried about them squandering their  

Inheritance, and you wanted to set things up so  they couldn't do that. And you know for creditor  

protection, and there's many more reasons. So I've  got Tom Griffith with me today. Tom Griffith, CFP,  

he is my associate and when we were talking  about this the topic for today's program,  

I said to Tom, I said, ‘So what do you think we  ought to talk about? Why, why does this matter?’  

Yeah, so one of the topics we talk about often  are Estate Planning, and so we have a lot of  

clients coming in that we're doing Financial Plans  for. And we get on the topic of Estate Planning,  

and almost immediately, I'd say about 70% of them  bring up, ‘Oh I think I need a Trust.’ And it's to  

John's point. You know, why do you need a Trust?  Because the Trust isn't always the right answer.  

And so the thing that we want to cover today is  why might you need a Trust. And then why might  

you not need a Trust, because it's not- it's a  tool- it can be, it can do things other things  

cannot do, but it's not right for everybody. And  when used improperly, can actually cause some  

unattended consequences. And so we have up here  some of the reasons you might need some. And so,  

some examples to get real specific- if you have a  special needs child, we use Trusts all the time to  

protect them from losing their State Benefits. So  they're on maybe Medicaid, or something like that,  

where if they were to receive a lot of money as  an Inheritance, they would lose those benefits.  

And it's really important for them to keep  them. So a Trust is wonderful at keeping the  

money out of that child's name, allowing them to  receive the Benefits that they need, while not  

jeopardizing and not meaning that they can't be  taken care of from the Financial Assets from the  

parents. So that is an example where a Trust can  be very helpful. Another example, might be second  

Marriages or you have a Marriage late in life,  and your kids, you want to really protect them  

with the bulk of that money. But you also know  that your Spouse, your second Spouse might need  

that money to be okay in Retirement. A Trust  is a way that you can take care of your Spouse  

if you were to pre-decease them, while also  keeping protection um for the kids. And so  

Hans has a story of a client that he dealt with a  couple years ago, about them receiving the Trust,  

from their people. Well, yeah it's kind of in the  ‘unwanted consequences’ area. So we had this lady,  

who when her father passed away,  these are very wealthy people.  

And when she inherited from her father, she blew  through the money. I mean she just spent it like  

crazy, and it was really kind of gone before the  mother passed away. And her brothers and sisters,  

had had not they had they still had their money,  but she had blown the father's Inheritance. So the  

mother set up part of her Inheritance, for a good  part of her Inheritance to be put in this Trust  

where she could only spend the Earnings  on the, from the Trust. And she could  

not spend the Principle of the Trust, or  she couldn't squander the money. And then,  

so there would be something left for the grandson,  and you know her grandson. And so then the mother  

passed away, this all came to light. The daughter  was very resentful, she was my client, and  

she was also into where they both had  hired lawyers. She had hired lawyers,  

and her son had hired lawyers, to try to end the  Trust. And they were at odds with each other,  

and what it really was is she wanted to end the  Trust, because she wanted to get at the money.  

And she wanted it to live. He wanted the  money to stay in the Trust, so when she dies  

that he would, um, uh would  have something there to inherit.  

And it was just kind of a bad situation that her  mother, if she could have ever envisioned this,  

she would have never done the Trust thing in  the first place. It had a happy ending where we  

found a solution and we bought some Life Insurance  inside of the Trust, to make sure that he was  

taken care of. And we ended up dissolving the  Trust and getting her some money, getting him  

some money. So there are solutions, but I just  wanted to point out that a lot of times people  

set up Trusts and they get real specific on a,  on some point, some goal they want to accomplish.  

They use a Trust to do it and then things  don't always work out like they planned.  

So you know I, I want to go into, I want to  go back to what we said at the beginning.  

About I'm all for Trusts, if there's a purpose.  And what Tom was talking about in the beginning  

is a real problem, kind of out there for  Middle-Class, Upper Middle-Class people.  

