Trusts 101 – Estate Planning With Trusts

Trusts 101 – Estate Planning With Trusts

Hi everybody, attorney Nicole Wipp here with
the Family & Aging Law Center. Today I’m going to go over a little bit with
you about trusts. I call this Trusts 101. It’s really just an overview about what are
trusts and what are they going to do for you, and a little bit about the different types
of trusts. The reason I’m doing this is because I know
there’s a lot of confusion about what trusts really are out there, because I’ve literally
talked to hundreds if not thousands of people about trusts. I’m not going to get into real specifics about
trusts, but I’m just going to give you this overview. So let’s get started. The first question really is, what is a trust? Right? What is it even? The legalese of the answer is that it’s a
contract between the grantor, which is the person that creates the trusts, like usually
if it’s your trust, you are the grantor; the trustee, who is the person that manages the
trust, it might be you, it could be somebody else, and the beneficiaries, who are the people
that are going to benefit from the trust either during your life or after your death. That’s the legalese. What I’ll tell you is that a trust is your
rulebook, your rulebook, okay? This is important because if you don’t make
your rulebook, you’re going to get the rulebook that the state gives you, okay? You’re going to follow the state’s rules. So you can make your own rulebook, but you
have to create it, and that’s what a trust is for. All right, so there’s two main types of trusts. When I say this, what I mean is, in the whole
world of trusts, there are two very general categories of what trusts are. The first one is what we would consider to
be death trusts, also known as testamentary trusts. These are trusts that are created in a will. So the will says, “Upon my death this trust
is created.” Okay? But the trust doesn’t exist during your life,
because it’s in your will and your will is a death document. It doesn’t come into being, the trust, until
after your death. It doesn’t transition control of assets in
the event of a disability. So if you’re alive and you get sick, this
type of trust, a testamentary trust, doesn’t enable somebody to take control of your assets
in a disability situation. And almost always it’s going to require a
probate court proceeding because it’s created in a will, a will is inherently a document
intended for probate, it’s going to require a probate proceeding to create this trust. That’s what’s a death trust or a testamentary
trust. So for this reason, a lot of people don’t
feel that these are very desirable, right? These don’t sound like really great things
for most of us. So that’s why we usually when we’re talking
about trusts, are talking about things that are living trusts. What this means is that a living trust is
a trust that exists during your life, okay? Unlike a testamentary trust that doesn’t exist
until after you’re dead. It shifts control in the easiest way possible
upon your death or disability, okay? So, unlike the testamentary trust, a living
trust does allow the person that you say gets to be the trustee after you, to take control
of your assets that are in the trust upon your disability or even death. And if you properly fund it, and I’m going
to talk about this in a second, a living trust avoids probate, which is really probably the
biggest reason why people like trusts, okay? Living trusts come in two categories: revocable
and irrevocable. So let’s talk about that. Revocable and irrevocable living trusts are
definitely two totally different legal strategies and they accomplish different goals. With revocable living trusts, which is the
most common, by the way, when people call me or people talk to me and they say, “I already
have a trust.” 9.9 times out of 10 it’s a revocable living
trust, okay? We use these almost, I’d say, mostly for probate
avoidance, right? The main reason people put together a revocable
living trust is to avoid probate. Also, I look at a very good reason to have
a revocable living trust is so that you can shift control in the easiest way possible
when you get sick or if you get sick or upon your death. So that’s what revocable living trusts basically
two main reasons you’d put one together. They are private if you keep them that way. So we can keep privacy amongst our family
or people that we trust. We don’t have to go through a court proceeding,
which is one of the big things that makes it private. And if you have a properly structured revocable
living trust, it can provide asset protection to your loved ones after your death. This is key, not during your life, after your
death. It’s important to understand, and this is
one of the biggest misconceptions about revocable living trusts out there, revocable living
trusts do not provide asset protection to you during your life. If it’s your trust, a revocable living trust
is not intended to provide asset protection. So, one of the biggest complaints I hear from
people or people get upset a lot of times, is because they believe that their revocable
living trust provides them asset protection. You just need to understand that that is almost
entirely not true, and that’s not the purpose of it, that’s not what it’s meant to do. So don’t go around thinking that that’s what’s
happening, if in fact you have a revocable living trust. But that’s part of the reason why there are
these irrevocable living trusts. Once again, we create them while we’re alive
but they’re mostly used for just tax planning and then asset protection. Generally, irrevocable trusts are really used
