Where there's a will, there's a probate. Avoid probate
by having a trust with your will. In this episode, I'm going to simplify
and answer the question "How does a trust and
a will work together?" I'm not an attorney
but I have trained many attorneys on how to properly structure
an equal opportunity trust to work in conjunction
with your will. So, I'm going to make this simple
and show you how they work together and what is the difference.
So, first of all, let me help you understand where i'm coming from. I've
been a financial strategist, a retirement planning specialist for
more than 46 years. And I've helped many many people create
an estate by accumulating money and wealth. And also, I want to help them
preserve the estate especially after they pass away. So, I've met
with many of my clients with attorneys that I trust to help them set up
their trust revocable living trust to do it under rules of governance equal
opportunity instead of equal distribution. Which is another topic.
Because so many attorneys have boilerplate trusts
where they just sit down with you and they they find out your net worth,
now your assets. And the next question they ask you is, "Well, how many kids have
you got?" Because what are they going to start
doing? They're going to start dividing up your
assets equally when you die and dump it in your kids lap in
equal distribution. And I teach in my various books and
educational courses that there is nothing
more unequal than the equal distribution to
unequals. And people go, "What?" No, no, no, no. See, I don't believe
our creator gives equal distribution of health
to all of us regardless of how some of us may choose to abuse our bodies.
Our creator gives us equal opportunities, not equal distribution. Because I've
noticed that simply dividing up the estate just
killing the goose sometimes laying the golden eggs a
business or your investments and dividing it up and dumping it in kids
laps, it ruins half of the kids in the nation. And they sit around,
"Wen do I get my share?" And they become entitled. And so, I wrote a book called
Entitlement Abolition. And I show how to create your trust with
equal opportunity rules of governance where you have equal opportunities but
not equal distribution. But let's go back and talk about what
does a will do and what does a trust do that a will
doesn't do. First of all, if you die without a will,
you still have a will, it's the one the state wrote
for you. It's called dying intestate without a will.
But most people do not like the state's will where they die, because the state
may say, "Nope. This is how it's going to be treated." And most people don't agree
with that. So, they go out and they write a will.
Now, I mentioned at the beginning where there's a will, there's a
probate. Yeah. So, when you die and you have a will, if you want the will to be
followed, that will must be adhered to under the jurisdiction of a court. And so,
when you do that that's called probate. Probate
is making sure that everybody gets their share of the estate according to law.
And that process is called probate. The sad thing is
there's about 6 or 7 parties that have to be
satisfied before your heirs that you named in the will
get their share. Roughly, you know, first of all, the federal government, if there's
any federal tax, they get first lien then state and then local taxes. Then, I
think it's the attorney who is handling and they come
next in line. You have the executor, the the estate and then creditors.
Creditors have to claim their claims during that time
period when it's in probate. And that's actually an advantage of
probate. Because when you start a probate, there's usually a window of time. Maybe
90 days. Once you publish the probate in a local newspaper
where creditors have to come and make claims,
after that, they cannot make claims anymore. So, probate
may be good to file and that's why I usually recommend you at least have a
will so that you can probate things and get
rid of creditors that can't come out of the closet 5-
10 years later to your heirs and say, "Oh, well you didn't ever go through
probate. And do you know that your father, your
husband owes me money?" If you wanted to say sorry, you had your
chance, you needed to file a probate. You needed
to go through that process. If you didn't, they can sue you, okay? And
so probate can be good. But probate can get very expensive and lengthy. Things
can go through probate for 2 and 3 years and it can drain out
a lot of the assets in the process. So, I would recommend eliminating probate
being lengthy and set up a trust. So, there's 2 things
that a will still is very valuable for even if you
have a trust in conjunction with a will. Because the
question here is how does a trust and a will work
together? If you have both, a will does 2 basic
things that you can't do in the trust. Number 1, it names
the guardian of any minor children you may
leave behind if you die, if you have dependents.
It names who will be the guardian. And if you don't like the state
deciding that, because I've seen some families where a couple
gets killed in an automobile accident. They have 4 children and the state
says, "Oh, no. That's too many to leave behind to your sister your brother or
your mother whatever." Even though they're willing to they say,
"No, you got to divide up your family."
