Ep #21: If's, And's, and But's - Probably Constitutes A Trust

Benjamin Haas |




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Benjamin Haas  00:03
Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts now!

Adam Werner  00:27
Hi Ben.  How you doing?

Benjamin Haas  00:30
I am well, Adam.  How are you?

Adam Werner  00:31
I'm just great. I'm looking out my window that nobody can see right now and there's still snow outside.

Benjamin Haas  00:41
Yeah, seems like a never ending daily chore to relocate snow. 

Adam Werner  00:48
So for those of you listening in August, you're probably thinking, what the heck are these guys talking about? It's bright and sunny and warm? Magic of podcasts.

Benjamin Haas  00:59
Yeah so here we go.

Adam Werner  01:02
Yes. Today, we're going to talk about trusts and I think there's definitely the common misconception that is, if I don't have a ton of money, millions upon millions of dollars, then I don't need a trust. They don't apply to me. So we'll go through, I guess some of the reasons or some of the stories that we can share, that may not be the case. 

Benjamin Haas  01:28
Right. Yeah, I think one easy way to think about that on when would a trust be relevant is to go through the exercise. If today, you had to give away everything. We're not just talking financial accounts, it's jewelry, it's family heirlooms, it’s the house, property, car, everything. If you had to give everything away, could you confidently complete those transfers without any reservations whatsoever? And if there are some ifs, if there are some, yes, but. If those come to mind. Then let's talk about how trust can play a role and I think that's going to include many more people then, like you said, just an ultra net worth.

Adam Werner  02:11
Yeah, absolutely. I'm just thinking of that in my own head, even if it's a very specific family heirloom that you mentioned, wanting that to go to a specific person or a specific family, or member of the family, whatever the case may be, you can do that through the will, correct? 

Benjamin Haas  02:33
Sure but I think this is where we would actually have the conversation on control. Right, and for you to maintain some sort of control with how things should be going after you're no longer either with us or whatever that would be, then that's the reason for a trust. So let me start selfishly for myself, right, you've got minor children, too. If at some point, money needed to be left behind, God forbid, my wife and I passed away at the same time, now there's money that's going to care for my kids. They can't handle that at their age, it's probably prudent of me to have a trust that says, here's how this needs to go for them almost like instructions to our babysitter, right? Here's how we want things to go. This is when they need to get pajamas on, brush their teeth, this is what we follow. It'd be the same thing with money. We want it to care for this thing, care for that, maybe some of this can be theirs at 25 but then the rest of 30. That's control. We want that control when we're no longer here. That's reason for trust. 

Adam Werner  03:35
Yeah and I think that's certainly in our world and that scenario is one of the most obvious when there are minor children involved that can't manage the funds on their own because they're not of legal age. That a pretty easy one, I think and you hit on it, right? The use of any trust to me is ultimately about control and the person setting up that trust being able to have that control long after they have passed on or even while they're living. But in my head, it's from beyond the grave being able to kind of dictate and control who gets to use the asset for what purposes and really can be super specific with the use of their funds once they have passed. 

Benjamin Haas  04:24
It's not just minor children that either I mean, we know many different people go through challenges in life, maybe it's an adult child that's just doesn't have the fiscal responsibility to be able to handle what may be some sort of windfall for them. So to kind of stipulate how that money needs to be handled, what access there's going to be, I think this is probably important to share. A trust is going to have somebody that is then in control of executing what that document says, a trustee, right? So put somebody else in control of managing those affairs until somebody else is ready to do it. Or maybe there's situations where they will never be ready, right, I think of a specific situation that we've been a part of for a specific client, she's mentally disabled. She's not going to be able to manage her own affairs, it was really important for mom and dad to make sure that she was going to be cared for, that money was going to be there to care for her but she can't have access to that. She doesn't have the responsibility and that may complicate other benefits that she gets. Other scenarios that you can think of where these trusts pop up for us? 

Adam Werner  05:32
So going back to that control idea, we certainly see it right. It's the blended families. 

Benjamin Haas  05:39

Adam Werner  05:40
Couples that both had previous marriages, maybe they're both divorced, they have children from previous marriages and now maybe they have some stepchildren, that combining of families, the scenario where husband and wife, both married before, are now coming together, the families are being merged. Let's say husband passes away but he wants all the funds to take care of his bride, his new wife now but upon her passing, wants the money to come back to take care of his children in the future, rather than just go to her and now go to her children. It's just those super specific scenarios where you just, you can dictate the flow of your assets after your passing. 

Benjamin Haas  06:25
We've seen that even outside of the trust environment, just you know, being really good about your beneficiary designations. 

Adam Werner  06:30

Benjamin Haas  06:30
I think about a client situation we had last year where that wasn't thought through, right, leaving everything to your spouse, then once you pass away, the spouse can dictate where that goes and when maybe that wasn't including the next level of heirs that you wanted to include. So I think that's a really good one and that is more and more common, as this illusion of relationships, people go through challenges, remarriage. Control, that one makes complete sense to me.

