Podcast Summary: The Practical Planner - Episode: Trusts vs. Wills

Release Date: November 7, 2023
Hosts: Thomas Kopelman and Anne Rhodes
Platform: wealth.com
Episode Title: Trusts vs. Wills

Introduction

In the third episode of The Practical Planner, hosts Thomas Kopelman and Anne Rhodes delve deep into the nuanced differences between trusts and wills, clarifying common misconceptions and providing actionable insights for financial advisors to enhance their estate planning strategies. The episode, titled "Trusts vs. Wills," serves as an essential guide for advisors aiming to offer more effective estate planning solutions to their clients.

Understanding Revocable Trusts vs. Wills

Anne Rhodes initiates the discussion by addressing the prevalent confusion surrounding revocable trusts (also known as living trusts) and wills. She emphasizes that a revocable trust offers flexibility, allowing the trust creator to retain control and the ability to revoke the trust during their lifetime without legal repercussions.

"A revocable trust is more descriptive. It says you have a trust creator who wants to have an estate plan in place but retains the power to revoke that trust anytime while alive."
— Anne Rhodes [01:38]

Thomas Kopelman echoes the importance of distinguishing between trusts and wills, highlighting that not everyone needs a trust solely based on their wealth. He points out that individuals in states with streamlined probate processes, like Washington, may opt to use a will without significant drawbacks, regardless of their financial standing.

"The common misunderstanding is that trust equals having a lot of money, and that's not necessarily true."
— Anne Rhodes [03:57]

Common Misconceptions About Trusts and Wills

The hosts identify and debunk several myths that often confuse both advisors and clients:

1. Avoiding Probate with a Will:
   Many believe that having a will alone can help bypass probate, which is inaccurate. Thomas notes that probate is still required with a will, unlike a revocable trust which can effectively bypass this process.

   "People think that as soon as you get your estate planning a will done, you avoid probate, which is not true."
   — Anne Rhodes [04:29]

2. Loss of Control with Trusts:
   There's a misconception that establishing a trust means relinquishing control over assets. Anne clarifies that, particularly with revocable trusts, the trust creator remains the trustee and beneficiary, maintaining full control over their assets.

   "A revocable trust is not about giving up control. It's more about getting control and dictating where things go."
   — Anne Rhodes [04:56]

3. Trusts are Only for the Wealthy:
   Contrary to popular belief, trusts are not exclusively for the wealthy. Anne explains that revocable trusts can be beneficial for individuals with modest estates, especially in states with complex probate laws.

   "If you live in a state like California, you need to put a trust in place as a substitute for a will, regardless of your wealth."
   — Anne Rhodes [02:30]

Key Roles in a Trust

Anne outlines the three primary roles within a trust:

1. Trustor (Trust Creator): The individual who establishes the trust.
2. Trustee: The person responsible for managing the trust assets.
3. Beneficiary: The individual(s) who benefit from the trust.

She emphasizes that, in a revocable trust, the trustor often serves as both the trustee and the beneficiary initially, allowing them to maintain control over their assets.

"In a revocable trust, the trustor can be the trustee and the beneficiary, meaning they continue to enjoy the assets they have placed into the trust."
— Anne Rhodes [05:56]

Practical Use Cases for Revocable Trusts

Thomas and Anne discuss scenarios where a revocable trust is particularly advantageous:

1. Incapacity Planning:
   Unlike a will, which only takes effect upon death, a revocable trust becomes active as soon as it's funded. This allows a trustee to manage the individual's affairs if they become incapacitated.

   "With a trust, you can start putting things in it today, and your trustee could step in and help you manage those affairs."
   — Anne Rhodes [08:03]

2. Business Continuity:
   Business owners can benefit from placing their business interests into a trust, ensuring seamless management and succession without the need for cumbersome probate procedures.

   "If you have an operating business, having a trust allows a successor trustee to step in and keep things running smoothly."
   — Anne Rhodes [10:13]

3. Avoiding Ancillary Probate:
   Individuals owning property in multiple states can avoid the complexity and expense of probate in each jurisdiction by consolidating their assets into a revocable trust.

   "By placing properties into a trust during life, the trustee doesn't have to open probate in every single state across the nation."
   — Anne Rhodes [15:53]

Advantages of Revocable Trusts

1. Privacy:
   Trusts offer a higher level of privacy compared to wills, as they do not become part of the public record.

2. Probate Avoidance:
   Revocable trusts eliminate the need for probate, reducing legal fees and administrative burdens on beneficiaries.

3. Flexibility and Control:
   The trust creator maintains control over the assets and can modify or revoke the trust as needed during their lifetime.

Remaining Considerations and the Role of a Pour-Over Will

Despite the benefits of revocable trusts, Anne highlights that they should not entirely replace wills. Instead, trusts are often accompanied by a "pour-over will," which ensures that any assets not transferred into the trust during the individual's lifetime are directed into the trust upon death.

"Your rev trust still needs to be accompanied by a will, often referred to as a pour-over will, to handle any assets not already in the trust."
— Anne Rhodes [22:25]

Key functions of a pour-over will include:

• Naming an executor or personal representative.
• Directing the transfer of any remaining assets into the trust.
• Appointing guardians for minor children.

Addressing Advisor Concerns and Cost Misconceptions

Thomas addresses the common concern among advisors and clients regarding the cost of establishing trusts. He points out that modern solutions, like those offered by wealth.com, have made trusts more accessible and affordable, challenging the notion that trusts are prohibitively expensive.

"People often avoid trusts thinking they're too expensive upfront, but advisors can now help clients establish trusts at a reduced cost, which can save money in the long run by avoiding probate fees."
— Thomas Kopelman [18:15]

Conclusion and Call to Action

The episode concludes with Thomas and Anne encouraging advisors to reach out with questions and real-life scenarios, aiming to create a more interactive and informative series. They emphasize the importance of understanding the intricacies of trusts and wills to better serve clients' diverse estate planning needs.

"We want to hear from you. If you have questions or experiences related to trusts and wills, feel free to email us, and we'll address them in future episodes."
— Anne Rhodes [24:55]

Takeaways for Advisors

• Educate Clients: Clearly explain the differences between trusts and wills, emphasizing the flexibility and control offered by revocable trusts.
• Assess Client Needs: Determine whether a trust or a will is more appropriate based on the client's personal and financial circumstances, including asset distribution, privacy concerns, and potential for probate issues.
• Implement Complementary Documents: Encourage the use of a pour-over will in conjunction with a revocable trust to ensure comprehensive estate planning.
• Leverage Modern Solutions: Utilize affordable trust services to make trusts accessible to a broader client base, addressing cost concerns proactively.

By thoroughly exploring the distinctions and practical applications of trusts and wills, this episode of The Practical Planner equips financial advisors with the knowledge to guide their clients toward effective and tailored estate planning solutions.