Do You Need A Trust?

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This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well. Finishing Well is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors, and Hans Scheil CFP sell insurance.

This show does not offer investment products or investment advice. Welcome to Finishing Well with our certified financial planner, Hans Scheil, and today's show is, Do You Need a Trust? So as we get into that idea here, as I think Hans will point out so clearly in this is, you know, what's the purpose, so to speak? And so there's really beautiful things in the Scriptures about purpose, especially, you know, I love the bird song from the 60s, that turn, turn, turn, you might remember in Ecclesiastes 3.1, it says, to everything there is a season and a time to every purpose, you know, unto heaven. And as you think about the purpose of why is it that you're doing it? Why are we handling our finances?

What's this money for? Is what Hans often says. Or in this case, what's the purpose of the trust or even from God's perspective? As he told, you might remember the story of Saul, when he, you know, was sacrificing the sheep and all thinking that he was going to get on God's side for doing that rather than obeying God, and not doing away with other things in the city that he was supposed to. And Samuel said to him, Does the Lord delight in burnt sacrifices?

No, because that's not the purpose. He delights in obedience. And so we have this opportunity, right, as we are learning today from Hans, to see kind of what the purposes are in these things and how we can, you know, best bless God with the end of, you know, as we handle our finances as we finish well. So Hans, take it from there. Well, I mean, several people come in the door here and get engaged for financial planning, you know, in their early and mid 60s, typically, some of them in their 50s, some of them in their 70s. But they're coming in to us to help us plan out their retirement or the rest of their retirement. And many of them will come, I need to trust, or some of them will come in, I've already got this trust. And boy, it's great, you know, and, or I need this, or so and so told me this, or my brother in law has a trust. And I always want to know, okay, well, that's good. So why do you have that trust?

Why did you start that? Well, I just to avoid probate, you know, it's obvious, they almost look at me like, you know, I mean, don't you know, I mean, it just everybody needs a trust for whatever they told us at the seminar. And, you know, that's why we're talking about this today is that trust, number one, are expensive. Or, you know, expensive, I guess is relative, costly, maybe would be a better word. It costs a good deal of money to set up a trust.

And then it costs even more money to maintain it. So that that would be one reason that you wouldn't want to trust. And then the second thing you need to know about trust is many times, they don't accomplish what you thought they were going to accomplish. So you can have this purpose or this goal. And if it's not set up properly, or just some certain events happen, is I've just met a lot of trust on the back end and people with trust that are beneficiaries of trust that it wouldn't work out like the original grantor thought it was going to work.

I happen to be one of those. Because, you know, my father put one of his life insurance policies, if you know, the beneficiary was the Robert B. Dilmore irrevocable trust. And I was like, what in the world? You know, because number one, he passed away. And so obviously, he was supposed to use that money in that life insurance policy to pay for his final expenses. And I didn't even know what irrevocable trust was.

Fortunately, I knew Hans at the time. And so as we started to work through this, the trust had never even been set up. So there was no money in anything yet. We had to go get a bank account, we had to get all sorts of signatures and stuff in order to get it just so that we could get it, open it and close it.

And it was just crazy. Well, there's an example of a trust was set up by your father to avoid probate. And what he did, the only thing he put in the trust, and he didn't even put it there, the life insurance, he just put it there by beneficiary. So in order to avoid probate, he actually took a non-probate asset and put it in the trust. So he brought it into probate.

How does that crack? Well, I know exactly, because I understand that if he just left us as the beneficiary, you know, it would have come straight to us, not anything to do with probate, we'd have been able to pay the expenses and away we went. But instead, boy, it started just a whole, you know, massive undertaking versus what the original purpose was. He thought to avoid probate, not realizing life insurance already avoids probate. Okay, so I'm going to go over something here. And I don't want to make it sound like every lawyer, every person that represents a lawyer that's running a seminar talking about the use of trust, you know, are like bad. Because I'm not saying that there are many programs out there where they're going to be like ours is trust in certain situations. Trust is just a vehicle that's used in estate planning to accomplish an objective. But then there are what we call referred to as the trust mills. And that's an attorney or a firm or a law firm that is the same trust for everybody. Okay, and so they have a seminar, there's 50 people in there, all 50 of them need a trust. And then they need a trust for this same purpose, which is avoiding probate, keeping away from the publicity of things. And then they all need the same trust too.

