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6 Things You Need to Know about Trust and Estate Planning

Estate planning can be a complex, and oftentimes very personal, process. As a Certified Financial Planner™ and HFG’s Senior Trust Officer, I often receive questions from clients concerned about their estate plan or wishing to receive guidance on the tools that are most appropriate for their unique needs.

To help provide more clarity on this topic, I have compiled six of the most frequently asked questions I receive in my role as Senior Trust Officer, along with their answers, below:

What should be included in an Estate Plan?

An estate plan should include a power of attorney, a will and, if necessary, a trust.

What is a Trust?

A trust is a legal entity that can “own” assets. The trust document reads like a will, and similarly includes instructions for the trustee to direct the grantor’s, or owner’s, final affairs. It also carries out the dispersal of assets to the beneficiaries.

There are different kinds of trusts:

  • Living trusts are created while the owner is alive.
  • Testamentary trusts are created after the owner has passed.

Living and testamentary trusts can be revocable (alterable) or irrevocable (fixed.)

Do Trusts Avoid Probate?

Assets that are placed into a living trust do avoid probate. These are considered non-probate assets. However, if you create a trust inside your will, assets may need to go through probate in order to be placed into the trust.

If you choose to utilize a living trust or testamentary trust, you will still want to have a will in place (which does not avoid probate.)

Who needs a trust? Are they only for the affluent?

Trusts are for three categories of people.

1) Individuals who do not believe their beneficiaries are ready to receive a lump sum inheritance.

2) Individuals who own real property in multiple states.

3) Individuals who are above the estate tax exemption limits.

We talk with many people who have beneficiaries not ready to receive $50,000, $100,000 or more, in a lump sum inheritance. The most logical choice is to make sure you have controls in place when you are no longer here. A trust is one such tool that can be used to have control over assets after you have passed away.

If you own property in multiple states and do not want multiple probates opened, a trust is an efficient way to transfer property to beneficiaries.

Why would someone want to designate a trust company as trustee?

If you create a trust, you name a trustee—someone who holds title to a property and/or asset and manages or distributes them according to your wishes. This role can be given to any individual or company of your choosing. Many people want to designate a friend or family as trustee, but there is a great fiduciary responsibility that comes with this designation (click here for more information on the responsibilities of a trustee).

Along with responsibilities come the burden of keeping peace in the family after the passing of a loved one. It may be a challenge if you have three children and name only one as trustee, for example. The other two may begin to question the named child. We call this the Thanksgiving dinner discussion. Would your three children still get together for Thanksgiving dinner after you are gone, having named only one of them as trustee?

There is an emotional cost to the trustee that is eliminated when you name an independent third party to manage the trust.

What are the costs associated with designating a trust company as trustee?

The cost associated with trust administration will vary with the complexity of the assets placed into the trust. For example, if you transfer an asset that does not require complex management into a trust, such as an investment account, your expenses will depend on the value of the account. Typically, this could range from $3,000 to $10,000 per year.

Assets such as business, farm, or other income-producing real property require more complex management; and therefore, cause an increase in the management fee ($10,000 to $50,000 per year). At HFG, in order to give our client an idea of the complexity and associated costs, we sit down and discuss all fees prior to a trust being put into place.

I consider the establishment of a holistic estate plan an integral component in preserving the legacy of my clients; however, as with any good estate plan, it is best to work with your advisor or attorney to determine which method is best to transfer your assets once you pass. If you do not currently have an advisor, please feel free to reach out to me and I will be happy to assist you.

Michael Tallman, CFP® CTFA

Legal Information and Disclosures

This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. HFG Trust has no duty or obligation to update the information contained herein. Further, HFG Trust makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is the possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. HFG Trust believes that the sources from which such information has be obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be coped, reproduced, republished, or posted in any form without the prior written consent of HFG Trust.