Mind on Money: The lowdown on living trusts

Mind on Money: The lowdown on living trusts

Revocable living trusts have become an estate planning tool commonly used by Oak Partners clients. Often referred to simply as “living trusts”, this type of planning is best created by working with an experienced lawyer or law firm, and if executed and funded properly can help avoid the probate process and substantially improve the administration of an estate.

Living trusts used to be considered primarily as estate tax planning tools, but with the Federal estate tax now only effecting individuals with estates over $12 million, and the Indiana inheritance tax being long retired, in my experience taxes are no longer the prime motivation for most trust planning.

Instead, I find most clients are motivated to use this type of planning by the possibility of avoiding the potentially expensive probate process, as well as the desire to maintain more detailed control over the disposition of assets after their passing. A living trust document can include many comprehensive instructions about how, why and when assets are to be distributed to trust beneficiaries such as children, grandchildren, friends and charities. These types of detailed instructions are not really possible with a simple last will and testament, which is planning more focused on a simple expedient resolution of an estate.

Living trusts being “revocable” are also fairly straight forward to update and adjust through a process called an amendment while the owner of the estate is alive. Amendments can change the “who, why and when” beneficiaries inherit assets, as well as the “who” will have control over the trust after the death of the original owner, called a grantor, passes away. Usually, an amendment is coordinated with the law firm that originally drafted the trust, and the process is typically easy and low cost.

Once the original owner of the estate, the trust grantor, passes away however, the trust becomes what is called irrevocable and the provisions listed in the trust document can no longer be changed or amended.

My wife Tracy and I use a living trust in our estate planning. Initially our motivation was to coordinate the use of our assets with the designated guardian referenced in our last will and testament. Its important to note, that living trusts only affect estate assets, this planning does not designate guardians for minor children. This is accomplished through a will, which is best created along side and synchronized with the living trust. With this in mind, we wanted our assets, such as the value of our home, life insurance proceeds and savings to be held in trust to assist the named guardians of our children with potential home improvements to accommodate our family, pay for our kids college and provide them eventually with money to start their lives. We put a lot of effort into the planning process and made amendments as our kids grew up and situations evolved.

With three of our four kids being adults, our motivation now is to create a structure to help manage assets held in trust for our youngest Ethan. Ethan has Down Syndrome and is likely to need extra support and an adult guardianship. Its important for assets intended to help Ethan, and his guardian, to be managed in very specific ways, to protect him and maintain his access to life enhancing public benefits. A living trust can best accommodate some of these specific planning needs.

Having completed the trust planning and amendment process personally, I can say that if the appropriate level of effort is put into the planning process, it can be emotional and even a bit burdensome. Once it is complete however, it does offer a nice peace of mind, so to me the work was worth it.

At Oak Partners we do not provide legal advice, but we do work with many families utilizing living trusts, and so we are very familiar with these documents and provide a lot of soft guidance on this planning process. There are several other issues to understand regarding this type of planning, so those considering it should gain a base level of understanding and work with an attorney who takes the time to understand their family and planning objectives. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Precious metal investing involves greater fluctuation and potential for losses. Past performance is not a guarantee of future results. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.