Trusts, Titling & Tough Calls: A Practical Q&A

Summary

Podcast Summary: The Practical Planner - "Trusts, Titling & Tough Calls: A Practical Q&A"

Release Date: June 26, 2025

In this insightful episode of The Practical Planner, hosts Thomas Coleman and Anne Rhodes delve into a comprehensive Q&A session addressing some of the most pressing questions in estate planning. Drawing from real-world scenarios and professional expertise, they explore the nuances of trusts, asset titling, and strategic decision-making to help advisors better serve their clients. Below is a detailed summary of the episode's key discussions, complete with notable quotes and timestamps.

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1. The Purpose and Timing of Revocable Trusts

Key Discussion: Thomas introduces the episode by highlighting the shift to a Q&A format, focusing on common client questions about estate planning. The conversation kicks off with the practicality and timing of establishing revocable trusts.

Notable Insights:

• Anne Rhodes emphasizes that revocable trusts generally make sense for everyone, but the decision often hinges on the upfront effort required to fund the trust (populate it with assets).
  "There really isn't much harm in creating a revocable trust. Everything's business as usual. It shouldn't affect your day-to-day." – [01:47]

• Thomas Coleman agrees, noting that while trusts offer significant benefits like control and probate avoidance, cost remains a primary barrier for many clients. He suggests that individuals with substantial assets or complex family situations should prioritize setting up a trust.
  "If cost is not the barrier, trust is setting yourself up better for more control, privacy, probate avoidance, you know, running your business better." – [04:12]

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2. Joint vs. Individual Trusts in Non-Community Property States

Key Discussion: The hosts explore whether couples should opt for joint or individual revocable trusts, particularly in non-community property states like Massachusetts.

Notable Insights:

• Anne Rhodes explains that joint revocable trusts are administratively simpler, especially in traditional family structures without blended families or significant separate assets. However, individual trusts can provide clearer asset segregation, which is beneficial in more complex scenarios.
  "A lot of times if it's a well-drafted joint revocable trust, it's going to essentially act as two individual revocable trusts contained in one document." – [06:25]

• Thomas Coleman adds that while joint trusts are often preferred by clients in first marriages for their convenience, multiple marriages may necessitate individual trusts to protect separate interests.
  "One trust is going to make it a lot more simple." – [08:42]

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3. Trust Structuring in Community Property States

Key Discussion: Transitioning to community property states, the conversation centers on the appropriateness of joint trusts and handling separate vs. community property.

Notable Insights:

• Anne Rhodes states that joint trusts are typically more advantageous in community property states due to the inherent nature of shared ownership. However, she cautions about the complexities of maintaining separate property within such trusts.
  "Joint trusts make a lot more sense in community property states on the whole." – [12:19]

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4. Ownership of S Corporations Within Trusts

Key Discussion: The episode addresses the complexities of owning an S Corporation through a trust, touching on tax implications and regulatory requirements.

Notable Insights:

• Anne Rhodes highlights the risks associated with transferring S Corps into trusts, such as potential loss of S Corp status and tax complications. She advises careful coordination and possibly creating sub-trusts to maintain tax benefits.
  "You don't want to just be haphazard with it and be like, know if the lawyer says put everything into your trust and you just transfer everything in." – [14:19]

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5. Taxable Accounts: Trusts vs. Beneficiary Designations

Key Discussion: The hosts debate whether it's more advantageous to own taxable accounts through a trust or to rely on beneficiary designations.

Notable Insights:

• Anne Rhodes advocates for retitling accounts into the trust, citing benefits beyond probate avoidance, such as tax advantages and creditor protection.
  "Retitling is better because a lot of people...you should avoid probate and you should get all the tax benefits and the creditor protection benefits." – [16:24]

• Thomas Coleman concurs, adding that managing accounts through a trust can simplify administrative processes in the event of incapacitation.
  "It's usually going to be trustee." – [18:00]

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6. Trust Distribution Rules for Children

Key Discussion: A significant portion of the episode is dedicated to establishing effective trust distribution rules to ensure children's financial stability and prevent mismanagement of inherited assets.

