Modern Family Matters

Estate Planning 101: The Basics of a Trust, & How to Create One That Is Best Designed for Your Goals

September 10, 2021 with Pacific Cascade Family Law Season 1 Episode 33
Modern Family Matters
Estate Planning 101: The Basics of a Trust, & How to Create One That Is Best Designed for Your Goals
Show Notes Transcript

Join us as we sit down with Attorney, Triston Dallas, to discuss trusts, what they're used for, how they're created, and when you should consider one. In this podcast, Triston and Steve discuss the following:

•    What are the roles of a grantor, beneficiary, and trustee?
 •    What does the process of creating a trust look like?
 •    What types of assets can go into a trust?
 •    What are the advantages and disadvantages of a trust?
 •    What are the different types of trusts, and how do you choose one that's right for you? 

If you would like to speak with one of our family law attorneys, please call our office at (503) 227-0200 or visit our website at https://www.landerholmlaw.com/

Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.

Intro:

Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.

 

Steve Altishin  0:31  

Hi, everyone. I'm Steve Altishin, Director of Partnerships at Pacific Cascade Family Law. And today, I'm here with our estate attorney, Triston Dallas, to go through the basics of a trust. How are you doing, Triston?

 

Triston Dallas  0:47  

I'm doing all right. Glad to be here, once again.

 

Steve Altishin  0:50  

I'm glad you're here again, too. So Triston, today we're going to talk about the basics of a trust. So I'm going to start with a basic question. What is a trust?

 

Triston Dallas  1:05  

I mean, it's somewhat of a loaded question, but the simplest way to think of a trust is really, it's a legal entity. It's different from something like a will, which really is just a document of instructions, if you will. But a trust document, a trust agreement, creates an actual legal entity, that is, to some extent, and depending on the type of trust, separate from the individual that created the entity. And that trust can hold assets and all types of things for the benefit of another individual, or for the benefit of the person who created the trust.

 

Steve Altishin  1:42  

So you're talking about benefits to a person and a creator. Who are the parties to a trust?

 

Triston Dallas  1:48  

Yeah, another good question. So usually, it gets a little bit confusing for the uninitiated. But the simplest way to look at is that there are three main parties of a trust. There's going to be the settlor or grantor, that's the person who creates the trust; that's the person whose assets are usually being put into the trust. And then you have the trustee. The trustee is almost like a gatekeeper. They are, if you think of it in terms of a will, in some ways, they are the executor, they are the personal representative, they're the person that is going to manage the assets in the trust and the trust agreement. And then you have the beneficiary, and that's the person who's supposed to benefit from the trust, or the person that's going to receive the assets, at the end of the day, from the trust itself. So those are kind of your three main players from any trust agreement.

 

Steve Altishin  2:36  

So how do you make a trust? How are trusts created in the first place?

 

Triston Dallas  2:42  

Yeah. So as I mentioned before, for the most part, it's a document. That document is created, and it's an actual agreement. It's an agreement between the the grantor and the trustee, to manage those assets for that beneficiary. And so, similar to a will, it's a document that's created. There are a little more formalities; there's a lot more work that goes into creating this type of document, because there are a lot more rules there. But simple enough, it's just a document that creates the trust.

 

Steve Altishin  3:11  

What can you put into a trust? Are there restrictions? Can you put any assets you want into a trust? Can you put an obligation to pay into a trust? I mean, what goes in it?

 

Triston Dallas  3:21  

Yeah, I mean, I would say generally, just about anything can go into a trust. There are things that you may not necessarily want to put into a trust, or you need to have specific trusts for certain things. For example, something like firearms. Depending on how you're utilizing, and once you pass on those firearms, a gun trust itself can work. But cash, insurance policies, retirement accounts, real estate, just about anything can go into a trust. But really, it will depend largely on your goals and what you're trying to accomplish with the trust itself. Like I said, sometimes some assets you just don't want to put into a trust, because trusts are treated differently than if they were held in an individual's name separately.

 

Steve Altishin  4:07  

So I've heard a lot of names for different kinds of trusts. Let's talk a little bit about what kinds of types of trusts there are out there.