for very wealthy people, because they create a lot of restrictions that a lot of people
just don’t want to accept. But we can create irrevocable trusts that
don’t have those restrictions, but I would say generally that’s not the way that they’re
drafted by a lawyer. So they do give asset protection to you during
your life, and your loved ones after death, if they’re properly written. We can protect assets from the nursing home,
from predators, lawsuits, all kinds of things, with irrevocable trusts or types of irrevocable
trusts. So it can provide asset protection to you
during your life, unlike the revocable living trust. But when we’re talking about trusts it’s really,
really, really, really, really, really important to understand that if you have a trust you
want to use a trust instead of beneficiary designations, okay? This is so common. People will have a trust and they’ll have
beneficiary designations simultaneously. There generally is not a good reason for this. It really can cause a lot of problems for
you and your family members in the future. Because, this is the thing, if you have assets,
like your 401(k), your IOA, and there’s beneficiaries on them, on your bank accounts, you have transfer
on death or payable on death, these are all beneficiary designations. They are not going to pass according to your
will or your trust, they’re not, they’re going to pass according to that beneficiary designation. So, this is confusing to people sometimes
because they think, “Well, my trust says that everything’s going to happen they way my trust
says.” But that’s not the way it works when you have
beneficiary designations. So it’s very important to understand this. This is an improper way to fund a trust. We don’t want to have a beneficiary designation
to people. We’d want the trust to be the beneficiary
most of the time. A lot of times what will happen is, people
will go to the bank or they’ll go to their financial planner and they’ll say, “Well,
you’re all set. I did your beneficiary designations for you.” I’d just challenge that because that a lot
of times is bad advice. You’re not necessarily all set because your
beneficiary designations are not going to create the same type of plan that your estate
plan, whether it’s your will or your trust, would do. So I would challenge that statement. You know, when you’re talking to people at
your bank or you’re talking to your financial planner, you have to understand, they’re probably
well-meaning, but they’re not lawyers, and they’re telling you only a very small piece
of the story. The small piece of the story they’re not telling
you, because they’re not lawyers and they don’t deal with this stuff, is that they don’t
explain to you that your beneficiary designations aren’t going to protect your assets if your
children get divorced, your children or your beneficiary gets divorced, gets sued, if they
are bad with money, have poor spending habits, if they’re in bad money relationships, right? Like the wife that goes and spends all the
money, or the husband that goes and spends all the money. It’s not going to protect your money from
those things. If they’re having issues with addiction, or
they’re not able to manage their own affairs because they’re sick, right? They need nursing home care or they’re sick
or they have a disability, or they have creditors, are going through bankruptcy. Any of those kinds of things. Beneficiary designations do not protect from
any of these things. That’s why I’m saying, if somebody tells you
that you’re all set with your beneficiary designation, well, you’re not all set with
all of these things. And a lot of times, at least with my clients,
they want to be all set with these things. So that’s why you want to have both a properly
written and funded trust, because it can protect your money. But you have to have the right kind of trust. That’s also why finding your trust is critically
important. So what is funding the trust? Well, funding the trust is the process of
moving your assets into your trust. This gets a little confusing for people sometimes. Imagine that you have a bowl and you’ve got
fruit in your bowl, right? If you take an orange and it’s outside of
the bowl and you put it inside the bowl, is it still an orange? Of course it is, right? I’m not trying to trick you. So it’s just like the way that the trust works. A trust is like the bowl, it’s a vessel. The orange is your bank account. You put the bank account inside the bowl or
inside your trust, it’s still your bank account. Just like an orange is still an orange. But you need to get it in there. And that’s the thing that most people are
not doing, even people that have trusts, is they’re not funding their trusts. So it’s really important to understand that
if your assets are not held by your trust, the trust isn’t worth the paper it’s written
on. You have an expensive legal document that
is not actually doing anything for you. So it’s really important, in fact, it’s critical
to fund your trust. Also, understand that when your trust is unfunded,
a lot of times what this means is that you’re going to end up in probate anyway. So the reason that you set up the trust is
not even going to happen. Your trust is going to be empty and it’s not
going to protect your assets from probate. So, unfunded trust is probate, that’s a big
thumbs down, we don’t want that. This is just a really quick Trusts 101. I knew I just threw a lot of information at
you. But if you have questions, call or come on
in to my office, watch more of my videos, learn more. It’s really important to understand these
concepts so that you make good legal decisions in the future!