Notable Insights:

• Anne Rhodes suggests staggered distributions based on age milestones, emphasizing the importance of tailoring rules to the child's maturity and potential risks like substance abuse or divorce.
  "The longer it's held in trust, the better, because it offers so many protections." – [21:05]

• Thomas Coleman adds practical strategies, such as setting specific rules for fund usage during different life stages and updating estate plans as children grow older.
  "You set those rules when your kids are young, and this is why you update your estate plan...to have some different distribution rules." – [21:53]

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7. Impact of Death on Student Loans

Key Discussion: Addressing a less common but important query, the hosts discuss what happens to student loans upon an individual's death.

Notable Insights:

• Anne Rhodes clarifies that federal student loans are typically discharged upon death, whereas private loans may have varying terms, some of which also offer discharge options.
  "Student loans get discharged." – [22:02]

• Thomas Coleman echoes this, noting the importance of reviewing loan contracts to understand specific provisions related to discharge upon death.
  "Most people believe they don't. Most don't. But some of them do have parts of their contract where they do go away." – [22:27]

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Conclusion

In wrapping up the episode, Thomas encourages listeners to engage with the podcast by submitting their estate planning questions, indicating a potential shift to more frequent Q&A sessions based on audience interest.

“Please don't forget to rate and subscribe and submit us your questions...we'll see you guys back here in a couple weeks.” – [22:56]

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Takeaways:

• Revocable Trusts are beneficial for most individuals, especially those with growing assets or complex family dynamics.
• Joint vs. Individual Trusts should be chosen based on administrative convenience and the complexity of asset ownership.
• Community Property States often favor joint trusts but require careful handling of separate properties.
• S Corporation Ownership within trusts requires meticulous planning to preserve tax statuses.
• Retitling Taxable Accounts to trusts can provide additional benefits beyond probate avoidance.
• Trust Distribution Rules should be customized to the beneficiary's maturity and circumstances, with periodic updates to the estate plan.
• Student Loans are typically discharged upon death for federal loans, but private loans may vary.

This episode offers valuable insights for advisors and individuals looking to deepen their understanding of practical estate planning strategies, ensuring that wealth is preserved and transferred according to client wishes.

Transcript

[Anne]

Foreign.

[Thomas Coleman]

What is up? And welcome back everyone to another episode of the Practical Planner podcast. I'm your host, Thomas Coleman. Here with me, Dave Haughton. And Anne will be here at some point. She's a busy person, so she's got a lot of different meetings. We're going to definitely leverage her for some questions. But anyways, excited to dive into today's episode. Dave, I don't think we've ever done anything, an episode like this before where we kind of just take, you know, reader submitted questions. It's one idea that we were waiting for. But I think until you have any followers, you kind of just make them up yourself. So I'm excited. I basically went through and found that these are honestly the most common questions I get from my clients as well. And I think it'll be cool just to kind of leverage your knowledge. And for everybody who listens to every episode, these are things that we have hit on. But we're also aware that most people don't listen to every episode. And sometimes, you know, some of these were 25 minute episodes and we can actually just like boil it down to a couple minutes. But before we dive into it. Dave, how you been doing, man? I haven't seen you in a minute. It seems like you've been all over the country.

[Anne]

Yeah, it's great. Yeah, I love the travel, meeting new people, spreading the word. I love it.

[Thomas Coleman]

Yeah. I hope to see you at a conference here pretty soon. I bet it probably won't be the future proof.

[Anne]

No. Oh yeah, yeah. Because you'll have other things going on.

[Thomas Coleman]

Yeah. Yeah. Well, okay, let's dive. Let's dive into one by one. And there really isn't any specific order here. But first one, probably one of the most common questions I get is, you know, when the trust really start to make sense. And actually let's put this one A and one B. Let's start with revocable. When do you feel like revocable trusts start to make sense?