 

Triston Dallas  4:19  

Yeah. So there are a lot. I mean, you're going to hear all kinds of names for trusts. You know, there are disclaimer trusts, and there are gun trusts, and there are personal residence trusts, and there are AMB trusts, and then there's all kinds of stuff that you'll run into-- special needs trust, supplemental needs trust. At the end of the day, for the most part, it's going to be filtered down to two categories: revocable trust, and irrevocable trusts. Revocable trust is, some people are going to call that like a living trust or a family trust. You're going to create it while you're alive, for the benefit of another party, which you have the ability to put assets in and taken assets out kind of at your will, as a grantor. Irrevocable trust is similar to a revocable trust, except it's irrevocable. Once that trust is created, once that is funded, and that trust agreement has been executed, the grantor is a lot more restricted as to what they can do with the assets in the trust. And without getting super detailed with irrevocable trusts, you lose some rights. The asset is "no longer part of that person's estate", and to some extent, no longer part of their purview. But on the other side is, if you want to actually remove something from an irrevocable trust, you're going to run to a situation where you might have to get the court involved. You don't have the same autonomy that you do in a revocable trust.

 

Steve Altishin  5:53  

So a revocable trust, lets say I put my cars or, like you said, guns into a revocable trust. I can take three of those guns out of it, and they no longer then would passed with the trust. Is that orrect?

 

Triston Dallas  6:10  

Correct. If you remove--I mean, it's conceptually possible, obviously not advisable-- that you can create a revocable trust and not fund it with anything. The trust entity is technically still there. It's just "dry", there's nothing in it. But if you do put assets in it, and then later on, you're saying, 'Hey, I want to remove these assets'-- vehicles are a good one, because people change vehicles relatively often. So then you take that vehicle out of the trust, and you put it into the individuals name once again. Then if something was to happen to that individual, and they still had that vehicle in their own name, not in the trust name, then that vehicle would end up passing through some probate process, not necessarily through the trust itself.

 

Steve Altishin  6:50  

If I wanted to add to that trust, I could do it without having to make a whole new trust?

 

Triston Dallas  6:56  

Correct, correct. You don't have to create a new trust to add new things to a revocable trust. And a really good thing about revocable trusts, and the types of trust that are revocable, is that even third parties can can leave assets to that trust. As long as they have the correct phrasing and nomenclature, you can create a family trust and a third party-- that could be a grandparent, or a very close friend, or like a godparent or something like that, of your children or of you--they can actually name your living trust as a beneficiary of let's say, their estate or their trust or what have you.

 

Steve Altishin  7:36  

Can I change beneficiaries or trustees with both kinds of trusts, revocable and irrevocable?

 

Triston Dallas  7:45  

Yeah, so with the irrevocable, like I said, you're going to be a little bit more constrained on the things you can and cannot do. Changing a beneficiary in an irrevocable trust is a very difficult thing to happen, just because there are rights, like I said. After you create an irrevocable trust, you're more than likely going to have to get the court involved to make any changes. With a revocable trust, you can change just about anything. You can decide one day, 'Hey, I no longer want the trust,' and completely dissolve it. And everything that was in the trust will go back into your name or your in your spouse's name, or however it was listed prior to creating the trust. You have a lot more autonomy there. So if you wanted to list the beneficiary of that trust as your children, and then you decide, 'Hey, instead I want it to be my nieces and nephews', you're not really constrained from doing so, generally.

 

Steve Altishin  8:37  

So, I guess, the question then, is, why do a trust? What are some advantages to setting up a trust to transfer your assets, instead of just gifting it to somebody? Or, you know, putting it in a will? 

 

Triston Dallas  8:52  

Yeah. One of the main reasons why people create trusts--and I'll give our normal disclaimer, if you will, which is you don't necessarily need a million dollars in order to create an estate plan, or create a trust, or have a lawyer or what have you--but most of the time people create a will or create a trust because they want to avoid probate on the back end. So if something happens to them, they don't want their family to have to go through the probate process. But it isn't just creating a trust, you also need to fund it. So funding the trust adequately and properly is what's going to avoid that probate. But that's usually one of the main reasons. Another reason why people create a trust is if they have a family member that's got special needs in some way, or is disabled in some way, and is going to need assistance beyond or after the parents have passed away, and the parents want to leave some type of funds or ability for them to be taken care of financially. The supplemental special needs trust is a way to do that. Or sometimes families do create trusts, like testamentary trusts or trust for their children, until their children reach a certain age, like 21, or graduating college or 22, just in case the parent has passed away prior to that moment, or prior to them reaching the age of majority. Most times, you know, an 18 year old kid with a significant inheritance is probably not going to make the greatest decision. So a lot of families will create a trust until they reach their later age.

