Podcast Summary: So Money with Farnoosh Torabi – Episode 1824: "Ask Farnoosh: Should I Put My Home in a Trust?"
Introduction In episode 1824 of So Money with Farnoosh Torabi, released on May 9, 2025, host Farnoosh Torabi delves into crucial financial questions from her listeners, focusing primarily on estate planning and retirement strategies. The episode, part of the "Ask Farnoosh" series, aims to provide actionable insights and expert advice to help listeners navigate complex financial decisions. Skipping the usual advertisements and introductory segments, Farnoosh addresses three significant questions: the implications of placing a home in a trust, adjusting finances due to early retirement, and the distinction between money market funds and money market accounts.
1. Should I Put My Home in a Trust?
Listener Question from Sarah [17:09] Sarah reaches out following a previous episode on wills and estate planning with Heather Zach. Her main concern revolves around the tax implications of placing a home in a trust, specifically regarding the "step up in basis" for inherited properties.
Understanding the Step Up in Basis Farnoosh begins by explaining the concept:
"The step up in basis, this is a tax break for people who inherit assets like real estate. When you inherit a home or property, the cost basis steps up to the fair market value at the time of the original owner's passing." [05:00]
This means if a property appreciated in value, heirs would only owe capital gains tax on the appreciation post-inheritance.
Trusts and Step Up in Basis Addressing Sarah's concern:
"If the home is in what's called a revocable living trust, the step up in basis still applies. However, if the home is in an irrevocable trust, the step up could be reduced or lost." [07:30]
Farnoosh clarifies that most trusts people use for estate planning are revocable, maintaining the step up benefit. She emphasizes the importance of consulting with a professional when considering irrevocable trusts due to their complex tax implications.
Benefits of a Trust Farnoosh outlines the advantages:
- Avoiding Probate: "Without a trust, your home may go through probate, which can take months and incur legal fees. A trust allows for a smoother, private transition of assets to heirs." [09:50]
- Protecting Heirs' Interests: Ensuring that assets are managed according to the grantor's wishes without court intervention.
Personal Anecdote Farnoosh shares her own estate planning choice:
"I don't currently have my home in a trust. My estate planning attorney advised that given our current life stage—being married with young children—it wasn't necessary. Our co-ownership structure already bypasses probate." [12:15]
She acknowledges that estate plans are dynamic and may need revisiting as circumstances change.
2. Navigating Early Retirement and Financial Adjustments
Listener Question from Lee [17:09] Lee writes about her husband's decision to take early retirement from a federal job to start a consulting company and develop a medical device. She seeks advice on ensuring financial stability, considering her own student loans, substantial income, and retirement savings.
Assessing the Retirement Picture Farnoosh advises Lee to:
"Assess your long-term retirement picture. Understand what you have saved and what you'll need to support your goals." [18:07]
This involves evaluating current savings, projected income, and future expenses.
Enhancing Liquidity Given the shift to entrepreneurship:
"Improve your cash liquidity to at least a year or two of essential expenses. Consider high-yield savings accounts or money market funds to ensure you don't need to dip into retirement accounts prematurely." [19:45]
Retirement Projections and Professional Guidance Farnoosh recommends:
"Work with a financial planner to run retirement projections. This isn't a forever commitment but a strategic move to understand your financial trajectory." [21:30]
Entrepreneurial Income Streams For Lee's husband:
"Consider opening a Solo 401K or a SEP IRA to continue investing for retirement through his consulting business." [23:10]
Aligning Financial Goals with Life Vision Emphasizing the importance of shared values:
"Have intentional discussions with your partner about your financial 'why' and align your money decisions with the life you are creating together." [25:00]
Farnoosh underscores that financial planning is not just about numbers but about supporting the desired lifestyle and future dreams.
3. Money Market Funds vs. Money Market Accounts
Listener Question from Melissa [29:13] Melissa and her husband are considering consolidating their bank accounts and debating between high-interest savings accounts and money market funds for their emergency funds, especially with plans to purchase a home within the next year.
Defining the Instruments Farnoosh differentiates between the two:
- Money Market Accounts: "These are savings accounts typically FDIC insured up to $250,000. They offer safety and liquidity." [30:00]
- Money Market Funds: "These are mutual funds that invest in short-term debt securities. They are not FDIC insured but are heavily regulated and generally low risk." [31:15]
Risk and Protection She highlights the safety of FDIC insurance:
"With a money market account, your deposits are protected by the FDIC, ensuring you don't lose money even if the bank fails." [32:00]
In contrast, money market funds, while low risk, do not offer the same guarantee and are susceptible to market fluctuations, albeit rarely.
Recommendations Given Melissa's timeline:
"For funds you may need within a year, opt for FDIC-insured accounts like high-yield savings accounts or CDs. They offer competitive yields with greater security." [32:30]
Farnoosh advises against using money market funds for short-term goals due to their investment nature and potential risks.
Conclusion In this episode, Farnoosh Torabi provides comprehensive answers to pressing financial questions, emphasizing the importance of informed decision-making in estate planning and retirement strategies. She reinforces the value of professional advice and aligning financial choices with personal goals and life stages. Whether considering placing a home in a trust, navigating early retirement, or choosing the right savings instrument, Farnoosh equips listeners with the knowledge to make prudent financial decisions.
Notable Quotes:
- "A revocable living trust still counts as part of the owner's estate, so the step up in basis still applies." — Farnoosh Torabi [07:30]
- "Improve your cash liquidity to at least a year or two of essential expenses." — Farnoosh Torabi [19:45]
- "For funds you may need within a year, opt for FDIC-insured accounts like high-yield savings accounts or CDs." — Farnoosh Torabi [32:30]
For more detailed discussions and personalized advice, listeners are encouraged to join the So Money Members Club at SoMoneyMembers.com.