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Wealthy & Wise: What are Trusts and Who Can Benefit From Them?

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May 5, 2023
Author: NCH

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About the Video: Wealthy & Wise: What are Trusts and Who Can Benefit From Them?

Trusts can play an important role in estate planning and wealth management. By transferring assets to a trust, individuals can ensure that their assets are managed and distributed according to their wishes, potentially avoiding probate and minimizing taxes. Trusts can also provide protection for assets from creditors, lawsuits, and other potential risks. Additionally, trusts can be used to benefit charities or provide for the care of minor children or other dependents. Overall, trusts offer a flexible and powerful tool for individuals and families to manage and protect their assets both during their lifetime and after their death.

Prefer to read? A full transcript is provided below.

Adam:

So, welcome to another edition of Wealthy and Wise. I’m your host, Adam Kintigh. So, we get a lot of questions about trusts. Revocable trust, irrevocable trust. Which one should we use? How are they used? And so, I brought with us the expert estate planning attorney, Mr. Kurt Harris, who is absolutely the most knowledgeable person I have ever met in regards to trust, setting them up, operating the trust. This is my go to guy on any question I have. And Kurt, how many years you’ve been doing this?

Kurt:

28 years, I think.

Adam:

28 years.

Kurt:

It seems like longer.

Adam:

All these years that you’ve been operating and doing the trust. What do you think is the number one question you get from your clients?

Kurt:

Well, a lot of times the number one question I think we get from the clients is, will I lose control of my assets if I put them in a trust? That’s my biggest concern. I want to put them in a trust. I want to leave them to my next generation or to my charity. But am I going to lose control today? That’s my big concern. And that’s the big question I get from so many people that set them up.

Adam:

And that really leads us into the two types of trust, revocable and irrevocable. So, the revocable trust, you are the trustee and beneficiary while you’re alive. So, to answer that big question, do you lose control of any of your assets doing a revocable living trust?

Kurt:

Yeah. You lose no control whatsoever in a revocable because it’s in its name that you can revoke it at any time. And so, there’s no way to prohibit someone who set up a trust and put assets into it from revoking their own trust at any time and not losing any control whatsoever over their assets. And so that answer is there. The problem is it doesn’t provide as much asset protection as you would get from the alternative and irrevocable, which is sometimes what other people are looking for.

Adam:

So, with most revocable trust, there’s a couple types that we really deal with on a day-to-day basis, which is the revocable living trust, which is more of a family trust. We have a revocable land trust that we use. We also have a special needs trust if, for those that have children with special needs. And those are kind of our basics for the revocable trust. What do you think is probably the biggest benefit people get in having the revocable living trust?

Kurt:

Yeah, the revocable living trust, I mean, it really is the building block of your estate plan. That is where you want to begin. It’s your cornerstone. And the main thing that I prefer from revocable living trust is that it avoids probate. I don’t have to send my assets through probate if I have a proper revocable living trust in place. That way, my heirs can avoid the probate process altogether by just following the trust.

Adam:

So, we had a little discussion in my church this past weekend, and one of our elders in the church, he said he had dealt with probate. His father had passed and was the second spouse to die. And he said, now this is back in 1995 when this happened. He said that he had to hire a probate attorney in Florida for $160,000 home, and it cost him $15,000 and a year and a half in court. This is in 1995. What is the cost of probate, in your estimation, versus a general run of the mill household nowadays?

Kurt:

Well, as you know, I practice here basically when I say here in Clark County, Nevada, Las Vegas area. And I would say that probably a minimal cost would be $5,000 and upward of there for any minimal type probate to get the attorney and to get all the paperwork and the proper notices out. I think that would be a minimal cost to an estate for a probate. And as you know, a revocable living trust is cheaper than that expense. And so, it seems to be somewhat of a no brainer to put the revocable living trust in place to avoid that expense, if nothing else.

Adam:

I agree with that. So, one of the things we talked about is here in Nevada, for example, if your estate is below $25,000, 20 or $25,000, we don’t have to deal with probate. But I step back and I think alright, who did I know, a friend or family member or business colleague or client, who do I know that really does not need a revocable living trust? And I think anybody, if you have any assets, of any kind, you should absolutely have a revocable living trust. Can you think of anyone that doesn’t need it?

Kurt:

I really can’t. I mean, I could be a little glib about maybe someone that I’ve seen on the street that maybe might not. But other than that, really, most people that we know can benefit from it and their family can benefit from it. If their estate is minimal, I just can’t imagine an estate being less than $25,000 on almost any front.

Adam:

And when we talk about doing these special needs trust, do you talk a little bit about when the special needs trust arise and what they actually do for a family?

Kurt:

Yeah, special needs trusts are really good. Hopefully they can help to take care of someone who is of special needs that in that family, that needs a little extra help or a little extra help in the decision-making process or the administration of assets to that particular individual. And so, a special needs trust can be very important to a member of our family that might require those services. And it can also protect and shield some of those assets from potentially from a third-party source trying to take them. Because this is an individual, those assets are still controlled by a guardian, essentially, or a trustee of the trust who is similar to a guardian of that individual who we’re concerned about because they really can’t manage their own affairs.

Adam:

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So, I’ve had a lot of clients where the, they have a child that receives Social Security benefits, Medicare, Medicaid benefits from the state. And their biggest concern is that if they pass and they leave these assets to their kids and the child receives these assets, that their income is now such that they would lose a lot of those benefits.

Kurt:

Yeah, we got to be real careful on how we discuss that. The special needs trust is designed to eliminate that the estate coming or the state coming and infiltrating and taking away the benefits, I guess you would say, or somehow intercepting those benefits. It’s designed to prevent that if possible. And it doesn’t always work exactly perfectly in life. But that is the design and that is the intent is to try and preserve those assets for your beneficiary to be used for their benefit and not to be sent off somewhere else to a third party.

