Live Life and Trust It!

With so many decisions to make, obligations to fulfill, not to mention other people’s judgments to deal with, and only one chance to navigate which could last another 60 years or only another 2 minutes, thinking about death can help channel your energy on living the best life you can.

I am not a dark person. I don’t go around with morbid thoughts about dying and death.  I am just like many of you reading this (or not reading this if I lost you already).  I work, I have kids, a family, friends, hobbies and so on.  

But yes, I am also an Estate Planner and I help people plan what will happen to their things and family when they die. A thought that may make many people cringe.  Ironically, my job as an Estate Planner helps me focus on my life.  On living. I mean, with so many decisions to make, obligations to fulfill, not to mention other people’s judgments to deal with, and only one chance to navigate which could last another 60 years or only another 2 minutes, thinking about death can help channel your energy on living the best life you can. Heck, we are only given one shot, there are no do-overs, so why not live with full blown fury, purpose and of course, a little spice.  I challenge you as well to shift the perspective of planning for your own death from “dreadful and gloomy” to “let’s nail this life thing and then give it to family.”  How’s that for a little woohoo-ery?

 Seriously though, we spend so much time planning dinners, birthday parties, trips and work meetings, why not take the time to plan for the one thing that is certain to happen in your life? It’s honestly one of the best things you can do for your families, and it may even change your perspective on living.  True story: I recently worked with a couple with young kids.  In the process of mapping out their plan, they told me that it forced them to reflect on what they have, the people around them, those they love and their values.  It brought an awareness into their everyday living that they had taken for granted, not to mention peace of mind that their kids were forever protected. Boom! They got it and I did my job.  That is, not to produce a set of documents that sit on a shelf for years, but a priceless outcome which you can incorporate into your daily being and will last for generations.

The mother-load of all planning tools which will accomplish this outcome is that of a Trust. 

Specifically, a Revocable Living Trust.  What is this you ask? (I know you are sitting on the edge of your seat.) First, this is not a document for the extremely wealthy. It’s a tool for everyone.  It’s an agreement by and between yourself, yourself and yourself, if that makes any sense.  It can save your child’s inheritance from creditors, bankruptcy and divorce payments. If you are a young couple, it can protect your assets so that if something happens to you and your spouse remarries, your money will pass to your children, and not your spouse’s new partner. I’ve outlined five (5) additional major benefits (and there are more) of a Trust which can help you not just pass along your legacy to your children but protect it and them along the way.

Revocable Living Trust: 5 Colossal Benefits

First, some may argue that the Last Will and Testament is the core document, and to some extent they are correct. That’s because even if you establish a Trust, you still need a Will.  However, a Trust has so many benefits that a Will cannot measure up to.  It’s like comparing a kayak and a yacht, without the huge disparity in cost. No offense to devoted kayakers.

Probate is the Court process where, in short, a lawsuit is opened by your Personal Representative so that creditors and angry heirs can file a claim against your Estate.

1.     First and foremost, your assets in a Trust skip probate as opposed to assets in a Will, which are subject to probate. Probate is the Court process where, in short, a lawsuit is opened by your Personal Representative so that creditors and angry heirs can file a claim against your Estate. It is problematic and a combination of everything not fun.  First, it drags on and may hold up the disbursement of property to your family for months, maybe years.  During that delay, your family is paying your expenses and waiting for their inheritance.  Next, it’s expensive. I can’t stress this enough: probate can result in humongous fees and costs to your heirs - way more than average cost of a trust, especially if one of those creditors or angry heirs makes any sort of objection to your Will.  Lastly, the probate process is a matter of public record.  This means that the world can find out what you owned, how much it was worth, and what your loved ones are inheriting.  This can be problematic if you have a child with large debt because creditors now know what your child is inheriting and can get at the money.

 2.     Also, unlike a Will, a Trust can easily be changed.  Execution (signing) of a Will and/or a Will Codicil (Amendment) requires certain formalities, like signing in front of “disinterested and competent” witnesses.  No witnesses required when amending a Trust.  You can take out stuff, put in stuff, amend or revoke the entire document at any time with ease and generally less expense.