Where you have these Trust Mills, and you have  seminars where they're bringing people into  

a seminar and they're recommending a Trust for  everybody. And you know, so we have people bring  

those things into us, some of them bought the  Trust and they want us to explain it to them. Or  

they didn't buy the Trust but they're convinced  they need it. Or their Brother-in-Law went to the  

seminar- he's convinced they need it, told  them about it, and they come into us. And  

what I'm going to say is it's impossible for  30 people gathered in a room, for all 30 of  

them to need a Trust, and for all 30 of them  to need the same Trust. And I'm generally,  

what these Trusts that are coming  out of Trust mills are addressing,  

is this avoiding Probate, bypassing  Probate. So they've created Probate as the,  

you know, as the the the bad thing that you want  to avoid. And I'm with them on that, is Probate  

can be an ugly process. It takes a long time and  it costs money and there's delays, procedures,  

there's publicity. So, but then where they jump  to is, we need to put all your Assets into a Trust  

now, because that way you're going to avoid  Probate. So we've created this monster of  

Probate and we point it out to people and  then we present the only solution as a Trust.  

And there's other ways to avoid and bypass Probate  than a Trust, in other less expensive ways.  

So let's talk about what some of those is.  Is that, well the first thing with Trust,  

is they're very expensive to set up. And then  they're, secondly, very expensive to maintain.  

So when I say very expensive, probably $5,000 to  just get a standard basic Trust. Uh, we have some  

people we're in association with that can maybe do  it for $2-3,000, and a specific kind of Trust. I  

think if you go to with these sophisticated Estate  Planning Attorneys, you're going to pay $10,000+  

for multiple Trusts. So they're expensive  to set up, and then they're really expensive  

once they go in effect and we start  transferring Assets. You got to pay the Trustee,  

you got to pay a Custodian. I mean there's just  a lot of expenses. You got to pay taxes within  

the Trust. So in Beneficiary Designations or  the thing called Transfer on Death, T-O-D,  

can be used as a replacement to Trusts So Tom you  want to talk a little bit about that? Sure. And so  

often times when we really push the people  that came in, they maybe went to a seminar,  

they might have already created this  Trust, or they're thinking about it,  

and they really don't know the biggest  reason. But you start pushing them some,  

it does come out that avoiding Probate is the main  reason they want to do this. They've been taught  

that Probate is bad and it it's complicated,  and timely, and you just want to avoid that.  

And so like Hans said, you get them all to put it  in the Trust. That should not be the only benefit  

the Trusts is serving. If that is the only reason  you're buying a Trust, there are better ways to do  

that with most of your money. So all Financial  Assets, all IRAs, all 401Ks, all Bank Accounts,  

all taxable Brokerage Accounts you can list  either a Beneficiary Designation or a T-O-D,  

which stands for Transfer on Death. That  acts just like a Beneficiary Designation,  

that sends the money directly to that Beneficiary,  while avoiding Probate. So you can do that step  

while not having to go through a Trust. The other  problem with the Trust on the back end of things,  

is a lot of these people that are not getting them  for real sophisticated reasons, just trying to  

avoid Probate. They end up naming  one of the kids as the Trustee.  

The kid has no idea what a Trustee  is, they don't know what a Trust is,  

they don't know how these things work. And so all  of a sudden we fast forward, the the parent dies,  

they go to see who the the Beneficiary is  listed on, and it's listed as the Trust.  

They say well, ‘What is a Trust?’ And so then  they got to go find: has, was it created? Was it  

not? If it is created, now they got to go open a  bank account in the Trust name to get the money to  

transfer there. Which the Trust ultimately then  sends the money to the kids directly anyways.  

