Wealth Transfer Planning 4 of 6
It’s very common to see an estate plan that says “leave all my money to my spouse and then my kids equally.” We call that the “I love you” will because it’s pretty simple to understand and doesn’t require much other planning. But this plan may not work in situations that involve a past divorce, or remarriage, where there are minor children, or special needs children, financially irresponsible individuals or frankly, some in-laws you don’t care for very much. That’s where a trust can come into the wealth transfer plan.
Think back to when you left your children with a baby-sitter. Did you let the baby-sitter decide what they could eat, when they could go to bed, how they could spend your money and what the rules of your house would be? Or did you leave some instructions that said “In my absence, here’s what I’d like to see happen”?
A trust is like a rulebook for the safekeeping, control and distribution of your assets in your absence. With your power to elect a “baby-sitter” (or more formally, a trustee), you give them the authority to act in your absence to ensure your wishes and rules are followed. Since you set the rules, you get to define the “who, what, when, where and how” of the future distributions. You have the freedom to be as specific or creative as you want or need to be, depending on your situation.
I often hear that trusts aren’t needed if one’s estate isn’t above $5.5 million, or a couple’s estate doesn’t pass $11 million. So here are some common situations where a simple “I love you will” may not work, and some kind of trust might provide better control, regardless of one’s net worth.
- You got divorced and then remarried. So you want to care for your surviving spouse, but also want to ensure that when they pass, the remaining assets transfer back to your children. Here, the “I love you” will may not cut it because you can’t control future circumstances after your death. What does your surviving spouse’s will say? Does it include your children? What if they remarry? There are multiple marital trusts available for this situation.
- You have a grandson with special needs. You want him to receive his share of your estate, but that may disqualify him from receiving government support for his disability. Protect his assets with a type of special needs trust.
- You heir hasn’t proven to be financially responsible. If you stress about your daughter and her own finances or your son-in-law’s access to your assets if she predeceases him, then use an asset protection trust. You can stipulate how money is spent and who has access.
- You have minor children. So you want to give in equal shares to all your children, but only after all higher education costs are paid for my youngest son. In the absence of outlining this, fair may not be equal in your will. Use a trust to define this process.
If these situations are part of your reality, you should be talking to your CFP® professional and your attorney about how to take control of your wealth transfer plan. In summary, trusts aren’t just for the wealthy that are looking to avoid estate taxes. They are also tools to protect your assets from creditors, litigation, divorce and other unforeseen circumstances.
This information is not intended to be a substitute for specific individualized legal advice. We suggest that you discuss your specific legal issues with a qualified legal advisor. Haas Financial Group, US Financial Advisors and LPL Financial do not provide legal advice or services.
Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and Haas Financial Group are separate entities from LPL Financial.
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