By Yvonne Marsh, CFP®, CPA
It’s not an uncommon question – people often ask if trusts are needed. I’m not a lawyer, of course, but as a CFP®, I can share what I see in my daily work.
My clients typically use trusts for two primary reasons: (1) so their heirs have the simplicity and privacy of avoiding the public probate process, and/or (2) to “reach beyond the grave” and control how the heirs can access their inheritance. Here are a couple of ways to accomplish either purpose.
A revocable living trust (RLT) is established while you’re alive. As trustee of the trust, you’re in full control. The trust uses your personal SS number, and all income is reported on your personal tax return. (Which is good, because personal tax rates are lower than trust tax rates.) Here’s the trick: You need to re-title all of your assets in the name of the trust, both now and in the future. Otherwise, you have an empty trust – you’ve created a governing document, with no assets to govern. To be sure, your lawyer would have created a “pour-over will,” pouring any outside-held assets into the trust. But, to accomplish that, your heirs have to go through probate, which you were trying to avoid.
Note that some accounts such as IRAs cannot be titled in a trust’s name, and instead you would name your trust as beneficiary. (There’s a layer of complexity in naming a trust IRA beneficiary, so talk with your financial professional or CPA first.)
The second type is a testamentary trust, whose terms are laid out in your will but doesn’t exist until your passing. This type of trust is used if you’re concerned your adult child might make poor financial decisions or in anticipation of young adults or minor grandchildren inheriting assets. You name a trustee – who you want to oversee the assets – and lay out how you want the trustee to use the money on behalf of the beneficiary. Typically, these trusts have some payout schedule, giving the money to the heirs over a period of time and then ending, rather than lasting for the heir’s lifetime. It’s SO important to choose a trustee that will be wise in their decision making. The power they will wield is great.
As to whether you need a trust… it depends on your unique financial situation and needs. It could be worth exploring.
Marsh Wealth Management, LLC
Fiduciary Registered Investment Advisor
504 Ebenezer Road
Knoxville, TN 37923
Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee. Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee. Marsh Professional Group, LLC is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at adviserinfo.sec.gov.