Adam:

Perfect. Now, when we talk about irrevocable trust, well, there’s two main types of irrevocable trust that we deal with on a daily basis. Irrevocable life insurance trust, and irrevocable family security trust. And can you think of a time when someone really should have an irrevocable trust, aside from just a revocable living trust?

Kurt:

Yeah, certainly. As people maybe advance in age or get to a point where they have a particular asset and they have a reason that they’re pretty concerned about it. If they engage in a business that might subject them to potential litigation. Irrevocable trusts are super important at that time. Or I’ve just inherited a family cabin or I have some family property that I never intend to get rid of. I’m going to die with the property, whatever the case might be. I’m going to pass that on to my family. I might as well put it into an irrevocable trust. I’m not allowed to benefit from that trust. I shouldn’t be able to use the property that I put into the trust. But it does protect and preserve that property for the next generation.

Adam:

But now, on an irrevocable life insurance trust, what is the value or benefit of setting up those irrevocable life insurance trusts?

Kurt:

Yeah, the beauty of that is that you do set up this trust and you have a life insurance policy. Most life insurance policies are pay on death. And so that would go out to my minor children, if I had them on the date of my death. I might not like that. So, if I put that into an irrevocable trust, the trust is assigned to pay the premiums of the policy. It’s a standalone policy at that point. And when it does distribute, when I do pass away, it will distribute according to the terms of the trust and not just pay on death out to whoever happens to be there. I can put some potential restrictions on the distributions, which I may very well want to do as part of my estate planning for my heirs.

Adam:

Very good. And one of the things that we look at with these irrevocable trusts is currently the estate taxes at 12.9 million and above your family would pay taxes. The Irrevocable Life Insurance Trust can remove the value of the life insurance policy so it’s no longer part of your taxable estate. So, from a tax planning standpoint, we expect attorneys to look at it from a tax standpoint, but we look at it from an estate planning standpoint. In general, it could be a huge tax savings for your family to remove a life insurance outside your taxable estate. So, your family does have a chunk of money to use to pay Uncle Sam. I think it’s nine months that they have. If your estate is large enough, they got nine months to pay the taxes or the sheriff sale begins.

Kurt:

And as an overall policy, we try to diminish the value of your taxable estate upon your date of death. Whatever you need to do to accomplish that goal is something that we feel it can be very beneficial to you.

Adam:

You know, there’s another type of trust that is, we talked a little bit about land trust and being able to put property into land trust. And a huge concern I always get from my clients is, well, listen, I have a mortgage on this property. If I put it into a trust, whether it’s a revocable living trust, a land trust with a rental property, I’m concerned that the bank is going to call my note due. How does that work?

Kurt:

Well, there are certain federal prohibitions out there that don’t let the bank do that when it’s put into a revocable trust. A revocable trust is classified as essentially an appendage of our own body or whatever. It’s part of us. And so, it doesn’t change the classification when we transfer into a revocable living trust. It isn’t a transfer and it shouldn’t provoke any due on sale clauses. It should be the type of transfer that goes essentially on paper into a different name being held by a different entity that we have control over, and it shouldn’t provoke that whatsoever. The Federal law says that they’re not supposed to call those notes. Does that mean a bank doesn’t try it from time to time or won’t give you any problems? No, it doesn’t mean the bank won’t do that. But it does mean federally, in the end, they cannot do that.

Adam:

So, this morning I had a call from a client that you’re actually working on his living trust right now. And he said, Adam, what do I need to put into my trust? And what is your advice as far as a revocable living trust, which everybody should have, what assets do you advise clients to actually title in the name of that trust?

Kurt:

Yeah, the big ticket is always the primary residence, the household residence. It doesn’t cause any problems with your homestead exemption if you’re concerned about that, but you put that into your revocable living trust first and foremost because you’ve made that transfer. And so, there’s no difficulties after your death in transferring that to your heirs. It’s already in the trust and your heirs will become the owners of that trust. And so, with something that has to go through some type of a probate process potentially to change title like vehicles can be a little problematic at times. If it is a classic vehicle, you might want to change the title of that name to the trust, Or, your personal home, something that doesn’t cause or create liability for you. Those are things that we say automatically should be placed in the trust. Other items can wait until a later date, or they can be transferred on your death by way of your pour over will, which will take care of that.

Adam:

So, the pour over will, if you could expand on that. How does that work?

Kurt:

Yeah, the pour over will is kind of a catchall will that’s out there and says any property on the date of my death that I didn’t already transfer into my trust, I would like you to do that by operation of my death. Just transfer it automatically. It tells my executor od my pour over will, take all my property and hand it over to the trustee and make the transfer.

Adam:

So, it makes a smooth transition. Anything you forgot to put in or chose not to put in can avoid probate.

Kurt:

Yeah. I don’t have that nightmare of thinking, well, what did I leave off or what did I not put into the trust? There’s things in place and catch-alls, they’re going to make sure that all the property is funneled into the trust on my death.

Adam:

Fantastic. Well, I really appreciate your time and going through this information. For those of you that don’t have a trust or if it’s been many years, your trust needs to be updated. Make sure you reach out to NCH. We have the Harris Law firm that completes all of our trust work in-house, provides great service for you and your family. If you have a friend or family member that’s been questioning, should I do it, should I not do it? These are things that call in, speak with one of our experts and we can make sure we have the right trust set up for you and your family. So, thanks so much for tuning in. Have a great rest of your day!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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