Ep. 3 -Revocable Trust Deep Dive

Welcome to the Good Steward Law and Wealth Podcast, where host Ledly Jennings explores law and finance to help listeners become better stewards of their wealth. Each episode covers the latest trends and strategies in estate planning, elder law, investment, and wealth management. Tune in for the knowledge and tools for financial success and security.

Welcome back to the Good Steward Law and Wealth Podcast, and today is a very exciting episode. This is another one of those short-form episodes that are kind of quick-hitter educational type episodes where we're going to dive into one specific topic, but keep it short enough to where it's digestible and you can understand it and not overwhelming. But today's topic is revocable trust planning. So this is my baby, my bread and butter. This is what I became a lawyer and opened this law firm to do is the majority of our practice is revocable trust planning.. But there's a lot of misconceptions and things people don't understand about what exactly is a trust, and specifically a revocable trust. So we're going to talk about that. Last episode, we talked about probate, why it's bad, how you avoid it, what the solutions are. And by the end of the episode, we talked our way through saying, well, there are ways to avoid probate, and we know that we need to, but some of them are not the best methods. And you know, 8 to 9 times out of 10, the revocable trust is the best method. So what is a revocable trust and what is its purpose? Well, it is, in my opinion, the most efficient and flexible method to pass on wealth and assets to the next generation. And that's what being a good steward of our wealth is all about, is being the most efficient in how we do it. That means in the best way possible. We don't want to just go with a way that will work. We want to go with the best way that sets our heirs and the next generation up for success because we are being good stewards of our wealth. So a revocable trust serves two main purposes. I mean, there's really 100 purposes it could serve, and we may dive into each of those in future episodes, but the two main ones are it avoids probate, number one, and number two, it provides asset protection for the heirs, and you can leave assets in a manner that you want to leave it. Better said is you have control over how you leave assets. So it avoids probate, and you have control over how you leave your assets. So I think of a revocable trust like a bucket. So you think of it like this bucket here, and you place your assets in the bucket. So you're the owner of the bucket. So husband and wife, as the example, they own the bucket. They put their assets in the bucket. They put their house, their bank accounts, their investment accounts, their personal property, all that in the bucket. While they're living, husband and wife can carry that bucket around. It's theirs. They can do whatever they want to with it. They can take assets out of it. They can put more in it. Um, they can change the bucket. They can change the color. They can change the size. You know, it's completely flexible. But if they are unable to carry the bucket themselves, they can hand the bucket to someone else who then carries it for them. So someone else is then carrying it for either their benefit or their beneficiary's benefit, but someone else is carrying the bucket, making sure it still does its job. So that's kind of a fun example of the revocable trust, and basically the concept is you can pass this bucket on to whoever you want to. You know, it goes to who you want, how you want. But in reality, basically a revocable trust is a set of documents that forms a structure that owns assets and passes on to the next generation outside of the court system and in a controlled manner. So anything in a trust, if set up right, passes outside of the court system. It takes place in a private manner between the trustee and beneficiaries. So you think about all these terms, revocable trust, trustees, beneficiaries, all that. What does all that mean? Well, a revocable trust, and there is all kinds of trust, there's the two main kinds are revocable and irrevocable. And you can get into a lot of different, you know, variations of each kind. But conceptually, irrevocable means what it sounds like is you can't revoke it. So once you set it up, it's stuck there, it's in stone. You can't change it for the most part. And we will have several episodes on just irrevocable trust and the various kinds. But for this purpose, the most common is revocable trust. Now what that is, is it is a trust that you can revoke. So you can change it, you can amend it, you can do basically whatever you want to with it. When you set it up, it's yours and it's for your benefit. So you can, you can completely control it. A revocable trust is known as a grantor trust. That means it's a trust you set up as the grantor for yourself, and you can do what you want to with it during your life. So you won't— I tell my clients, you don't even know a revocable trust is there unless you need it to. So it's just a method and like a standby vehicle that owns your assets, but doesn't kick into action unless we need it to. So we mentioned the word trustees. So the trustees are the person that manages the trust and whatever it owns. Now typically in the husband-wife example, husband and wife are trustees, meaning they control it, they manage it while they're living, it's theirs, they can do whatever they want to with it. But we name a successor trustee as well. So there's two instances where a successor trustee would act. One is during incapacity of husband and wife. So if they are in a car wreck, in a coma, you know, or maybe they're old age in the nursing home, Alzheimer's, dementia, just can't manage things themselves. Then a successor trustee steps in and manages the property for the original grantor or trustees. So it has a lot of benefit while you're living. I know a lot of the talk we have is how do you avoid probate, which is when you're gone, but really a trust also protects you while you're living because it makes sure you're provided for and your assets are managed by someone you name rather than someone that a court names. Because if you do not name someone, and you're incapacitated, you have to go through the guardianship proceedings in a court and the judge names someone to do all this for you. But that's one instance where the successor trustee would act. The second is obviously upon death. So when the original trustees have passed away, the successor trustee steps in and can then manage the assets. Now you're probably thinking, you know, well, who, who can be a successor trustee? I get it that husband and wife are initial trustees, but who do I name as my backup? Well, you have several options. Most commonly, I would say you name your kids who are the beneficiaries, maybe they're your trustee. You could also name a friend, a close family member, an attorney, a CPA, even a financial advisor. Anyone you trust could accept that role as trustee. Some people may use Edward Jones to manage their money. They have a trust department. So you can name a corporate trustee to be your trustee. Now, why would you want to do that? Like I said, if your child is disabled, has a mental disability, or just maybe drug alcohol problem, or is just not good with money, you may want to name someone else to manage the money for them. The benefit of that is that is all that trust department does. They wake up every day managing other people's money for