 

Steve Altishin  10:25  

I understand that. It sounds like both wills and trusts have and can have a lot of an impact on how you transfer stuff after you die, but answer me this, is it necessary for you to die to have your trust transfer? Can you have a trust set up that pays off beneficiaries or gives stuff out while you're still alive? 

 

Triston Dallas  10:50  

Yeah, I mean, like I said, with the revocable trust, you have a lot more autonomy. If you think of something like--you know, conceptually, just using this as an example--a supplemental needs trust, or a special needs trust. As a third party special needs trust, a mom or dad can create that trust funded with assets that can be used for, let's say, their adult child that has some type of supplemental needs. And the trustee, which may not be the mom or or dad, would have the ability to use those funds for the child in some way. And that doesn't necessarily mean that the parent has to pass away in order for anything to be done, or used, or distributed through the trust. Now, most times what happens is, the trust itself is not funded until somebody has passed away. Specifically, when it comes to like supplemental needs trusts, that happens pretty often. But when it comes to revocable trusts, like family trusts and things like that, most of times the grantor is also the trustee. And so even though they funded it with all of their things, they are still able to utilize and do anything with those assets in the trust. So initially, they are the beneficiary. They are the individual that the trust is for, and then after they pass away, things change. And then the next beneficiary is their children or another family member. In most cases, with the passing of the grators--one or both of them or all of them--usually you can make the trust change from a revocable trust to an irrevocable, one, given that the grantors have passed away.

 

Steve Altishin  12:29  

Got it. So are there any disadvantages of a trust? Are there reasons or times that you maybe want to do something different than a trust?

 

Triston Dallas  12:40  

Yeah, cost is probably the first one. So it's going to be more expensive to do a trust right away than, let's say, doing a will. Time and investment, also. There's a lot more involvement. With the will, you can, to some extent, create it and adequately try to anticipate all the different issues that your estate could run into, whether it be taxes or otherwise, and you are "set to go". With the trust, you have to be a lot more involved and mindful because you have to make sure it's funded. And because you're likely using the assets that you are funding it with--like a home or vehicles or what have you--vehicles change, homes change, you have to constantly remember to put things that you are purchasing or changing or obtaining into the trust. If you want them to pass through the trust, then depending on the type of trust that you create, or choose, you can give up control of some of the assets that are in the trust, as well. So it can be a little more cumbersome to create a trust. I would say most times, as long as their goals are clear and they're prepared for the long haul of managing and maintaining a trust, the benefits and pros will outweigh most of the cons. Another thing that that you can run into is some potential tax issue. Just with, you know, if you're not completely mindful of some of the things that you want to put into a trust that could be income generating trusts. Without getting too into details, trust's tax rates are truncated. They're not the same as individual tax rates. You know, an individual would probably need to be $200,000 plus, or even higher than that, before they reach the highest tax bracket and are potentially paying about 50% in taxes, income wise. While with trusts it's very much smaller. I can't remember the exact number, but I think it' like 12,005 before you're going to reach that 40% plus tax rate for income generating into the trust. Don't quote me on the exact numbers, but that's just to prove the point that it's a lot lower numbers. So if you're generating income into a trust and you're not prepared for that properly, and the trust is not prepared for that properly, you can end up paying a lot more in taxes there. So it's just another thing that kind of potentially needs to be considered. And that's why I said it's a little more cumbersome, because you have to pay attention to a lot more things. And not everybody is willing to take those actions and do those things on a regular basis,

 

Steve Altishin  15:17  

I get that. I mean if I say, 'Okay, when I die, you get my house, and you get my cars, and you get my furniture.' I just couldn't, you know, wait to die. I don't have to do anything. But in a trust, you buy new furniture, new cars and new houses, you've got to do stuff. So trusts obviously do a ton of stuff, and they do them in different situations, and it sounds like they do a great job. But what doesn't a trust do? Aren't there kind of myths out there about if I have a trust, it does this? So what don't they do?