[Anne]

I mean, you know, I get this question a lot and I think it always makes sense. I think the question comes up is, you know, you look at the cost benefit of it. I mean the, you know, and really there's not much harm in creating a revocable trust. Everything's business as usual. It shouldn't affect your day to day. The issue is the funding up front. That can be annoying, right? Getting all your bank accounts into the trust. But then, you know, once it's in place, you have it set for life and it really shouldn't affect your day to day. So I think the simple answer is that in most places, a revocable trust just makes sense for everybody. The. The issue comes in, number one, that that work you have to do up front to fund the trust and whether you want to go through that. Because, you know, a lot of people who are younger, let's say, you know, they're having their first kid or, you know, they haven't really built up significant wealth, just getting a plan in place at all is a great first step, and that can be kind of daunting if not only do they have to get the plan in place, they also have to go and change all these accounts and everything like that. So, you know, I think most people think about getting a revocable trust in place once they've kind of have what they think their family is essentially going to be and they've accumulated a fair amount of wealth, you know, to a point where they are concerned about things like probate, you know, divorce for the kids, making sure that you stagger distributions to the kids. They don't just get it outright so that you have a little bit more control and able to set expectations as far as what's going to happen with those assets. But I do think, you know, just historically, I think a lot of times the reason people have said why or why not have a trust is really based on cost. And it's because a trust costs more. It's not necessarily a planning item that it doesn't make sense for you for these planning reasons. A lot of times it's because a trust costs more. And so, you know, that's why it's been great recently, kind of there's been more of a democratization of this estate planning process where a lot of more people have access to getting things like revocable trusts where they can more think about, well, how much work is involved in this and how's the trust going to going to benefit me versus purely thinking about how much is this going to cost me to create it.

[Thomas Coleman]

Yeah, I like that answer because that's kind of how I think about it too. When my clients ask me like, do I need a trust? Do I need a will? And let's say, you know, obviously no legal advice here. I'm like, pretty much anybody with wealth should end up having a trust. I think there are some points where you're like, okay, you know, maybe you're fine with a will for now. Then maybe, you know, you're just out of college and you don't really have a lot of assets. Maybe you're like, hey, I'm about to move in a year and I know I'll need a new state plan. Let's get something basic in. But like, when I think about the triggers that are like, okay, you probably, like, it really shouldn't be a choice anymore. Right. Is easy ones property in different states. Right. Probate sucks. Probate state sucks in a lot of states, you know. Right. So business owner, special needs children, you know, even if really you have any kids in general, I think it starts to make sense. But I agree with you where it's one of those things that, like, cost is the barrier. If cost is not the barrier, trust is setting yourself up better for more control, privacy, probate avoidance, you know, running your business better. You know, I think there's a lot of good benefits of it.

[Anne]

Yeah. And I think there's, there's different ends of the spectrum. Like, at what point does it make sense for someone to do a trust, all things being equal, versus who really needs a trust?

[Thomas Coleman]

Yeah.

[Anne]

You know, there's a lot of clients out there that, you know, if they don't have a trust, they'll go through probate. They might be able to avoid probate with beneficiary designations and things of that nature, so they can get the planning done and it'll be okay without a trust. But then there are some people, you know, who have estate tax issues or blended families, kids who have substance abuse issues or, or what other kinds of creditor issues, divorce potential. Those are when you really need to say, look at someone and be like, you know, you really need a trust versus it would just be a good idea.

[Thomas Coleman]

Yeah. Okay. That leads me to the next question. So I know I need a trust, joint or individual? And I think we're have to kind of segment by state. But I'm very curious on your thought there. So let's think about non community property states, joint versus individual.

[Anne]

Yeah. So for non community property state, like where I come from in Massachusetts, I think it's really an honest debate that really comes down to style A lot of times with attorneys. I always did, you know, joint revocable trusts. When it came to kind of a typical, you know, family structure where spouses in the kids, you know, it's not a second marriage. It's. It's not. The kids are both from the couple that scenario. I usually did joint revocable trust. It was a lot easier administratively during lifetime because it was only one trust to fund. You didn't have to equalize the assets and break them out. Into each trust. So I just found it to be a lot more simple. But there are great arguments for why two separate individual revocable trusts make more sense. And a lot of it comes down to do you want it to be administratively convenient now when you're funding it during lifetime or at the first death? Do you want everything to be crystal clear? They've already been segmented out into these two different trusts and it's really easy to track and a little bit easier to administer. I think it's a, it's a fair argument. What I would say though is that a lot of times if it's a well drafted joint revocable trust, it's going to essentially act as two individual revocable trusts contained in one document. So you can really draft a joint revocable trust that separates each party's property out to one another within the trust contract so that you can still have it as a joint trust during lifetime, have the administrative convenience of that during lifetime, and then at the first death, you know, administer it as if it was separate trust. The really important thing about that is though, you gotta make sure that you're accounting for each spouse's property appropriately. You know, like I said, in a typical family structure, like it's what's yours is mine, what's mine is yours. It's not going to be a really big deal and everything's probably going to be 50, 50 essentially, both practically and legally. But when you get into a scenario where it's not necessarily that case, that's where you really probably want to more think about the individual trusts, Especially if you're not super organized to make sure you're going to be tracking everything.