Why have that step in the middle, when we can just  avoid it all together by just listing the kids as  

the Beneficiary. And so a reason that you might  want to use a Trust, back up to this top point,  

is to manage beyond the grave. And so if you  have some real concern that you don't want  

whoever is receiving that money to get it all  at once, or right up front, a Trust is able to  

limit their access to the money. And so that is  a real reason you might want it, and that is why  

you might want to have that step in between. But  if the Trust, all it says is we're just going to  

distribute to the kids anyways, it doesn't really  need to be there to distribute Financial Assets.  

The other point I will make, is a lot of people  who come in, a lot of their Retirement Money or  

all most of their money is in Retirement Accounts,  in IRAs, 401Ks. Back in 2020, the Secure Act was  

passed, which really made Trusts not very  efficient at receiving Retirement Accounts.  

And so we can get into the specifics later, but  the big takeaway is that Trusts are not great  

places to leave Retirement Accounts. The bulk of  people's money are in Retirement Accounts, and so  

if we're listing the Trust as a Beneficiary,  you're really causing problems in the future  

that you really might not even know about. Um, we  had a client come in that had went, gone to one of  

these seminars, had about a $1,000,000 in an IRA.  He had some other money in a Taxable Account, too,  

and the lawyer was telling him you need to put all  of this in a Trust. Well the, you know, he came in  

he said, ‘I want to put this in a Trust.’ He said,  ‘Well hold on. You can't put the Retirement Money  

into a Trust now, because it's Titled in your  name. The only way to get it in the Trust is to  

get it out of your name, pay the Taxes, and then  put it in the Trust.’ And he was kind of arguing  

with us about that, he said, ‘Well the lawyer said  we need to do this.’ And we went back and forth,  

eventually he agreed. We showed him the rules and  how that worked and he agreed that he's right,  

we can't do this. But then just to illustrate  the point, is a lot of times the lawyers aren't  

thinking about the logistics of how do we actually  do this. What does this actually look like.  

Now the Retirement Accounts you can name  a Trust as a Beneficiary, but like I said  

earlier it's really not a great way to do that.  Well yeah, you just, you put Retirement Money,  

IRA money, you transfer it into a Trust right now-  that's a Distribution. I mean I remember that guy  

and he just, I sent him back there to that lawyer  that just said, ‘Okay tell me how this works.’  

And he really pinned him down on it, and it  wasn't, they're just giving general advice. So  

it sounds a little bit like we're down on Trusts.  We're not down on Trusts at all. We're down on  

Trusts for everybody and one kind of a Revocable  Living Trust to avoid Probate for everybody.  

Those generally don't necessarily work out all  that well, okay. But there could be situations  

where that's called for, and our clients want  it, and we'll help them get it. I've just,  

to give another example in closing, I mean when  we have clients that have large amounts of Assets  

and they're facing Estate Taxes, okay. And  so we're trying to figure out either how  

to pay for them with Life Insurance, or how to  avoid some of them, we use all kinds of Trusts-  

including an Irrevocable Life Insurance Trust,  okay. It's a great way to take the Life Insurance  

proceeds out of the person's Estate, okay.  Or if you're the person we're talking about,  

is you can gift money to your children under  the Annual Exclusion. And then your children pay  

the Premium on this Life Insurance, and then it  builds up. And then when the Life Insurance, when  

you ultimately pass, the Death Benefit of the Life  Insurance is not included in your Taxable Estate.  

I mean there's so many good uses of Trusts, so  we don't want to be down on them, we just want  

to say you go to that word that's on the top is:  Purpose. I need a clear understanding, or you need  

to demand from me, or the guy like me, what is the  purpose behind this Trust? Why am I going through  

all these Costs and potential pitfalls? What's  the underlying purpose? And if you come to us,  

when we recommend one, we can give that to you  very clearly. If you're, if you're going to  

someone else and you want to challenge them,  that's what you want to do. And dig a little  

deeper, what what is the real purpose? And as long  as it's there, I'm all for it. So I'm Hans Scheil.  

I'm Tom Griffith. And we thank you  very much for listening. Thank you.