I mean, all they're going to do is take it out of a word processor and just fill in the blanks with the name and the address and that sort of thing. And so those are not good when something's marketed to you that way, where it's the same trust for everybody in the room. It's not good because I mean, a trust properly done.

And I don't think your father was in that situation. I think that this trust, he had a real purpose for this. And he thought that his wife was going to live longer than he was. And so he had things set up, where he started in the process of setting things up, and then she died before he did.

And then it just really created a mess. And life insurance by itself is set up to do the same thing as a trust, is to keep the proceeds out of probate and keep them away from the IRS. And had your father named you and your brothers and sisters as the named beneficiaries on that thing, or changed it that way on that life insurance after his wife died, that life insurance company would have just sent you a check to each one of you. Right. And we would have just, which it was meant to pay his final expenses anyway. And it would have just been able to do that as it was, it took me almost 90 days to get all the paperwork done to even get the insurance company to sit because you have to have an account in order to have the account. You got to have a trust. It was, oh, it was something I'll never forget. Oh yeah. Well, let's talk just quickly about why would you need a trust?

And I just, I did my video for this and I sent it to you. I'm just going to go through the list kind of, so when is a trust beneficial? If you have a desire to manage your money and your assets beyond the grave. So another, beyond your life, if you think your children or grandchildren are going to squander the money or spend it on things or spend it all at once, a number of things you can, you can set up a trust, put the money in there at your death or before, and then the trustee will distribute money to them according to your wishes.

Okay. So there, there would be a purpose. If you had a special needs child, who's not a child anymore, they're an adult and you're providing for them, which a lot of, a lot of people are in that situation where they have an adult child who's in their forties and fifties.

And now they're reaching the later years and they're thinking about, I want this to keep going beyond my lifetime. So I would like to set up a special needs trust and I'd like to do it in such a way that my assets are protected. So the child or the adult child still gets their state benefits. If we want to avoid publicity and, you know, I mean, people are not reading public records, trying to look for, you know, like my estate or something. I mean, that's more of a very wealthy people kind of thing. So, you know, very wealthy people kind of thing, where you can use trust so that it's not out in the public view, how much your mansion sold for, or that kind of thing. I mean, that's, that's kind of a benefit of the avoid probate thing. If you see a period of incapacity coming up, where you're going to be needing long-term care and you want to set it up properly so that you'll be cared for, and home health care and long-term care will be set up and paid for properly and delivered to you properly, you could use a trust for that. Talking about a spendthrift protection, you know, I have a client that was the beneficiary and her mother put just her inheritance, not her brothers and sisters, in a trust just because she knew she would blow all of it.

And so it just kind of spaced it out and made sure there would be something for that lady's son or the grantor's grandson. So that's, you know, for spendthrift protection, for credit. I mean, there's all kinds of reasons to set up trust, so I don't want to talk bad about them. What I'm really talking bad about is just everybody thinking they need a trust, and it's the only way to avoid probate.

Right. Well, when we come back, we've got to go to a break. When we come back, we have more ideas on the good use of a trust.

And when you probably don't want to do that, there's better solutions, like, man, transfer on death and all sorts of things. I think you're going to be very anxious to hear, not to mention getting those beneficiaries named properly. So when we come back, there's more from Cardinal Guide Hans Scheil, our certified financial planner, and his book, The Complete Cardinal Guide to Planning for and Living in Retirement. It's all at cardinalguide.com.

We'll be right back. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, social security, Medicare, and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Welcome back to Finishing Well with our certified financial planner, Hans Scheil, and today's show is, Do You Need a Trust? And in the video that they just recently did at Cardinal Advisors, by the way, at their YouTube channel, you know, Tom made this unbelievable point where he said almost 70% of the people coming in to see you say, well, I need a trust, don't I? That's a phenomenal, scary number to me, Hans.