[Thomas Coleman]

Yeah, I found that, um, it's definitely an attorney by attorney thing. I think some of them that are like very much like let's protect everything possible, like they're going to go more on the individual side of things because they're like, it's a little bit cleaner in the result of divorce and other issues that come along side. But I've definitely found that clients prefer joint, especially when it's first marriages, second marriages. Sometimes I think they might feel a little different. I think if you're a third, fourth, fifth marriage, for sure feel differently. But, but I'm curious. One question I get all the time from people is like, okay, but if I do individual, how does my house work? Like how do we do the deed?

[Anne]

It can get a little complicated because if in a joint revocable trust, you would just deed the house to the joint trust One deed, one transfer. Not that difficult. When you've got two individual revocable trusts, it can get a little bit more convoluted in how you're going to do that because you're essentially going to have to put each spouse's individual interest. Let's assume 50% into each, into each trust according to that allocation. And you know, the deed's going to read that way. So, you know, me and my spouse transfer the property into 50% into my revocable trust, 50% into my spouse's revocable trust, and then when one spouse passes away, that 50% interest is going to have to go and be administered according to that individual trust. So it can get a little bit complicated. You know, in some states, like in Massachusetts, in that scenario, we have a interesting little tool called a nominee realty trust, where essentially what happens is you have a third trust that you create a joint trust. Not to make things super complicated, but you create a third trust that's incredibly simple. It's maybe like two, three pages long, very simple language in it. And essentially it says that the beneficiaries of this trust are on an attached schedule. That attached schedule is going to say 50% one individual trust, 50% the other individual trust. Then you just take the property and you put it into that nominee realty trust, that really simple trust with this really the sole reason for it to facilitate that deed transfer and to make it more more efficient there. And then the other thing about it is it offers a little bit more privacy because you can name that trust whatever you want. Doesn't. You know, most of the time when you name your revocable trust, you're gonna name them, you know, the Thomas Copelman 2025 Trust. You know, that could just be like the, the name of the address trust. I've seen creative trust names for that nominee realty trust because people want that extra layer of privacy when someone goes on the registry of deeds and looks up and says.

[Thomas Coleman]

The llc, said it was horrible. Like, I, I have a recent client I worked with who's like a pretty, pretty well known youtuber and he, before working with us was middle of a buying process and did an LLC for it. And it's like, it's just, it's just so much, it's just, it's way more annoying to do that than to be able to have a trust in this. And we were like, you could have just had a separate trust or, you know, there's a bunch of things that we could have done differently to make your Life easier. And he was like, it's already too late. I already have the loan approval from it. I was like, it's not too late, but whatever you say.

[Anne]

Right, right.

[Thomas Coleman]

Not ideal, but okay.

[Anne]

So then with community Jake Paul 2023 trust.

[Thomas Coleman]

Yeah, yeah, you definitely wouldn't want to do it that way. But then in community property states, do you find it's pretty much always joint because it's joint property. And what about potentially for assets you had before marriage?

[Anne]

I think it makes a lot more sense in community property states. I think a lot more lawyers would advocate for joint trust and community property states just because way more. What's yours is mine, what's mine is yours is how it works in those states. The other thing is at the first step death, there's a full step up in basis a lot of the times on community property assets. So it makes it a lot more simple when you put assets like that. But you know, it's really important, especially in community property states that when they are forming these trusts that they're really carefully looking at what's separate property, what's joint property and what may become separate property. For example, if someone inherits property in a community property state, a lot of times that inherited property is deemed to be separate property of the person who inherited it. Well, you put it into the trust, you know, you might end up co mingling it with other assets and now it's going to lose being able to track what's what's what. So I think joint trusts make a lot more sense in community property states on the whole. But at the same time, you may actually to a certain extent need to be more careful with that property and how it's owned.

