In her book, Women’s Worth, Eleanor Blayney, author and Consumer Advocate for the Certified Financial Planner Board of Standards, breaks through the traditionally male-dominated field of financial advice to offer insights and information that women can use to make the most of their financial lives. Her approach blends practical advice with easy-to-do exercises that will help you understand your beliefs about money, learn the fundamentals of financial planning, and gain confidence in your financial know-how.
Today, however, Eleanor joins The Steve Pomeranz Show to talk about trusts and their benefits. In introducing Eleanor, Steve notes that one of the most common questions he’s asked is whether one should set up a trust for themselves and their assets. Is a trust the best way to pass money onto the next generation or to take care of the financial needs of someone else? Many of these same folks also have the impression that trusts are only relevant to the rich. Eleanor argues against this stereotype, asserting that trusts aren’t just for the wealthy, but may also be a good option for anyone with an “interesting” or perhaps “complicated” life. In situations where someone has been married more than once, for example, or has children with multiple partners, setting up a trust can ensure that more complicated directives on leaving specific assets to specific beneficiaries meeting specific conditions are followed.
Steve asks Eleanor whether there is a simple test to determine whether a trust would be suitable for you and your estate. Her answer is that it comes back to the complexity of how you want your estate parceled up and distributed. Time is also a factor as well, how long you want your assets to last, which we discuss at the end of this summary. The more you find yourself wanting to add more detailed instructions about particular assets and beneficiaries—placing “if, and, or but” conditions on gifts to be bequeathed—the more you should consider a trust as the most reliable way to accomplish that.
Trusts come in two main types: irrevocable and revocable. Revocable trusts can be updated and assets added, subtracted or redirected anytime the trustor wants. (The trustor is the person who set up the trust who is also often the trustee until incapacity or death.) These are sometimes called “living trusts.” Provisions are frequently included that provide directions for what to do when the trustor becomes incapacitated or is otherwise unable to perform these duties. In most cases, the trust becomes irrevocable after the death of the trustor/trustee, meaning that no new assets or instructions can be added to it.
One of the main reasons for setting up trusts is to avoid probate, a court-supervised process of interpreting a will and instructing an executor on how to distribute assets. Trusts are private affairs handled by trustees, while probate entails the creation of a public record. This can have various negative effects, including inciting family members or others to contest the will or merely to stir up jealousy and resentment.
There are other specialized types of trusts that can be set up to define the terms of passing on assets to certain individuals. One of these is a “special needs” trust. This is designed to provide long-term care for children that parents believe will not be able to achieve financial independence. A special needs trust offers provisions for using trust assets to cover costs of housing and health care. These trusts are written in such a way that special needs children can still receive benefits from the government as well.
Naming a trustee to manage the trust after the death of the trustor is as important as setting up and writing the trust itself. Unlike an executor who is tasked with gathering the deceased’s assets and distributing them according to their will as quickly as possible, a trustee is in no such rush, and, in fact, one of their most sought-after qualities is their ability to manage a trust over many years and even generations. Trustees are responsible for overseeing any investments in the trust fund and for making distributions from it based on the trust document. Eleanor describes the ideal trustee as someone with some financial and investing expertise and tax law, especially as it pertains to trusts and estates. They’re all the more qualified if they know the family and can explain the trust with sensitivity to its various personalities. The one downside to this otherwise ideal trustee is that assets may remain in the trust after the trustee passes away or can no longer manage it. If the trust has been set up with the intent of keeping assets for a long time, of providing income to the trustor’s children in their retirement, or lasting multiple generations, a corporate instead of an individual trustee makes more sense. Corporate trustees, even when their parent companies are sold, can manage a trust “in perpetuity,” ensuring that investments within and/or distributions from the trust can go on for a very long time.
Steve offers a few last pieces of advice for listeners: visit www.letsmakeaplan.com to learn more about trusts and estate planning. Don’t forget to consult with a CPA to learn more about your options; and, if you’ve decided to establish a trust, always hire a lawyer to help draft your trust documents.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: One of the questions I get asked most is whether one should set up a trust for themselves and their assets? Is a trust the best way to pass money onto the next generation or to take on the financial needs of someone else? Well, I’ve asked back Eleanor Blayney, the Consumer Advocate for the Certified Financial Planner Board of Standards to join me today to discuss this question in a simple and straightforward manner.
Eleanor is also the author of, Women’s Worth, which is a book about how women can make the most out of their financial lives. Hey, Eleanor, welcome back to the show.
Eleanor Blayney: Thanks, Steve, it’s good to be with you again, thanks.
Steve Pomeranz: A lot of people often associate trust funds with millionaires and heirs of well-known hotel chains.
Is having a trust solely driven by the amount of someone’s net worth?
Eleanor Blayney: No, this is not the case. I mean, certainly, yes, that’s what we associate it with, and possibly it’s kind of a relic from our past. The more money you have, the more you may want to use a trust for a variety of reasons. But the reality is that today it doesn’t take wealth, it really just takes having a complicated or perhaps interesting life to suggest that a trust may be appropriate. Because we tend to…many of us marry more than once, we have different sets of children, we bring our past into marriages.
All of these things that make it a little complicated to leave assets simply and directly to people, all of those are reasons for establishing a trust.
Steve Pomeranz: So, very order hydrocodone online simply, what is the first step in assessing the need for a trust? What would be a real quick test you can do to see whether you should consider a trust?
Eleanor Blayney: Right, well, this is the way I put it. I ask people, think of everything you own and then think of who you want to get that asset should you pass away. And if you find yourself saying something like, well, I’d like just to go to my wife, but I sure don’t want a second husband to get it.