Adam Werner  06:58
Yeah and we kind of talked about the children. But another scenario there is, let's say, there's adult children now that have married, started their own families we'll just say that you may not be a strong fan of your son or daughter in law and you would want to protect that asset from any potential again, dissolution of a relationship, who knows. Bad things that can happen on that side of things but again, it's ultimately about control and who you want the asset to help in the future or who you want to have access to your funds down the road. 

Benjamin Haas  07:37
I think that is a really important one to bring up, we brought up minor children, we brought up special needs, we brought up blended families, I think, even when you want some sort of degree of control or privacy on what is going where, that's the other reason for trusts in certain situations, again, depending on what the family wealth is, maybe that becomes more sensitive, but you're certainly able to not have a trust be as public as a Will really could be. That's kind of the idea to have the trust that not only is it private, but it can carry on past one lifespan, right, it is its own entity. So it really can be something that is there for more multi-generational wealth than just flopping assets or giving directly to heirs, as we typically occur with any financial account or through the will. 

Adam Werner  08:32
Yep, yes. 

Benjamin Haas  08:34
So I got another one that comes to mind. I think charitable giving is sometimes where we talk about trusts. Where you're able to gift money out of your estate into some sort of charitable entity that may give you either some sort of retained interest and then go to charity of your death or the other way around. That could give income to some sort of charity but then comes back to your family afterwards. That too, is a trust that gives you some sort of degree of control. 

Adam Werner  09:04
Yeah and I think in trying to figure all this out. How do I know with my situation, there's all these different kinds of trusts and they're all for specific situations. What is that process to kind of go through with a client or somebody to try to determine what's going to actually fit for my situation, right? If we're assuming that not everybody thinks, hey, I don't need a trust, I don't have a ton of money. I'm going to leave it to these few people and you know, have it be that simple, but yeah, what's the process that we go through to try to help people figure that out?

Benjamin Haas  09:41
Maybe we should have started there. Here we are a bunch of Certified Financial planners, financial planners, talking about estate stuff but it's the process really just is about understanding situations, understanding wishes, understanding family dynamics, looking around corners at what could go wrong. These are the reasons to document and think through these things and that's a big part of what we do. While it's absolutely crucial, I think, in the later state latter stages of life, I think we gave a couple examples here today where it's really for everyone to be thinking about based on what their specific goal is and what they want to see happen. I think as life feels more and more complicated, relationships feel complicated, taxes feel complicated, situations just feel complicated. Going through this questioning process on what do you value, what matters most to you and then figuring out the way to document it seems like our job, that's what we do. 

Adam Werner  10:40
Yes so that was the correct answer. 100 points to you. 

Benjamin Haas  10:43
Thank you.

Adam Werner  10:45
It truly is, just as we said, it's situational. Everybody's values may be slightly different. What they want to see happen with their own wealth can be slightly different or even vastly different. But I think ultimately, when it comes to estate planning in general, it's not always a fun topic to go through and just getting over that initial hurdle to even start that conversation is kind of the biggest one that we see. So again, if it's us playing a role, if it's working with an estate attorney or ideally it's both, just start to have that conversation, start to really give thought to what you would want to see happen in your example. If you had to get rid of everything today, how would you want to see that happen? And then we can start to plug in some strategies that may actually fit to get you to that end goal. 

Benjamin Haas  11:43
Yeah, maybe that's a good way to wrap this up. I think we often look at ourselves as kind of that financial head coach that needs to bring together all these different facets and professionals in your life, the tax attorney and estate attorney being the two other most prominent in our mind. If you do, going back to the misconception, if you do have to worry about estate taxes, levels of wealth that would actually be taxed upon death, then trusts are almost non-negotiable. I think that's where we need to play an even more important role on understanding the financial dynamics of not only taxes but titling assets, AB marital trusts, other irrevocable trusts, where you're putting money outside of the estate. I'm not going to go into these details other than say, there certainly is a level of wealth where what we do becomes incredibly necessary in teaming with those other professionals. So we're certainly going to be a part of that process, too. 

Adam Werner  12:39
Yeah, well said. 

Benjamin Haas  12:41
I think we probably hit most of the key points here. If there are blended families, if there are minor children, if there just are concerns with adult children if they’re special needs, specific gifts you want or there's going to be some sort of degree of privacy, charitable giving, something of that nature. These are all reasons to have the conversations on documenting your wishes appropriately.

Adam Werner  13:09
I obviously could not agree more. 

Benjamin Haas  13:13
Thank you for all the points. I'll look at our catalog and see how I can cash those in.

Adam Werner  13:18
Okay, sounds great. You can get a Haas Financial Group mug. 

Benjamin Haas  13:23
Great. Thank you for the time today. 

Adam Werner  13:25
Thank you. 

Benjamin Haas  13:27
All right. Bye.

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in this show are for general information only and are not intended to provide specific recommendations for individual. To determine which strategies or investments may be most appropriate for you to consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!

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