 3.     A Trust takes effect when you are living and you retain much more control over where your assets go after death.  For example, suppose you leave your entire estate to your kids.  What if one of your children is to get divorced (I mean, it happens 50% of the time)?  Without a Trust, you have no control over where the money goes after your death so that your child’s inheritance may end up in the hands of the divorced spouse, who later chooses to remarry.   His or her new/second spouse may then be entitled to your money and leave it to their kids, who you nor your child ever even met before! A proper established Trust could avoid this situation so that your money would pass, not to the now abhorred in-law, but keep it with your kid who could pass it directly to your grandchildren.  So, with one swipe of a pen, you just kept the money in the family.  Nice, huh? 

 4.     A successor Trustee is named so that if you become disabled and can no longer manage the assets in the trust, the successor trustee can simply step up and do the job without your family undergoing the hassle of going to Court to ask permission. (Court is time, money, and a little emotional turmoil sprinkled on top, always remember that.)

 5.     Oh, the tax savings. . . the massive tax savings.  If you are a married couple, you can create a Trust to minimize or eliminate estate taxes. I’d like to give my heard-earned money to the government, said no one ever.  In Massachusetts, the current estate tax exemption is $1M which means if you have an estate valued over $1M, you are going to pay an estate tax (unless you properly plan of course). If you live and own property in Massachusetts, you are likely to reach that threshold. The even more bad news is that you are taxed on the entire amount, not just the amount that’s over the million dollars, even if its $1,000,001.00. The good news is that with the establishment of a proper Trust, you can bypass this liability. The Trust is set up so that it splits into two Trusts after you pass and shelters into one Trust an amount up to the estate tax exemption, in this case $1M, and saves it from being taxed. To illustrate:

 Here’s an example without an Trust:

 Bill and Betty have a combined net worth of approximately worth 1.5 million dollars. For simplicity purposes, let’s say Bill owns $750,000; Betty owns $750,000 since everything is always so equal in marriages.  Bill dies (statistically, men have a shorter life span).  He can leave everything to Betty without a triggering a tax due to certain spouse friendly tax laws.  However, now Betty is the proud owner of $1.5M.  This means, when she passes, her Estate could be subject to a tax payment of up to or even over approximately $65,000 (depending on several factors, including how much Betty spent on merriments after Bill left this fine planet).

 Here’s what would happen if Bill and Betty planned a little better:

 At the passing of Bill, the original Revocable Trust would split into two trust.  Let’s call them Trust A and Trust B for simplicity purposes. Bill’s $750,000 would be placed in Trust B, and completely sheltered from tax liability.  Betty does have access to that pot, with some reasonable limitations. The remaining $750,000 would be placed in Trust A, of which Betty is considered the owner and has full control over.  So in the government’s eyes, when Betty passes, no Estate Tax would be due. Thereby saving Bill and Betty’s kids $65,000 in tax payments – with one stroke of a pen.  Brilliant!  It gets better because the Trust can also be structured to protect Bill and Betty’s kid’s inheritance from creditors, bankruptcy and divorce, so that if there if there is any money left over after Bill and Betty’s kids pass, Bill and Betty’s grandchildren are sure to receive some cash (vs. a collection agency).

 These are just a few of the many examples of the mighty benefits to a trust. And truthfully, it’s not just a document that your creating, it’s an outcome for your loved ones. It saves aggravation, time, money and allows your family to live their own fulfilled lives and pass it down to their own kids.  A dynasty of sorts, all bundled up in one agreement. Plus, you get the satisfaction and peace of mind knowing that you’ve done the best you can for your family, while you are here to give it to them.

 A conversation with your trusted attorney will enlighten you about the many more advantages to having a funded trust in place. I wholeheartedly encourage you to have this conversation because your family is not just important, it’s everything. It’s where life begins and love never ends.