A look at how trusts can address various financial needs

Trusts can address various financial needs. Alisa Shin describes how a trust is usually one part of an estate plan, then Erin Zavislak talks about the differences between revocable and irrevocable trusts. Our speakers also discuss the potential advantages of using irrevocable trusts.

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Gary Gamma: So we have this from Bob in Florida. It gives us a great starting question here. Basically, why do I need a trust versus an estate plan?

Alisa Shin: It’s a great question. There’s a lot of confusion sometimes when people hear trusts and estate plan.

Basically, a trust is usually a part of clients’ estate plan if it’s appropriate. Your estate plan is that bigger plan, that bigger map where you kind of decided who’s going to get your assets, who are going to make decisions for you, and so forth. And one of the techniques that you might use to get to your end goal or your end objective is a trust; and that trust, in that you’ll set forth the details as to how that plan should be executed. But somebody’s estate plan is bigger than the trust itself. It typically includes a will, a general Power of Attorney, a Healthcare Power Of Attorney, and an Advanced Directive For Healthcare. Clients might hear more commonly that referred to as a Living Will.

Gary Gamma: Okay. Steven in New York says, “What’s the difference between a revocable and an irrevocable trust?” Erin, you want to take that one?

Erin Zavislak: Of course I do. It’s a common question, but it’s really essential to understanding, I think, the world of trust for a client.

Very simply, a revocable trust is one that can be revoked or canceled. The determination of whether or not a revocable trust or an irrevocable trust is appropriate for you is really dependent on what your objectives are, and your planner can help you determine what is the best course of action.

Alisa Shin: If I could just jump in there—

Gary Gamma: Please.

Alisa Shin: —because Erin mentioned a planner. So a lot of times, Erin, to write a revocable trust is one in which you can revoke or make changes to. An irrevocable trust, on the other hand, as it might sound, is irrevocable. But irrevocable, in the modern trust world, doesn’t necessarily mean that what you put in place has to stay in place. Irrevocable typically is a reference to a tax planning strategy like which people put assets in it and the grantor or the person who gave the money typically does not retain any ability to access or use that money. And so it’s irrevocable in terms of the grantor’s ability to get that money back. Irrevocable does not mean that you’re making a decision today or you’re making a decision for your family today that can’t be changed in the future. There will be ways that you can build in flexibility into those trust documents.

Gary Gamma: Okay.

Ryan Gager: So, Alisa, when I hear that concept about revocable, irrevocable, I value flexibility. Why wouldn’t I want everything to be irrevocable? Why would I want to lock myself in even at all and select an irrevocable trust?

Alisa Shin: For some clients, it really is really around tax planning. For the clients who have assets that are worth more than the federal estate tax exception, which in 2017 is $5.49 million. If your assets are worth more than that, some clients, to mitigate the taxes or at least minimize how much taxes have to be paid, might transfer assets into an irrevocable trust. And by doing so, if the trust was properly designed, the assets that are in the trust and the growth of those assets during your beneficiary’s lifetime could be protected from future taxation.

So by doing that, you have reduced your estate, so you’ve gotten $5.49 million or more out of your estate, how much ever you give into that trust. And then you’ll also get that future appreciation out as well.

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