Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.
We teamed up with Andres Mazabel at Trust & Will to streamline the process for everyone, and it has worked out well for so many of our clients.
Andres was a special guest on our most recent podcast to answer a question many of you may have: do you need a trust in retirement?
Why Trust & Will was Founded
Trust & Will, Andres’ company, was founded five years ago because more than 60% of families do not have an estate plan. Traditionally, financial advisors that wanted to help their clients with estate planning had to use an attorney for this process.
Now, Trust & Will offers estate planning documents in all 50 states, making the process:
- Easier
- More accessible
- More affordable
While Trust & Will doesn’t replace an attorney, they make the process easier for people to set up their estate plans from the comfort of their own homes. You can even update your plan through the platform and consult with some of the attorneys on the Trust & Will team.
If you have 30 minutes to an hour, you can have your estate plan in place, which is something our clients love. By removing the friction and procrastination in estate planning, we find more of our clients have these important documents in place to protect everything they worked for in life.
Documents Everyone Needs in Retirement
One survey found that the biggest gaps people have when working with a financial advisor are:
- Wealth transfer advice
- Estate planning advice
Unfortunately, there’s a big gap in consumer knowledge of probate, wills and what happens when they’re no longer around.
With all of this in mind, we believe everyone should have a:
- Will
- Durable Power of Attorney
- Healthcare Power of Attorney
- HIPAA forms
In addition, some of you reading this may also need a trust.
Trust vs Will in Estate Planning
Basic will documents outline, on paper and in legal documents, your assets and how you want them to be divided up upon your death. Then in the middle of this is something called “probate.”
Probate, or the court process of a judge settling the estate, allows the judge to make the decision of what happens to your assets if you don’t have a will. Let’s look at an example of this:
- You die without a will
- You have no contact with your children
- You wish for your assets to be transferred to your fiancée
In the above scenario, your estate would be settled in probate. The judge, who has no knowledge of your family dynamics, will split the assets in accordance with the law, and a large portion will go to the children you haven’t heard from in years.
Of course, your parents and siblings may also receive some portion of your estate.
A trust helps your estate avoid probate.
Depending on the state you live in and the assets you have, you may or may not need a trust. In California, if you have taxable accounts above $184,500 (this figure can and does change), these assets will go through probate.
Without an estate plan, a person who exceeds these amounts would have their assets go into probate and then keep the family in probate for 12 months or more.
You don’t want to keep these assets from your family for a year or more.
A trust can be set up to allow you to direct your assets the way you want and at the time that you want. Additionally, the details of the trust are private, but probate is a public matter that anyone can see.
For example, with a trust, you can:
- Give your kids all of the funds at once
- Give your kids a percentage of a fund at certain age or life milestones
- Set money aside for charity
What You Should Know About Creating a Trust
A trust, in its most simple form, is a legal agreement, in which some ways, creates a legal entity. A revocable living trust is the most common form of a trust, and while you’re alive, you can manage the trust, update beneficiaries and have a successor trustee in place.
When the trustee is no longer around, the successor trustee will step in and then be in charge of executing your wishes for the trust. You have a lot of options on who you can choose as your successor trustee, such as:
- Family member
- Spouse
- Someone you trust
You also have the option of hiring a corporate trustee who you pay to execute the plan that you have for your trust.
If you have an estate under $5 million, most people don’t need a corporate trustee. However, if your estate is worth more than this amount, it may be worthwhile to use a corporate trustee to manage the trust when you’re gone.
Trusts and estate plans can be modified and adjusted while you’re alive because your plans will change over time.
Example Situation of a Trust in Action
Visualizing the benefit of a trust in retirement is easier with an example. Let’s say that a person has:
- An IRA with beneficiaries in place
- A house or vacation home
Logistically, with the houses, they would go through probate if you didn’t have a will in place – if the asset was in your name only. Perhaps the asset was purchased before you were married, so it’s not part of your marital property either.
If you pass away suddenly, the real estate will go through probate because no one else is on the deed.
A trust would “own” the real estate, which transfers the deed of the property to the trust, and in a good number of states, you can do a deed transfer, too. Deed transfers allow you to pass the property to someone else without a trust.
However, a trust ensures that the property is transferred before your death so that you can leave it to someone else via your trust’s plan.
You may also have taxable accounts that would undergo a very similar process, such as:
- Bank accounts
- CDs
- Investment accounts (not under an IRA or Roth IRA)
Proper titling of these accounts (such as having named beneficiaries) can help you protect these assets.
A trust allows you to either transfer the asset to the trust or leave the trust as the beneficiary if you wish. Retirement accounts are often not included in a trust. Instead, these accounts often have a beneficiary listed who takes over an account.
Trusts can also help you with business succession, allowing you to pass your business to someone else or have it liquidated.
Do You Need a Trust?
You may or may not need a trust, but you always want to avoid probate. If you have cash assets that can have beneficiaries added to them, the account avoids probate. However, if you have real estate, a business or other assets that do go through probate, a trust may be in your best interest.
We find that a trust is in your best interest in certain states and not others.
Texas is a state that offers fast and efficient probate, so you likely don’t need a trust if you live in Texas. With that said, we recommend that you take the time to talk to your financial advisor or estate planning attorney to determine if a trust is in your best interest.
Our clients have access to Trust & Will as part of our service, but you can also visit https://trustandwill.com/ to set up your own trust and will online.
If you have any questions about your trust, will or financial future, contact us and we’ll help you in any way that we can.