Matthew continued to explain four important things to know about trusts:
1. There are many types of trusts, but the most basic is a revocable trust, sometimes referred to as a living trust. A revocable trust is advisable when you have after-tax accounts (not your IRA’s, 401K’s, 403B’s or other pre-tax retirement plans), and you do not want them to go through probate. A revocable trust directs your estate privately, so there is neither a public announcement nor a judge involved in making sure your estate is settled without debt. A revocable trust can also distribute money over time, if your goal is to spread distribution to your family for many years after you pass away. Many times we see trusts distributed this way when the grandchildren are young. So as you can see, the benefits of using a revocable trust can be great. Revocable trust owners need to be aware that if they become disabled their successor trustee must follow their instructions. In essence, the trust can be revoked or changed by you, but your child who takes over in the event you are disabled does not have that same flexibility.
What to watch out for: The biggest possible misstep with a revocable trust comes when you, as the grantor of the trust, become disabled and your adult child takes over when there is language specific to healthcare and your direction to pay for that care from your trust. In this situation, any protection of your assets from long-term care that your child could have used to protect your hard-earned dollars from a medical spend-down is lost.
2. Irrevocable trusts can have many strings attached. You need to know what those are before you enter into an agreement that cannot be changed without court involvement. Irrevocable trusts are great for holding life insurance outside of your taxable estate, if you have no intention of getting to your cash value in the future. Some irrevocable trust planning makes sense when certain types of real estate are involved. Experienced Elder Law Attorneys know how to create hybrid trusts that offer some of the desirable benefits of an irrevocable trust while offering more flexibility and less problematic strings attached.
3. You cannot wrap a trust around your IRA. Your IRA is a pre-tax asset, and it is directed at your death by beneficiary designations. It is critical that you keep a copy of your beneficiary designation form with your legal documents. In the event you die and the custodian cannot find your IRA beneficiary designation, your IRA is paid to your estate and ends up becoming a probate asset that goes through the full process of probate. This cost and delay of probate can easily be avoided by maintaining a copy of your IRA beneficiary designation form.
4. In many situations trusts make sense, but if the trusts are not funded, the benefits are lost. All too often a person seeks out the least expensive trust option desiring value for their money but end up getting absolutely nothing for their money. Once you have a trust, you must link it to the accounts you want governed by the terms and conditions of your trust (could be revocable or irrevocable)
Matthew also stressed the importance of getting the opinion of an advisor who can confirm that the assets you own are in fact properly wired to your trust. “Take some time to discuss your trust planning options, and when you decide they are right for you make every effort to ensure they are properly attached to your assets so they ultimately go to those you love,” said Zagula.
For more information on how Matthew Zagula can help, please call 1-800-723-0533.
About Matthew Zagula:
Matthew Zagula has been a coach to the nation’s top lawyers specializing in estate planning and elder law, an accomplished financial advisor to his clients, an author, radio personality and founder of several institutes dedicated to providing sound fiscal advice to veterans and seniors for just about the last 20 years.
Zagula’s experience in insurance and financial planning began with Guardian Life Insurance Company and extends through a position with Northwestern Mutual where he acted as a special agent for advanced cases. Zagula has an extensive background in retirement and estate planning, and executive benefits.
Zagula has been and continues to be at the forefront of many training programs with some of the nations best Elder Law Attorneys and Financial Advisors.