How to Use a Trust



Trusts are probably the most flexible and powerful estate and asset control tools around. While they can get complicated real fast, the basics are pretty simple to understand. They can be far more effective than wills for most estate planning.

Think of a trust as a bucket you put assets into, with the trust wording controlling what happens to the assets, who can use them, and how. When you put assets into a trust, they will be titled in the name of the trust, not yours or in joint titling anymore.  You statements will read something like John Jones, trustee, of the Jones Living Trust dated July 4th 2017, instead of John Jones or John and Jane Jones.  Revocable trusts can be changed, and you can take the assets out, spend them, do whatever you please. With irrevocable trusts you can’t, unless you build in a back door called decantability. Most of you will only be interested in revocable trusts. A living trust is just one that is created and functions while you are still alive, compared to testamentary ones that are created at death by your will. Living trusts have a number of distinct advantages, and most of you will want to use them. These include confidentiality, strong protections against cognitive issues and avoiding guardianships later on, and big savings on probate fees. Legal costs are typically the same, so living trusts can be real bargains, and are far superior in my view.

There are three important titles in trust lingo. The first is the grantor, or settler, which just means the person or persons who dump the assets into the trust. The trustee is the manager, who gets statements, writes checks, hires investment managers, and operates the trust according to the trust rules. The beneficiaries – and there can be one or hundreds – are the people or entities for whose benefit the trustee runs the trust. These three players can all be initially the same people, and this is typical of most family trusts.

Here is a typical pattern. John and Jane, as grantors, put their non-IRA assets into their new living trust. The trust also has special language to allow it to be the IRAs’ beneficiary and still preserve important tax advantages. This is called conduit language.  It is important to prevent the kids from getting a ton of money too fast and blowing it. John and Jane are co-trustees, and can each direct accounts and write checks. John and Jane are also the primary beneficiaries, and use the trust to fund their retirement income. If one of them loses cognitive capacity, the other still runs the trust as trustee. If they both do, their daughter June takes over as contingent trustee, using a doctor’s note or whatever test is prescribed in the trust. This can save a ton of cost and hassle avoiding guardianship. When John and Jane both pass, the trust splits into three sub-trusts, for June, James, and Julian. If the children are smart, they leave the assets in their new trusts instead of taking them out and putting them in joint names with their spouses. This protects against divorce risk, and makes sure the grandkids – Julia, Justin, Jan, Juno, and the others – eventually get the family wealth. These kids’ trusts have special language to protect the assets against lawsuits, creditors, and other threats. Naming the siblings as protectors of the others trusts – Julian as June’s protector, for instance, can offer additional protection from financial predators and divorce, and help keep the family fortune intact. Camarda’s free 7-Point Wealth Health Checkup report can give you more information on this and other important areas. Click on the link for it now, it’s free!

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