Steve Pomeranz: [LAUGH].
Eleanor Blayney: Or I’ll give to my daughter as long as she is not in debt [LAUGH].
Steve Pomeranz: Right, right.
Eleanor Blayney: Or I’ll leave it to my son, but not until he’s at least 40 years old and understands what life is all about.
Steve Pomeranz: Right.
Eleanor Blayney: In other words, if you have to use a paragraph or two, if you need more than one short blank to name your beneficiary because you wanna put more about the instructions for the assets, every time you think of an “if and or but” as you hand over that gift in your head, then you should be thinking trust.
Steve Pomeranz: I love the way you put that. Eleanor, you also hear about whether a trust can be revocable or irrevocable. What is the difference and how should you consider which one to choose?
Eleanor Blayney: Right, well, revocable means that you set up a trust and you put assets in it, but you as the trustor, the person who established the trust, you can, in fact, change it at any time.
You often hear this referred to as a living trust. And people use these kinds of trusts for a variety of reasons, and they want to put assets in the trust or organization for management. There are also provisions in there that, oftentimes the trust will provide for incapacity. So, I might have my assets in trust, but the trust says, if for any reason I’m no longer able to handle my affairs or my assets, somebody else will take over.
So it serves a kind of incompetency function as well. People do this and then often the trust then becomes irrevocable at their death. So, you put it into effect now, and, for all intents and purposes, it’s just like owning your assets in your own name from a tax point of view but then, it becomes set in stone at your death.
People do this primarily to avoid probate, which is a court adjudicated process or court-supervised process, where, for example, if you left it in your will, if you left all your assets in a will, someone has to supervise that process. If you put it in a trust, you do not have that supervision at your desk.
And you also…many people like having the privacy of a trust because it does not become a matter of public record the way a will would.
Steve Pomeranz: And probate can open the state up to someone contesting the will and so on; a trust avoids that issue.
Eleanor Blayney: Correct.
Steve Pomeranz: Also, you may have a child that has special needs, and talk to us a little bit about a special needs trust.
Eleanor Blayney: Yes, this is obviously a very legitimate concern of those parents who have a child, and, for whatever reason, they are going to require funding, money, perhaps as they grow up.
In other words, you don’t expect this child to be totally financially independent at some point. They’re gonna need special housing or special care. And establishing what is, in fact, called a special needs trust is a special way of being able to leave assets for the provision of this child, but it’s drafted in such a way that the child then does not become ineligible for any federal support that may be available.
Steve Pomeranz: Mm-hm, okay.
Eleanor Blayney: So, it’s a very specialized type of trust that parents in that situation definitely should be considering.
Steve Pomeranz: I’m speaking with Eleanor Blayney, the Consumer Advocate for the Certified Financial Planner Board of Standards, and we’re talking about trusts. You have to really name a trustee on your trust.
What is a trustee’s function and what are some of the ways that you decide who to name?
Eleanor Blayney: Exactly, and this is probably, in addition to setting up the trust and the terms, choosing a trustee is one of the most critical decisions you’ll make. Now, we’ve talked about irrevocable trust and, generally speaking, you are the trustee of your irrevocable trust.
But if this trust is to survive you and to go on to provide assets and distribution of assets to your heirs after your death, you are going to need a trustee to take over that function. It’s important to understand that a trustee is unlike an executor. We have executors on our wills, and their job is very time-bound.
In other words, it’s their Job is to simply assemble the assets that are left in the will and make sure they’re distributed. So, an executor wants to do him or herself out of a job as quickly as possible.
Steve Pomeranz: Exactly.
Eleanor Blayney: They want to get the estate settled and move on.
A trustee can be long term for several generations. That’s a job maybe for several generations because it’s this person who will manage the assets in the trust, will get them invested, will prudently and with the care of a fiduciary, will make the distributions as provided by the trust document.
They may be given the discretion as to when and how much those distributions might be. So, you really want an individual, number one, who’s a mature and sensible adult. You want somebody who has some financial and investment awareness, knowledge, expertise. Someone who understands taxes because trusts are subject to, in some cases, their own special tax rules, and it takes expertise managing all of that.
Steve Pomeranz: I think sometimes you also want an institution, if you’re talking about multiple generations, you want an institution involved as well, right?
Eleanor Blayney: Well, absolutely, and the reason for that is you may have the perfect person in the family. And, by the way, one other job requirement or job description for this trustee, it’s always nice to have somebody who knows your family, who knows who they are, their special needs, can have a good and thoughtful conversation with your beneficiary.
So you may have the perfect person. Your brother-in-law is a CPA, understands taxes, understands investments, loves your kid, whatever it is, perfect person. But he doesn’t last forever, and it may be that your trust needs to go on to contemplate a time when your own children may be retiring.
It depends on how long you want the assets that remain in trust. And, so, this brings up, as you say, Steve, the need for a corporate trustee. The advantage here is the corporation, it doesn’t have a life expectancy, it continues in perpetuity or it’s taken over, or it has some ongoing life, and, therefore, a corporate trust company is especially established to remain as trustee for the very, very long term.
Steve Pomeranz: So, for more information about this, you can go to the CFP website, which is www.letsmakeaplan.com, where you’ll find more information about this. Also, consult a CFP professional, and don’t forget that you’re gonna wanna use an attorney to construct the documents. You do not wanna bypass an attorney for creating those documents.
And to learn more about Eleanor and to learn more about trusts and estates, and to hear this interview again, join our conversation at stevepomeranz.com. Eleanor Blaney, thank you so much for joining us and filling us in on this very important issue.
Eleanor Blayney: Well, thank you for having me.