63 thoughts on “Trusts 101 – Estate Planning With Trusts

  1. me and my dad own a house 1/3 for him and 2/3 for me thats the partition on the dead or the tittle owner, he make an revocable living trust, he make my brother and sisters as his beneficiaries im not mention or included on his trust, now can i refinance the property for renovations?

  2. Does assigning a living revocable trust as a beneficiary of an asset (say a brokerage account) constitute “funding the trust”?

  3. I need lots of help in understand this I'm very new is there someone who can accommodate me thanks in advance please message me ASAP. Blissful


  5. I have most of my CD's set up with a payable on death clause. The cash is going to a charity I support. I do have some money set aside for my brothers. I also have a corporate executor through my bank.

    Speaking of trusts, I am a co-trustee for my Mom's Estate. Unfortunately, the distribution is not going smoothly. One beneficiary is upset about the amount of money that she is receiving, another beneficiary has his money in a spendthrift trust where he only receives so much per month.

  6. hello
    your video is very interesting and easy to understand the initial process of a trust.
    I have a couple question if you could clarify, my appreciation in advance.
    1. I read that in a Irrevocable living trust changes are not allowed. Is that true? So, if I have a property in this kind of trust, I can not sell the property or make any change to it? what kind of restrictions are included in this kind of trust?
    2. If husband and wife do a trust can they be the trustee of each other in a revocable or irrevocable living trust? Can one be the beneficiary of the other?

  7. The picture at 10:02 focuses in on such a small portion of things that can happen, they don’t happen to most. That is a scare tactic.

  8. I understand that "funding the trust" is important as beneficiaries would gain from it. I do not understand why would a home that is worth 500,000 would not be an asset listed in a trust. Please explain.

  9. Thank you, the first video I've come accross that explains things clearly and simply. Wished you were based out of NJ.

  10. Hi, I am Advisor in need of a GREAT yet to the point and fun Estate planning presentation that keeps the clients engaged (not yawning) for clients that could also be used for attracting CPA's. All suggestions would be GREATLY appreciated!!

  11. Great video. I’m a soon to be attorney who is interested in doing this as part of his practice. Great simplified information. I’ve been getting really detailed info but it’s good to be reminded and reenforced with basics.

  12. We had living trust drafted in 2005. the lawyer had a nice fancy meal at the seminar and I got suckered in. She had me put everything in the trust then she said I have to retitle my house my condoeverything except for my bank accounts. then when you retire she said come see me. The cost was like $2500 I think can't remember exactly. It was real confusing her & the firm name was on every it seem like every other page about 40 pages long. I don't know I just did'nt feel comfortable with her. I went to a different attorney his was 14 pages long was easy to understand he said I didn't have to put everything in the trust. it was a will/pour-over trust straightforward his name was on two or three pages that's it. I had to go down to my county clerk office in New Jersey. she's recommended that don't try to do it yourself go to a title company so they can retitle house & condo back in your names husband and wife. To reassure me my attorney said I have the same exact will/trust you have so reassured it's okay.
    The first attorney with a fancy meal is now a cfp & to estate planning attorney!! which I thought was a conflict of interest. So I feel better.

  13. Hey, what about a family member who has a trustor committed to a nursing care facility claiming dementia hoping for a quick death so that the trustor doesn't be allowed the freedoms to revoke the trust altogether. Thus being the 100% beneficiary/Trustee?

  14. I have my assets in beneficiary designations for my children. She doesn't explain how an irrevocable trust would protect these assets in the case of divorce, drug addiction, etc. All of which I am not concerned about anyway.

  15. My mother’s husband recently passed. They have a trust and she and he were both Trustees/Executors, I believe. In his will he passed on cash money to my mother and his siblings. Your funding of the Trust comments resonates with me because that’s what my concern is. Is there a window for funding the trust before things go into probate. I realize there are some unknowns I may need to determine to get a complete answer, but any insight would be helpful.

  16. Thank you so much! I'm sitting for the July 2019 bar exam and Barbri did a horrible job on their trusts section. This cleared up so much! Thumbs up!

  17. When it comes to second marriages with 3 daughters on one side and one daughter on the other, what is the best type of trust for protection for my one daughter,? I come to the marriage with more assets and I want to protect my one daughter's interests. Very good material in the video. Look forward to your comment. Thanks

  18. How do you fund a trust? What kind of person usually handles trusts? Do you have to give them permission to invest your money however they see fit or can you just say you want it left alone in a bank? If you avoid probate do you also avoid having to make a will? How do those guys make their money and how do tou track it?

  19. If there are two people in a trust and they can not come to an agreement such as in selling or not selling a property, how is the decision made? Who can "break the tie"?

  20. Excellent video, very informative. I am a trust and estate practitioner in England and I’m going to use this simplified information to help my clients understand how trusts work. Thank you!

  21. Appreciate the video and the way you presented it. But…. 401K and IRA beneficiary designations allow for a rollover and conversion to a death IRA which keep it from being taxed at a higher rate, no? Life insurance I agree should go to the trustee of the trust but I would caution not planning for high tax at a lump sum distribution…

  22. Thanks for this info…..You state, A revocable living trust DOES not provide asset protection, & this is a problem for some, but I have no idea what you're talking about, w/ "asset protection".

Leave a Reply

Your email address will not be published. Required fields are marked *