You gotta separate your family. So, a lot of states say,
"No, you have to separate the kids." You have to put some with this family, some
with this family. And maybe you have an agreement
in a trust that says, "No. My sister is willing to take
all 4 children and you have you know sort of an agreement with one another or
what have you." A will will name the guardian of your children
but you can also specify that in a will instead of the
state determining that with their will. The
second advantage to a will is any asset that you forgot to register in the name
of the trust whether it's money in a bank account
or a stock account or whatever, any money that is not in the trust
that will act like sort of a vacuum cleaner.
It picks up all of the assets that you did
not put in the trust either on purpose or most people just
forgot when they opened this bank account or they bought this stock or
they bought this piece of real estate. They forgot to register it in the name
of the trust. And so, unfortunately, those assets go
through the probate and then they end up in the trust and
are distributed according to the trust document. But it doesn't avoid
probate. So, a will sort of picks up assets and puts
them in the trust after probate. So, it works like sort of
this vacuum cleaner, okay? Now, what does a trust do that a will
doesn't do? A trust has 6 basic benefits
that a will does not provide. Here they are: Number 1,
so with a trust you have privacy. See, when you have a will and it's
probated, that is public information you can go down to the courthouse and
anybody can look up your estate, your assets.
It's not private. If you like privacy and it's none of other people's business
what you had in your estate, establish a trust. You have privacy.
Number 2, you can avoid probate because anything
in the trust, I mean it's basically settled in one day. You don't have to go
through lengthy probate time and cost because
the trust, it settles your estate in one day because it's cut and dried
where those assets are going to and what ratios and so forth. You can still
use a will to maybe pass down heirlooms
and effie's base, your mother's wedding ring or something like that.
But most of the assets in the trust are going to just be
distributed privately down to the heirs in the way that you designated to the
successor trustee. So, it avoids probate. Number 3, it
cuts the liability usually in half. If you have an ab trust or like
for my wife and I, I have a trust with my business assets,
my wife has a trust with the domestic assets.
But see, we have liability protection and we also have
estate tax protection. So, a trust can cut the estate tax maybe in
half because if you have an estate tax
exclusion, 5 million dollars, I mean back in the
1990s it was 600,000 and it went up about 25,000 a year.
Then it went up to a million and a million and a half and then 5 million.
Whatever the exclusion is, if it's 5 million,
you get 5 million excluded from estate tax. What's a state tax? It's the
government assessing tax on the transfer of assets
from you down to your heirs. That's called a state tax. It's due within 9
months after death. And you have to file that estate tax
return. So, if you have a lot of assets, if your net worth
is in the 5, 10 million and greater category,
then you would pay tax on anything over and above
that. And it has started out at as much as 36, 37 percent
and topped out at 55% in the past. Many democrat initiatives want to bring
the estate tax back to 55% and have it start
at any assets or a state's worth over a million bucks.
So, you want to make sure that you double that. The wife can have a million dollar
exclusion and the husband a trust lets you get
double the estate before you start paying a
state tax. Does that make sense? For liability protection, it means if you
got sued, in this su-happy society that we live in,
if somebody slipped and fell on your front porch or
if somebody was jumping on a trampoline in your backyard or if you got in an
automobile accident or if you let a 16 or 17 year old grandson or maybe
their friend drive your car and they got in a wreck and they said,
"Well, you were irresponsible for letting my daughter or son drive that car." I've
had all kinds of lawsuits filed against my clients
for those types of things. For taking children camping
or water skiing and they got hurt. And they've been sued for 5 and 10 million
dollars. If you have a trust and the attorney did
it correctly, the most they can sue you for is for the
assets that are in that trust. If it's 50% and the husband is 50% of the wife's, the
most they can wipe you out is 50% of your assets. Now, there's other
strategies I teach in other episodes of how you should have your boats and
your your rental properties and your cars and your jet skis and your
4-wheelers in LLCs so that the most they can
sue you for is the value of the LLC. And if there's only a 4 wheeler in there
or a boat, that's the most they can get. Most people don't know about that. And so,
the most they can sue you for or wipe you out is 50% If you divide up
your assets into 2 trusts or an A/B trust. So, it gives you
liability protection for lawsuits. It gives you protection for unnecessary
estate tax by giving you double the exemption. Now,
there's 2 additional benefits that most people
don't think about. What are they? So far the 4 advantages,
(again) it eliminates probate if you have a trust. It keeps things
private. It protects you from liability lawsuits from being totally wiped out.
It can cut your estate tax liability in half or
double the exemptions on that if there is an estate tax that affects you
on your net worth. But the last 2 advantages to it trust most people don't
think about, number 5 it helps you preserve the
love of the family. Most couples that I talk
to, they do not want to destroy the love of
their family, their children. I have seen numerous examples where
fights break out between the children on who gets what.