[Thomas Coleman]

Yeah, okay, that makes sense to me. So this is kind of along the lines of this, but with trust, a lot of times, you know, with business owners it's talked about like hey, should your trust own your business? And I think this can be simpler in other types, you know, maybe partnerships, sole props, etc. But what about my S corp? Should my S corp be owned by my trust? Do I have step up in cost basis issues?

[Anne]

Yeah, so that's really the big one that people who get see as complicated is should I fund my S corp to my trust?

[Thomas Coleman]

And it's why, and it's why you shouldn't own real estate in your S corp. Right. So I think a lot of times people hear about S Corps and you'll always see CPAs or people like me saying never own real estate in your S corp and people Wonder why. And the issue is, is step up in cost basis or you know, you have a sale of it. Right. There's a lot of tax issues that come along with it.

[Anne]

Yeah. And S Corps just have like really specific laws as far as what qualifies as an S Corp. And you know, could you potentially lose the status as an S Corp if you make a wrong step and then you've got issues of outside basis, inside basis. So, you know, an S Corp is something where if you're thinking of coordinating it into your estate planning, you don't want to just be haphazard with it and be like, you know, know if the lawyer says put everything into your trust and you just transfer everything in. Those are the types of things, annuities, S Corps retirement accounts certainly are the types of things where you want to be really careful and say, why do I want to put this into my estate plan, put it into my trust? What are going to be the implications of it? And does my trust have the specific language within it to be able to continue to help it qualify for the S Corp treatment or am I going to be risking losing that treatment? Because that could be really disastrous. So, and a lot of times the way that that happens is essentially there's a separate like sub trust that is formed for that property so that you can retain all the benefits that you typically would get within a trust and not lose the tax status.

[Thomas Coleman]

That makes sense. Okay, cool. What about should my taxable account be owned by the trust or is the primary beneficiary good enough? And this is actually something, I think it's a great question because one of my clients recently went through estate planning in California and their attorney actually recommended to just have it be the primary beneficiary. Caveat here. This client does plan to leave the country and move back to where they grew up in the next few years. So I think they maybe were like, oh, it's, that's good enough because it's just a shorter time frame. But I am curious because I found that most times people push on the side of retitling.

[Anne]

Yeah. And I, I think usually retitling is better because a lot of people, when they think about revocable trust, they just think about avoiding probate and they don't think of all the other implications. Like yes, if, if you just change the beneficiary, the non qualified account into the trust, then it should avoid probate and you should get all the tax benefits and the creditor protection benefits, whatever.

[Thomas Coleman]

You have the trustee issue. Right. That's more.

[Anne]

So the issue, yeah, the issue is more, you know, what if something happens during lifetime, the revocable trust has some benefits, some significant benefits. Because you know, working with custodians, if someone has a non qualified brokerage account, the custodian is far easier to deal with administratively operationally. If a property is in a trust and you just change the trustee and you submit the paperwork to change the trustee versus getting them to approve a power of attorney and allow that agent under the power of attorney to manage the property in whatever way they see fit. Because custodians are really afraid of getting sued for elder abuse or allowing access to someone who wasn't authorized to access the property. And that's really what's going to happen. Because if you change, only change the beneficiary, that means it's still in your name during lifetime. So if something happens to you, the only way someone can access that is through a power of attorney. And usually if you're going to choose as an advisor, what's an easier a path of least resistance? Is it accessing this account as trustee or accessing it through a power of attorney? You're usually going to say it's trustee.

[Thomas Coleman]

Yeah. Okay, really good answer. What about, you know, one question I get from a lot of parents are, you know, hey, we really want to help take care of our kids. You know, we're doing things while alive. But also like, if I were to pass away, I don't want my kids to get $1 million when they're 18. Right. We've seen the horror stories, the Reddit stories of, you know, they take a million dollars and put it in, you know, X cryptocurrency or pick one individual investment, et cetera. So, you know, what are the most common distribution rules in trust to ensure that your, your wealth lasts the longest?