 

Triston Dallas  15:59  

Yeah. You know, I would say there are some some pretty common misconceptions about what trusts can and cannot do, or what the grantor or the creator of the trust should or shouldn't do. One of the first ones is, I've created a trust, and so now I'm automatically like protected from creditors, and I avoid estate taxes. It's not accurate. Just because you have a trust doesn't mean that you no longer will incur taxes. Just because you have a trust does not mean that if you pass away that you your estate would not have to pay for your credit or pay off your creditors or anything like that. That is not the case. Now there are things that we can do to limit your potential estate taxes, or limit the ability for some creditors to "go after" certain assets, but it's a little more of a convoluted processes. And you're probably giving up some ability and autonomy over assets. But generally, just having a trust is not going to do those things. Another thing is, and we talked about before, it's like, 'Okay, I created a trust, and I want all my assets to be in there, therefore my trust is going to handle that for me. There isn't anything else you need to do.' And that's also not accurate. Once you create the trust, you must fund the trust. So you can't, like I said, it's not like a Will where you can create the document and say, 'I want these assets to go to this individual,' and you're good to go. With the trust, you can list those things and how you'd want some assets or distributions to go to children or specific individuals. But those assets must actually be owned or titled to the trust before they'll actually pass through the trust. So there's kind of an extra step there. But again, because you've taken that extra step, you wouldn't necessarily have to take that step again, down the line, like through a probate process. Which again, going back to one of the pros of having a trust, is avoiding that probate. And then, one of the things that happens that people think sometimes, is that the trustee is the person that owns the assets in the trust, which isn't accurate. Now, it is important to note that some things will be titled, or if a trustee is going to sign for things for the trust, the trustee will find their name as trustee of the X Y & Z Trust. But the trust itself is the actual owner of what the asset is titled in, not the trustee. The trustee is essentially there just to manage the assets and anything in the trust, whether it be cash or what have you, and to make sure that the instructions are followed as to how distributions or anything like that is supposed to happen based on the trust document. But the trustee is not the actual owner. Now, those are probably the three most common critical myths that I think I've run into, or questions that I run into. Probably that second one is the most common. People think they created a trust and therefore that they're protected, or that their assets are in the trust and, more times than you would think, somebody has a trust and there's nothing actually in it.

 

Steve Altishin  19:13  

So how does someone choose a trust or begin to figure out what trust or kind of trust might be right for them?

 

Triston Dallas  19:25  

Yeah, like I mentioned before, it's going to be based on your goals. It's going to be based on a lot of factors in questions. You know, are you married? Are you single? Do you have children? Do you own a business? Do you have retirement? Are your children dealing with any type of special needs? Do you have firearms? What is your specific health situation? What type of planning things do you want to do? Is there going to be anticipation that there's going to be a lot of taxes? What's your age, as well? I feel like the way that a person may want to deal with a trust and plan is going to be different when you're 35, as opposed to 75. When you're more close to the twilight of life, you're probably going to be a little more willing to do things like an irrevocable trust for some reasons, in order to plan to get certain assets "out of" your estate. So it really just depends. Having a consult with an attorney, and based on your goals and what you want to accomplish, we'll be able to explain or give you options as to routes that you can take. Or advise you or recommend some routes you can take, based on your goals. But like I mentioned before, there are so many different types of trusts, multiple types of trusts that are out there, and that can be used. Life estates, and special needs, and dealing with retirement accounts; all those types of things. And with the ever changing legislation when it comes to estates and taxes and things like that, your  goals, and what that person wants, may be different, And they are different today than even five years ago. And so it really just depends on what you want, and what you're looking for. That being said, almost everybody--if their goal is to avoid probate-- there's some way to create a trust in order to do that, if that's the sole goal. But everybody can benefit from potentially some type of trust, but certainly everybody will benefit from estate planning in some way.

 

Steve Altishin  21:26  

You know, you hear the commercials, you hear it said online, 'Everyone needs a trust,' because of the outrageous cost of probate, and you save money, and you save taxes, and you don't pay anything. And that's not necessarily true. I mean, it's like you said, different kinds of trusts have different, not just tax, but vehicles in which they transfer property. And if you aren't thinking about how all these things, you know, atleast your lawyer is. So, final question. What do you recommend that someone does after they make their trust? We talked about this stuff, we talked a little bit about funding, but you know, a trust is made, it's done, and they walk out of your office. What do they still need to be considering? 

 