You know, that would be about the last thing that would ever come out of my mouth, but apparently a lot of people think that way. Well, just because they've been marketed to by these trust mills that we mentioned earlier, and they get mailings, and, you know, they're several pages long with all the explanations. They're very dramatic. They've either attended the seminar, or their brother-in-law has, or their sister, and, you know, just generally speaking, I think the people that come in to us come in with, they've had their, there's always that brother-in-law, or sister-in-law, or sister, or neighbor, or somebody they play golf with that's just kind of an expert on all things that really spends a lot of time telling them about financial planning and estate planning, and that's where it comes from. And it's pretty easy to deal with. I mean, once we start outlining things for people, and they're going to usually, we can sort out the, you know, of the 70%, the 4% that really need a trust, and we can deal with the other 66%, and they're usually relieved when they find out about, you know, what we're going to do for them. Like, just everything that involves money, that has money in it, a financial account, whether it's stocks and bonds, brokerage accounts, IRAs, money in the bank, can pass out a probate anyhow. And so, a lot of folks are really slack on this part of it, that you can take care of it without even coming to somebody like us, is that keep your beneficiary designations updated on your life insurance, on your IRA, on your 401k. And most bank accounts, people don't have a TOD or a transfer on death, but a transfer on death on a bank account is very similar to a beneficiary designation. It just says that when I die, give this money, or put this account in the name of the person or persons on TOD.

Our goal is to make things very smooth for the families of people who pass away that are our clients, okay, our goal. And so, you know, when we kind of lay things out, and just anything you buy from us, or you bought from somebody else, but we're doing financial planning and telling you what to do with it, we're going to get all the beneficiaries out and get them written like they need to be written. So, which is to a degree accomplishing the same thing that people think they need in a trust. I just want to be clear that for most people, trust can be avoided and the cost can be avoided through the use of beneficiary designations and some planning.

Now, a place that it can't be avoided, at least in North Carolina, is on real estate. So, you know, when you have the family home or your home if you're an older person, and you can't put a beneficiary on a house. So, that is something that you're going to have to go through probate for. And now there is a way to do something with the deed that you could do, but you may not want to do that because if you put your kids on the deed of your house, you're opening yourself to a whole slew of other problems in the event that either one of them would die before you or they would get divorced.

So, you may not want to do that. So, there could be one area that beneficiaries won't work to avoid probate, but that's not enough reason to set up a whole trust. Another thing I wanted to bring up is we have so many people bring us a trust and they just won't be quiet about it. When we're going through, I got this trust, I got this trust, and we don't usually try to really get down to the nitty-gritty, but most of the people that have trust that come into us, there's nothing in the trust. They're like your dad's trust.

They went to the seminar, they listened to the thing, they paid the guy the five grand. Perhaps they did a will, so they did their wills, that was included in the package, and in their wills, they're saying that everything's supposed to go into the trust or whatever. So, they put those in place, but the trust doesn't really mean much if it's a revocable trust like they sell in trust mills unless you actually put stuff in there.

Now, some people do this, but many don't. So, they have this trust document and they don't exactly know what to do with it. If you've gone that route and it's where you want to go, then we got to start putting stuff in there. We got to put the deed to your house in there, we got to deed your house in the trust, and we've got to open a bank account in the name of the trust, and just we're going to get all your assets into the trust before you die so that they'll be there, and then the trust will actually be the thing that distributed your assets.

That's what you wanted. Now, I'm not recommending people go out and do that just based on listening to a radio show. I'm just making the observation that a lot of these trust mills set up, sell the trust, the people pay the five grand, they go through and do all the work, but then two years later, they've just got a big notebook with all that stuff in there and they don't have, they've never put anything in it, and they don't really know how to do that. Okay? Yeah, and it takes some work, I can tell you, and the right banker to know what they're doing to even set one up, so yeah.

Well then, let me add this. A lot of these people selling trusts, which is what they're doing, they don't even know you can't put IRA money in a trust. I mean, you can't take your IRA and take a trust and then just put the trust as the owner of the IRA. The IRA owner needs to be you until death.