[Anne]

Yeah, I think, I think it's going to, it's going to depend certainly on people's mindset, their upbringing, their just thoughts on maturity. I do think that giving it to them outright at an age like 21, when they're still in college, as you said, is just almost inevitably going to result in some waste. You know, they'll open a bar or whatever the case is and it's, you know, so at the very least, I think one of them is staggering it by age. You know, 1/3 at 25, 1/3 at 30, 1/3 at 35 is certainly, you know, a type of strategy you could use. You could extend that out longer. It really depends on how people feel. Obviously people have to realize that if they have children that they feel are completely mature and they think they can handle anything. I think as an estate planner, I think any estate planners listening to this, and most advisors have seen that you don't always know all the facts. You know, divorces happen. There's substance abuse issues you're not aware of. So, you know, sometimes you're protecting that beneficiary from themselves the longer that it's held. And sometimes the beneficiaries appreciate it. You know, I used to have clients in estate planning who, you know, when they received the asset in trust, they appreciated it because, you know, for their spouse, they had an excuse for why they couldn't commingle that with the marital assets. You know, they had an excuse for why it had to remain separate because their parents set it up that way and they're kind of legally bound to keep it that way. So I would say that the longer it's held in trust, the better, because it offers so many protections. Obviously, you know, you have to give up control for that. And then, you know, there's other ways you can get real creative with it. You know, some people will do things like W2 matching, where I'm not going to give, you know, each year, submit your W2 or whatever income that you have generated by yourself based on your work, and I'll match that each year. And it kind of promotes, you know, good habits and working to motivate. So that can get a little bit more complicated. It's going to require drafting, it's going to be more expensive. But really the sky's the limit as far as how much flexibility people have and what types of language they can put in the property. They have to realize that the more complicated you get with it, that the more risk there is there that's going to be contested or something could go wrong.

[Thomas Coleman]

Yeah, I really like the, like, before 30, you can only use it for like down payment of a house, education, health, etc. And then post 30, like 30 to 40, you could have 50%, 40 plus, you can take out the rest. I think that's one of the safer routes because there are people in their 20s who can handle it. Like, I feel like if I got money at 22, it helps me in the job I'm in, but I would have invested it and been really smart with it. I have plenty of friends that it wouldn't have made it 12 months. So, like, you can definitely see where it would go. And it might be one of those things that you set those rules when Your kids are young, and this is why you update your estate plan, Right. You're like, hey, my kids are in a great spot. They're now all, you know, 18 to 22. I trust them. Now, we can update this just in case anything happens to me, to have some different distribution rules, right?

[Anne]

Absolutely.

[Thomas Coleman]

Okay, last one. And I didn't really prep you on this one, but this came up recently of what happens to my student loans when I pass away.

[Anne]

So, interestingly, student loans get discharged.

[Thomas Coleman]

Yeah. Federal. Yeah. I just went through this with somebody I know, and I was like, I'm 99.99. Sure it does, but let me, like, confirm. But you're right. All public loans get discharged. Private loans. Most people believe they don't. Most don't. But some of them do have parts of their contract where they do go away.

[Anne]

Yeah. And I think, you know, know a lot of times the private lenders, they're trying to somewhat be, you know, it is the. The rules are a little bit more of a typical lender, borrower relationship versus the federal government has all these. With the loan programs, has all these flexibilities. But some of these banks are giving out private student loans. They still want to be competitive with the federal loan system, so they still offer, contractually, some of the same types of features as the federal loans. So it's really important to look into that.

[Thomas Coleman]

Yeah. Super cool. Okay. Well, I thought this episode was awesome, everybody. We appreciate you listening. Please don't forget to rate and subscribe and submit us your questions. We. I think we'd like to do these maybe a couple times a year, as long as we get enough questions to do it. So any questions you have, basic to complex, send our way, and we'll kind of get it scheduled for the next time we do it. But we'll see you guys back here in a couple weeks. Sat.