Recently I saw an Internet video titled, "What attorneys don’t want you to know" and of course I was offended because you know Your Wealth Bestfriend®️ is here for that very reason, to let you know what you need to know so you can thrive. As I watched the video, I couldn’t do anything but cringe and not because of the TikTok-type dancing but because there were so many half-truths pertaining to estate plans in the video.
Let's get this straight: Trust Edition
If you want to see the video I'm referencing you can click here. I figured I would point out the issues with the video and clear them up one by one for you bestie.
First of all, unless they are an attorney, please don’t listen to them about a trust or a will or estate planning. Anyone can fill out forms but handling, Estate Planning comes with details and special circumstances that only an experienced estate planning attorney can immediately point out and correct to avoid unpleasant legal battles in the future. Estate planning requires practicing law, you need to know the federal laws as well as laws in your state, which include the probate/succession laws, trust law, state requirements, and tax law just to name a few.
Of course, the video was made by someone who is not an attorney and didn’t work at a law firm but said she could help “coach” you on how to protect your assets with a trust. If and when they give you advice about the law and how it works, report these people to the state bar because it is the unauthorized practice of law.
Okay, let's get into the analysis of the video. The video starts by saying,
“Wills make your loved ones pay the debts first, deceased people don’t pay debts”
What I think they mean here is if you pass away without a will, you will have an estate that the court will have to help your loved ones sort out. With a will in place the court has instructions about what you wanted to happen to everything left in your estate and without a will the state will use the default rules to determine who gets what. In both situations, your creditors can make claims against your estate for repayment so YOU CAN in fact pay your debts after you die IF you have money/assets in your estate. This is why you hear people talking about protecting your assets with a trust because creditors (after your die) usually cannot go after items in your properly funded trust.
“you are not required to hire an estate planning attorney to set up your trust”
This is true with a caveat. Remember all the laws I said you needed to know about when you are dealing with an estate plan? If you handle your trust yourself you need to know state law requirements (which can be as simple as, can your trust be witnessed or does it have to be notarized?), probate law, trust law, you need to understand fiduciary duties because as a trustee you will have duties to the trust and trust beneficiaries and you also need to know tax law because the type of trust you have, could lead to the trust having its own taxes that need to be filed.
There are so many companies trying to cut attorneys out of estate planning but I’ve noticed after they try to walk their clients through the process without an attorney, they ask an attorney to review everything. Honestly, this is what I recommend if you are going to take a go-at-it-alone approach because estate planning documents are no joke and are intended to control your money, life and so much more. So in essence you still need an attorney.
You can hire a banker trustee to make all your investments and transactions,“Banks don’t go to jail trustees do”
I was good with the first part of the statement then they went left. While you are drafting your trust you get to pick trustees. The trustees are responsible for carrying out your wishes, for example, if you state that you want the money in your trust used to pay your mortgage this becomes a trustee duty, i.e. making sure the bill gets paid.
You can list banks and trust companies and individual trustees as trustees of your trust. However, make sure to do some research to find out about their fees. Usually, the fees are pretty high and in some instances, they will require your trust to say the trustee can be paid a “reasonable fee” so that they can charge whatever their going rate is at the time.
All the institutional trustees I have worked for charged by the basis point which is akin to taking a percentage of the total value of the trust. This would harm a lot of people with illiquid trusts (meaning you only hold assets that can’t quickly be turned into cash, like a house). Because the trustee is going to want to get paid and they don’t care how. I’m not even going to touch on the banks don’t go to jail. Just know having an institutional trustee is a good idea when your plan is to support many generations or you want to support a charity long term, that way your trust will be managed much longer because as long as the bank or other institution is around, they will have someone to manage your trusts. Trustees do go to jail or have to pay back restitution if they breach their duties but the bank will have to pay any misappropriated money back too, they aren’t immune just suffer different consequences. A trustee can always be removed by the court if they are breaching their fiduciary duties.
“An irrevocable trust protects assets, shields them from lawsuits and creditors, and have amazing tax benefits”
Irrevocable trusts are not for everyone, they do require an attorney to set up so that you understand what you are doing. Creating an irrevocable trust when you are alive means you can not change the terms of the trust without petitioning the court and you have permanently given up ownership of any assets that you put in the trust (imagine changing your mind but now you have a permanent beneficiary or wanting to sell property you transferred to the trust and now you can’t change without the trustee agreeing or spending a lot of money to go to court).
With a revocable trust, this would be a quick and easy amendment, but with the irrevocable trust, the assets are no longer yours AND you cannot control them because for a valid irrevocable trust, you cannot be the trustee and instead it must be an unrelated party. So, if for some reason you get sued a lot then maybe but really you should start looking at risk management and how to limit your liability rather than immediately thinking about using a trust. Although, there are certain professions where an irrevocable trust would be warranted. While, an irrevocable trust “may” protect your assets, a court can reclaim these assets when it feels you unjustly transferred funds to the trust to avoid a lawsuit.
Minimizing estate taxes (meaning the taxes that occur after you die) is one of the biggest reasons to have an irrevocable trust but as of 2023 you have to have over 13 million dollars to trigger that tax. Another reason many people decide to go with an irrevocable trust is to help disabled beneficiaries become eligible for government programs like Medicaid and Supplemental Security Income.
I also don't want to fail to mention that by creating an irrevocable trust in this manner you are putting yourself in the top federal tax rate, which is definitely not worth it if you weren’t in that tax bracket before. Don’t let these scammers talk you into creating an irrevocable trust when you don’t need one. You need an estate plan but likely not one that includes this complex option. There are very specific times when an irrevocable trust is the answer.
Last but not least...
“don't put loved ones as beneficiaries. They don't have control only and benefit when somebody dies. What if they are in a coma?” I edited this one for clarity.
This was the vaguest advice the video gave. I initially thought they were talking about using beneficiary designations but realized the whole point is to get you to create a trust with them so let’s decode this from a trust perspective.
Usually when you decide to leave someone as a beneficiary of a trust and you don’t get them the money outright to spend as they please, you are saying you don’t want them to have control. You want to continue to provide for them and make sure the remaining funds are invested and grown so that they will last long-term. So, it makes perfect sense that they wouldn’t be in control of how the trust funds are spent. If you want them to be in control then allow them to be a trustee or co-trustee.
Let’s address the “what if they were in a coma?” statement. The trust can specify that money given to an Incapacitated or unavailable beneficiary can be given to their power of attorney or guardian or it can be held in trust and used to support them on a discretionary basis. Trusts are very flexible if drafted and used properly.
The End All Be All
You have a better chance of success if you are working with a knowledgeable licensed attorney in your state. Don’t know where to start, look up the state bar and find out if they have a referral service. Already have a trust and don't understand how it works? Have it reviewed by an attorney in your state. Your estate plan is important and it is a plan that has the potential to impact so many lives if done right. Do yourself a favor and start today.
If you find any of this overwhelming, don’t feel bad, schedule a one-on-one appointment, and let’s talk about it.
Until next time! ✨Keep Living Your Healthy Wealthy Life,✨
Your Wealth Bestfriend®️
Jala Eaton known as Your Wealth Bestfriend® is a seasoned personal finance writer as well as an Attorney and award-winning Certified Trust & Fiduciary Advisor (CTFA). When she is not running her businesses, teaching, or writing she enjoys dance parties in the kitchen with her child. Her work has appeared on, Business Insider, Experian, Real Simple, The Skimm, Yahoo News, and others.
*This site is for education purposes only.