Wills & Trusts: The Forgotten Piece? - Butler Financial, LTD


Wills & Trusts: The Forgotten Piece?

Wills and trust documents play a central role in the estate planning of many families.  Both play key roles in the distribution of assets upon death.  However, it is important to remember that a will does not avoid probate.  Anything held in your personal name that you bequeath in your will must be probated.

Typically, and depending upon the size of the estate, a probate tax will be due as well.  In many states, the trigger for the tax is when the estate is larger than $30,000.  That being said, it takes a considerable amount of time and effort to assemble estate data and complete the necessary paperwork.  Whether an attorney is necessary or not, there is an inherent cost.  That cost includes the value of your heirs’ time.  

The will does not maintain any control of your assets.  It only disseminates them.  A Trust, however, can provide considerable control.  It stipulates who will receive what, when they will receive it, and for what purpose.  For example, if your child is the beneficiary and faces a judgment or divorce, the asset in a trust can be protected from the claims of a creditor or an ex-spouse.  If you deem your child to be a spendthrift; you can set up a monthly income stream that limits access to the entire inheritance.  The trust is effectively in its own estate.  As such, it safeguards your legacy.  You can have much of your money titled in the name of your revocable trust, which upon your demise, becomes irrevocable.  

Assets that are titled within the trust do not go through probate.  Therefore, probate expenses and taxes can be avoided; as well as the privacy issues that may arise.  When a will is probated, the disposition of the assets is a matter of public record.  As such, many people would prefer to keep this information private.  Retirement plans also avoid probate if the beneficiaries are alive and capable of receiving the assets.  The beneficiary designation takes precedence over the will.  

Considering family dynamics is imperative when deciding who should be appointed as trustee.  If there are two children, one of whom is a good steward of money and the other is not; hiring a professional organization to handle the trustee duties may be the best option.  Opting for the good steward as a trustee could be unintentionally setting up the siblings for a fight.  Giving power to one child over the other can lead to trouble.  

When establishing a trust, it must be funded, and the assets must be properly titled.  One of the big issues with estate plans is implementation.  It can cost $3,000 and up to establish a complete estate plan.  Of course, this depends on what is included.  The cost of probate on a half-million-dollar estate would be about the same; but setting up a trust provides a tremendous amount of additional benefits, direction, and privacy.  For larger estates, the savings are significant, including a big savings on the probate tax.  It is important to note again: a revocable trust becomes irrevocable upon your demise.  

Irrevocable trusts come in many varieties including the charitable remainder trust (CRT).  The CRT enables you to donate assets to a charity and retain control of those assets during your lifetime while also receiving regular income.  A tax deduction is received for the charitable donation, and the charity gets the balance of the trust as a lump sum, exempt from taxes, upon your demise.  

Of course, that also means that children or other heirs won’t be receiving the inheritance.  Many families use a life insurance policy to replace the wealth given to charity so that the children do not feel slighted.  A death benefit also can be used to create liquid assets for the heirs upon your demise so that they are not forced to sell a property to pay the taxes due.  Depending upon the size of your estate, this may be appropriate.  Additionally, for families leaving a business to the next generation, life insurance can serve to equalize the estate.  For example, perhaps only one son is interested in continuing the business while his siblings have no interest in it.  The siblings do however have an interest in their share of the inheritance.  Life Insurance can solve that issue:  the son gets the business and his siblings get the life insurance payout.  


*Excerpt From “Financial Stability For Life”, by Daniel E. Butler, CFP®


**Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Any opinions are those of Butler Financial, LTD. and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.


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