Triston Dallas  22:27  

I mean, the important things is really just, I mentioned it before, that maintenance. Obviously, on the outset, your trust is an actual document that's built, for the most part, in a way to know that the trust is valid, is what the instructions are, and all that. So keep the trust in a safe place somewhere, like you would do with a will, whether it be a safe, safety deposit box, what have you. Keep it somewhere you can access it at any time. Make sure those who are playing a role in your trust, or your estate plan, are aware. Successor, trustees, those type of things. Maybe give them a copy of the document itself. Those are kind of the initial basic things;  just to keep obviously, your documents safe in some way where you know where they are. You'll likely be in contact with your bank. And sometimes the bank will have a copy. And they'll ask for a copy of it, or at least a portion of the document itself. But the main things, like I said, are going to be that maintenance. Continue to review the trust, Continue to review, if the grantor or settler is not the initial trustee, continue to review things with the trustee, Make sure that it's complete funded. Make sure it's still following the goals that you are hoping to accomplish. And if your goals change, be willing and ready to have a conversation about maybe, potentially some type of trust amendment, or statement, or change to the trust, if needed, based on changes in your goals. Or, creating a new trust for a whole separate reason. It's really what you need to do with any estate plan. You know, we've mentioned this in many webinars and Facebook Lives that we've done, Steve, between you and I on estate planning. Every few years, you really just need to take accounting of kind of what's going on in your estate and what's changed, where your goals are, where your head is, and what you want to accomplish. A lot can happen in a very short period of time. I mean, just look into the COVID situation. Life has been very different over the last 18 months. And the way that we think about things and do things has been different from March of 2020 to now. So it's just important to keep keep up with all the changes and the goals and stuff you want there. You know, make sure you're not putting things into the trust that you didn't intend to, Make sure you're not removing things from the trust that you didn't intend to. Just focus on the purpose of the trust and keep in contact with your attorney. Trusts are very different from Wills, in a sense. You know, you can--I wouldn't recommend it-- but you can "get away with" creating your own will and still, for the most part, have your wishes followed. Creating a trust without the the advice of attorney is just not recommended in any way. And you're going to run into a lot more issues and problems down the road. So once your trust is created, if there's anything that needs to be done or changed or what have you, just make sure you're in touch with your attorney. And you'll be all good.

 

Steve Altishin  25:18  

So I mean, life happens, like you said. Kids grow up, trustees move to Italy, all kinds of things can happen. And if someone needs to make a change, because maybe their kids now have kids. Or your best friend, who was your trustee, took everything and moved somewhere for whatever reason. It's not a difficult procedure to come in then to you and say, 'Can I name a new trustee? Or what do I do about the kids?' Are these things you can do afterwards? 

 

Triston Dallas  25:59  

Yes. So after--considering an example with a revocable trust--yeah, you'd be able to make those changes at anytime, depending on what happened or where your goals are. Or, like you said, life happens, and sometimes there are negative things where you need to readjust and refocus. And whether that's if you need to create a whole new trust, or restate it, or amend the trust, or what have you, you have the opportunity and ability to do so.

 

Steve Altishin  26:29  

And, you know, looking at our law firm, if someone's getting divorced, and they've got a trust, that's the time to come see you.

 

Triston Dallas  26:36  

Absolutely. Absolutely. I mean, like I said, the estate plan is the first casualty for blended families. Just because if you're not paying attention, assets and things are going to point to individuals only, or leave out other individuals. Or things may pass in a way that you may not necessarily want to, despite the fact that your previous documents stated that it did. So absolutely; divorces, births, new children, deaths, all those things are very important times to review and reconsider what your estate plan is, trust or will.

 

Steve Altishin  27:19  

So folks are listening now, and may want to know more about this, or want to talk to you about their particular situation. How do they get a hold of you?

 

Triston Dallas  27:30  

They can give our office a call at anytime at 503-227-0200. And they can set up an initial consultation to discuss their estate plan and their goals, which is a free initial consultation.

 

Steve Altishin  27:44  

I love it. Well, I think we're done. I now kind of understand the basics of a trust. And I really thank you for providing what really is a complex issue and making it easier to understand by folks like me. So again, thanks Triston for joining us today.

 

Triston Dallas  28:01  

Thank you for having me.

 

Steve Altishin  28:03  

Oh, I always like to have you on the other side of it. And I also want to thank everyone who's listening today. We really need you to like us, to come and listen to us, we offer a ton of different stuff. And if anyone has any questions about today's topic, as always, post it here. And you can even shoot me an email at [email protected] And until next time, everyone, stay safe. Have a great day. Thank you.

 

Outro:

This has been Modern Family Matters, a legal podcast focusing on providing real answers and direction for individuals and families. Our podcast is sponsored by Landerholm Family Law and Pacific Cascade Family Law, serving families in Oregon and Washington. If you are in need of legal counsel or have additional questions about a family law matter important to you, please visit our websites at landerholmlaw.com or pacificcascadefamilylaw.com. You can also call our headquarters at (503) 227-0200 to schedule a case evaluation with one of our seasoned attorneys. Modern Family Matters, advocating for your better tomorrow and offering legal solutions important to the modern family.