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"The Living Trust Lie"

"The Living Trust Lie"- 10 Things Your Living Trust Will Not Do For You

That headline will sure get your attention!  But, relax- we are not accusing your attorney of lying to you.  Far from it.  What we mean by the phrase "The Living Trust Lie" is this- it's a lie to assume that just because you have a living trust, all is well and your assets are protected.  In fact, years ago Mike Hood wrote a booklet on this subject to educate clients about the limitations of living trust planning alone.  It's out of print now and outdated because of numerous tax law changes, but the concepts still remain relevant even today.  As most people know, trusts are an important foundation of any good estate plan and a “must for anyone wanting to avoid probate and potential estate taxes at death.  In many cases a living trust is a great tool and at Hood Financial we highly recommend them to our clients when appropriate.  But, while there are many things a living trust will do, there are a lot many more it will not do. 

During Mike's 30+ years of working with clients, he has found a common thread among those with living trusts.  Namely, that despite the best work of estate planning attorneys, there were still major parts of clients' estates left completely unprotected.  Not because the attorney wasn't doing their best, it's just that the protections offered by living trusts alone are very limited.  Mike meets people all the time who usually need advanced estate and financial planning strategies, beyond what living trusts can provide, to completely protect their estate in the way the client intended. 

Mike is quick to point out that there is a legal side to estate planning- wills, trusts, documents, etc, and a financial side.  Not having the financial side in order has a far greater negative impact to a surviving spouse and heirs, than does not having the legal side in order.  And yet, most people begin with the legal side and their planning usually ends there.  Mike and his team offer pre-legal counseling sessions to anyone considering living trust planning or a trust review to make sure that the all-important financial side of their estate planning also gets the attention it deserves.  

Most everyone Mike meets with will be affected by #4 of his "10 Things"- as more and more people accumulate money in tax-deferred retirement plans such as IRA's & 401(k)'s.  "Frankly, it's never made sense to me..." says Mike.  "...that you spend all the time, effort, and money to put together a living trust only to see one of your largest assets- your retirement accounts- still subject to income and potentially estate taxes upon your death."  While there are special IRA trusts that can help to protect IRA funds from beneficiary creditors, these special trust do nothing to protect retirement accounts from taxes.  Something everyone can agree on is a far bigger problem.  Think about it this way, what percentage of your heirs will have creditor issues as opposed to what percentage of your heirs will pay taxes on these retirement funds?  You get the picture.  The good news is, with proper planning, you can solve both of these problems but it requires more than just living trust planning alone.  And that's where we, at Hood Financial, come in.

Here are the "10 Things" Mike has identified.  (There may be more, but 10 sounded like a good, round number)  See how many of these you can identify with...

A Living Trust Will NOT-

  1. Protect lost income at death- (pensions, Social Security, etc) to surviving spouse and/or heirs.
  2. Create a fair distribution of assets to children of second marriages.
  3. Reduce or eliminate estate taxes- beyond current tax laws.
  4. Reduce or eliminate income taxes on IRA's & 401(k)'s, etc. at death.
  5. Reduce or eliminate income taxes on annuities at death.
  6. Protect income and assets from a long term care illness.
  7. Enhance or optimize your life insurance death benefits to loved ones.
  8. Guarantee an income you can never outlive.
  9. Replace investment losses to spouse and heirs.
  10. Simplify estate distribution to your heirs in ways other tools can.

If you'd like to learn more about the limitations of your living trust and how we can help you to fix them, call us at (760) 752-7848 or email Mike here.