them. So they know how to do it, they're really good at it. And your beneficiaries don't have any burden. So all the administrative work, all the headache is off their plate. It is done by someone else, and your beneficiaries get all the benefit from it. So there's definitely good instances where you should name a corporate trustee. And I always say for sure, if there is a special needs child or something like that involved, then we really need to bring in a corporate trustee because they know how to manage things appropriately. But we can get into that in future episodes. So we talked about, you know, the trust, there's trustees, and then there's beneficiaries. So who are the beneficiaries? You know, husband-wife example, most of the time they want to leave everything if one of them passes away to the spouse. So the spouse is a beneficiary. But when they both pass away, we want to leave things to the kids. So the benefit of a trust is each time somebody passes away, it goes to either the spouse or the kids outside of probate, completely private, smooth, easy transition. Basically, you're just cutting checks or transferring title. It's Very quick, no waiting period. But we can talk about the two instances. So say one spouse passes away, the wife passes away first, we want to leave things, the beneficiary is then the surviving spouse. So that transition would happen outside of probate. But there's a lot of issues that come with that transition is, you know, maybe we think of a blended family, you know, like the Brady Bunch, we have wife came to the marriage with kids, husband came to the marriage with kids. You want to make sure that each of the kids from each spouse is ultimately provided for. But sometimes you have a surviving spouse that has the fear, you know, well, what if my surviving spouse, my wife, cuts out my kids and gives everything to their kids? Well, a trust can protect against that. So that is a big benefit, is to make sure your ultimate wishes are gone, but your spouse is provided for because you love them, you want them, y'all built assets together. Together, but so are both of your kids. Another joke we have is, you know, a husband can't be single for long. As soon as the wife passes away, you know, the church ladies come bringing casseroles, and the husband needs somebody to cook and clean, so he may get remarried. A trust can protect against a second marriage as well. You know, whatever initial husband and wife built together can be protected and not go to the other spouse or A lot of times we say the wife gets married to a new husband who has a restaurant dream. And it's just not a good idea. But so we can protect against that. So that's a really good benefit of a trust is the protections it can provide. And then we think about the kids. So ultimately, why we do this is to pass things on to the next generation in the most effective way possible, because we are good stewards of our wealth. So how do we pass it on to the kids? In a way that helps our wealth achieve its highest and best use? Well, we want to avoid taxes, we want to avoid court fees, all that. So essentially, then the answer is we want to avoid probate. And how we do that in this trust is we can pass things on to the kids outside of the court system and in a protected manner. By protected, one benefit of a trust is that it avoids capital gains tax. So you're saving on taxes.. And it also can protect against estate taxes. Now both of those are a whole nother conversation. Just know that a trust can protect against both of those things. So we don't want to pay taxes where we can, you know, we want to avoid them to the best we can, you know, we want to pay what we owe, but not, not anything more. We want to be the best steward of our assets. So when you pass it on, you have those benefits, but also you have options on how you leave things. So you could say, when I die, give it to my kids outright. It's theirs. They can do what they want to with it. You know, just cut them a check. That is one option. But a downside to that is when you cut them that check and you pass it to them outright, it is then open to their creditors, their divorce. You know, it's, it's open to a lot of liability. And this comes up a lot with like a family farm. You know, a husband, wife have a family farm. They want to leave it to their kids to make sure it stays in the family for their grandkids. In that bloodline. But if they leave that farm to their kids outright, and one of their, their son gets a divorce, that farm is then open to go to his ex-spouse, which is not the intention of the original husband and wife. So a trust can protect against that. How does it do that? Well, you can leave assets to your kids in their own trust, meaning it protects from divorce, from creditors, from lawsuits, anything like that. Whatever you leave them is theirs and theirs alone. They can be their own trustee, meaning they can manage it, they can control it, they can decide how it's invested, how it's distributed, or someone else can manage it for them. Like we mentioned earlier, someone else can do all that dirty work for them. But the point is, it's flexible, and it's protective. So whatever you grow and build in your lifetime can be passed on to your kids, your grandkids, bloodline protection, as some attorneys call it. And ensure that things go how you want ultimately. So, you can base the trustees on how they distribute things based on their ability as well. This is my favorite part of trust planning. And we'll have a whole episode on how we leave things. But you can base it on age, you can say they get this and this at age 25, at age 30. You can choose it on that, you can choose it on ability, you could say when they graduate college, or you could say when they get a job, you know, whatever you want to say. Is your complete flexibility of how you leave things. So the point I wanted to make is a revocable trust has all kinds of features. But it is by far and away my favorite tool to use when I discuss really law and wealth and how to transition it to the next generation is this is the best tool. And I think most advisors, attorneys, everyone will have a consensus to that effect as well. Now there's a lot of good and bad that can come with how you set up a trust, and you need to make sure someone is qualified and knows what they're doing. I like to say a specialist. If your attorney says, I do personal injury and estate planning and divorce, I wouldn't suggest going to them to do a trust. They need to only do estate planning and trust planning and focus on that because it's a very complex area of law and there's no way you can do all of it effectively. So make sure who you talk to knows what they're talking about and is an expert in this field. And that's what we're here for. My law firm, that's all we do is estate planning. And that's what I want this podcast to serve is just as an educational outlet so you can understand and learn about what you need to know before you even come talk to me. You can gain some education and at least enough to do some research. So yep, that is it. That is episode 3, our second educational short-form episode. Next time we will have a really exciting guest for you to talk through some issues around estate planning, financial planning, and then we're going to dive into more details of a trust as we go forward in each of these episodes. We're going to dive into everything you might have a question on. So thanks for listening.

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