"Well, mom told me that I got that and...
That's unfair." And I've seen horrible examples where
with one couple, one of the sons said, "Please,
give me my inheritance early." Sort of like the story of the prodigal son
in the bible. And he said, "Give me the restaurant, dad."
And so, the dad did and he said, "This is in lieu
of me getting uh mine later, my inheritance later." And he says, "Well, let
me make sure it's clear with your siblings." And they all said yes.
He understands he's getting his inheritance early. We don't want the
restaurant, he does. Well, long story short, the son inherited and took the
restaurant and he ran it into the ground and it went bankrupt. And when his father
died, guess what? He came around saying, "Where's
my share of what's left?" And his sibling said, "What?
You got yours." He says, "Well, it's not worth anything anymore." They said, "Well,
that's not our problem. You ran it into the ground."
And he never spoke to his siblings again. Now, see, if you want to preserve the love
of your family, make sure you have a trust. And the trustee
must administer it exactly as you say. They can't argue, that they can't fight.
It's the way it's been done. So, a trust helps you preserve the
love of your family and keeping them together. Because
most people I've talked to, they go, "It doesn't matter
how many millions I leave behind if it destroys the love
of our children and they never want to talk to each other
again, I don't want them to get one dime. I don't want it to ruin them." So, that's
why they set up a trust. So, what's the last advantage of a trust?
Many people don't think about it until it's too late. It's what I call the
second spouse syndrome. See, many, many times
I've had clients who the husband dies or the wife dies.
I'll give you an example. I had one client where the wife died 6 months
after she retired at age 65. She was a secretary at a high school.
They had dreamed as a couple of retiring and
living out retirement for at least 20 or 30 years. He was a master electrician
and he retired. She died of a massive heart attack.
And they had 2 trust. Now, they named me as the successor trustee on their trust.
But see, on his trust, his half, he could make
the changes while he's alive. On her trust, nope,
I was the successor trustee. Well, he was lonely.
This always happens, okay? And he finds another
woman. She says, "You know what? Prove your love for me. Put everything in my
name." Well, he did on his assets. I warned him
against it. But he got really mad when I wouldn't
put the assets in his deceased wife's trust
in her name. I said, "I cannot do that. I'll be sued by your children."
And he was so angry. Well, when she finally got everything she could in her
name, she went, "bye-bye." And she took
his assets and went away. He was so grateful that the other half in his
wife's trust that he didn't listen to his new wife and put it in her name, I
couldn't do that. That was all he had left. Well, that's
because of the second spouse syndrome I'm talking about. But it's even worse
than what i've just explained. See, many times, if they even get along,
the husband or the wife, the survivor remarries,
they live out another 15 or 20 years, maybe happily.
Which some do. I hope many do. Guess what happens? When this person
passes away, if you don't have a trust and your
spouse didn't, then all of these assets that you named
for this spouse continue for the rest of their life and benefits
their wife and children or their husband and children instead of
yours. You disinherit your kids when you remarry
and you don't have a trust because your new spouse and their posterity gets all
of the assets unless you said otherwise in your trust.
So, that's why a trust takes care of that. Only your assets can be used for you
during your lifetime. If you exhausted those, then you can use
your deceased spouse assets only for your
basic necessities. But you can't take out that money
and live high on the hog with a new spouse.
And then leave it behind to their children. You can't do that.
If you want to protect that your assets at least your half,
go down to benefit your blood posterity, set up a trust
to protect that. You're still taking care of your spouse.
But you're not letting it go to somebody you don't even know
and you've never met before and their children.
So, those are the benefits, 6 benefits of a trust,
a will can designate guardian of your minor children. It can act as a vacuum
cleaner cleaning up things that were not put into the trust.
It may behoove you to probate the the will to get rid of any creditor claims
down the road. But other than that, I would not use just
a will. I would use a trust for those 6 additional benefits that wills will
never have. If this has intrigued you and you want
to learn more, watch this episode. Learn where a lot of
my clients put their serious cash in their trust
and in their wills to make sure they don't outlive their money.
And that their family has equal opportunity rules of
governance and they never outlive their money. Because this
is a serious topic. One i'm very familiar with.
And there's opportunities in these additional episodes for you to get free
copies of my various books. So, you can learn,
you can read, you can listen, you can watch and learn and empower yourself.