It needs to say Robbie Dilmore, okay? It needs to say Hans Scheil. It can't say the trust for the estate of, or the such and such a Scheil trust. Such a Scheil trust. And if you did get the money into the trust, you would have to cash out the IRA, pay all the taxes, and then you'd put the remnant in there.

And a lot of lawyers don't even, maybe they know that, but they don't. And so you have people in the audience where most of their money is in an IRA or a 401k anyhow. And so they're buying this trust, thinking that all the money in the IRA is going to go in the trust.

And it's just not. And you wouldn't want it to anyhow, because you'd have to pay taxes all at once. And the beneficiary designation accomplishes a lot of the same purposes of the trust anyhow. And that just comes with the IRA. Been on a little bit of a rant here today about trust, I guess.

Well, that's the idea is how do we need one? And clearly, when you see people that you feel like have been taken advantage of, it's always a difficult thing to try to help us reason through things that we thought we knew, or we thought we were sure this was really important because the idea of keeping things out of probate is that, oh, well, this is going to be a lot quicker, my family's going to get this money a lot quicker, and all these other things. It just doesn't turn out to be the case when it's not really well planned or thought out, right?

Well, it is. And people are generally, when they've had that thing for a couple of years, and they've gone through all the things, they're real proud of that trust. They just, they don't know why they're so proud of it, but they're proud of it. And so before you're actually, you got to bring them to reality. And that's not necessarily the easiest job in town when they're coming to us. They want to do business with us. They want to follow us. But then we've got to manage the fact that they, I guess you could look at it that way, that they made a mistake, or they put a whole bunch of money and time into something that, we're not going to use.

Or we're going to have to charge them more money to make it useful. And so we got to back them down a bit and allow them to save face. So, I mean, you get my drift. That is difficult before we then go in and really help them. Oh, yeah, I understand.

And I, you know, personally thought that, the trust for the special needs child, right, that, you know, were you to pass away and they would get a big inheritance, then they would, they'd no longer qualify for their Medicaid. And so, you know, that one was awesome. I thought, you know, there's a real need right there and a real understanding of what they're for. Well, they are.

And let me tell you something even better than that. They created a trust for the special needs child, right, that, you know, created this thing about 10 years ago called the ABLE accounts. A-B-L-E is an acronym.

And I couldn't tell you this second what it stands for. But it is the special needs trust that doesn't cost anything essentially for, you can't put any more than a hundred grand in there. But a special needs child on Medicaid and receiving social security check every month doesn't really need much more than a hundred grand. And they accomplish the same purposes. So you can open ABLE account.

I've helped a few clients do that. And they're made for people of moderate means. You can't put any more than 15 grand a year in there. I mean, there's a number of things. But, so it's not really a trust. It's an account. But it's effectively a special needs trust set up where you don't have to go to even a lawyer to set it up.

You just can open one and it comes with all the stuff that a special needs trust does. Right, which speaks right back to the point that, you know, wow, if we come into a financial planner with the idea of, you know, let me share what my needs are and let them recommend, you know, how to work through these things, you know, it's just so much easier than, you know, coming in with a lot of urban legends. Yeah. And that's well said. And I'm not complaining about my job. There's something I, with just about every client that comes in, I got to talk them out of and talk them down away from that and get them in another place for their own good. And that's just part of my job. So, and trust seems to be the coming up a lot. It was Tom's idea to talk about this. And I, if we had time, I'd go over a few stories from Tom that Tom's my associate that he's dealing with this all the time with people.

Unfortunately, as always, we've run out of time before we ran out of show. But again, the idea is if you need this information, clearly, you know, that's what Cardinal Guide is for. So you just go to cardinalguide.com and you can go to the cardinalguide.com and there you can click on either talk to Hans or talk to Tom and or get their book, The Complete Cardinal Guide to Planning for and Living in Retirement. Again, the video on the same subject, is it Cardinal Advisors?

You know, do you need a trust? And so thank you Hans. Wonderful show. Thank you. Finishing well is a general discussion and education of the issues facing retirees. cardinalguide.com, Cardinal Advisors and Hans Shile, CFP, sell insurance.

This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' bestselling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com, cardinalguide.com. This is the Truth Network.