Disclaimer: This transcript has not been edited for grammar, spelling, or punctuation.
Nicole Wipp: Welcome to the smart planning. 1 0 1 podcast episode 23. I'm Nicole Wipp, and I'm your host.
Hello, Smart Planners. Welcome back to the smart planning 101 podcast. Today I am going to be both host and commentator because I'm going to talk to you about revocable living trusts.
Now revocable living trusts are extremely useful estate planning devices, but I want you to understand that they really do only have limited applicability for some people.
And so I think it's important with anything that you do, that you understand, not only what you are getting, but also what you're not getting. And so it's important to understand what a revocable living trust doesn't do for you as much as understand what it does do for you now. Before I even get to that, I want to distinguish a revocable living trust from a testamentary trust, which a testamentary trust is a trust that's created in a will.
And so it doesn't come into being so to speak until after your death. Whereas the living trust, a revocable living trust is something that you create during your life and it's in existence during your life. It's a revokable because you can fully amend it, change it, get rid of it. You can do whatever you want during your life.
You have full control over a revocable living trust. In most instances. Why do we use them? We use revocable living trust because it tends to shift control to the person that you want it to the control to go to in the easiest way possible. And this is both during your life and after your death.
And it will avoid probate if it's been properly funded. And so for many people, the probate avoidance thing is the most important aspect of it. It also gives the family a lot of privacy because unlike anything that goes through probate, such as a will a revocable living trust can be kept private and doesn't have to be put into a public sphere such as a court proceeding, like probate.
Just a will does. And if you have any questions about the differences of wills, I encourage you to listen to my episode 11, where I talk about will specifically. So to listen to that, just head over to smart planning one-on-one dot com forward slash 11, and you can listen to that there. Now I just said something that it sort of was a throw-away comment, but I don't want it to be a throwaway comment because it's really crucial.
And that is, I said, if it's properly funded, it will avoid probate. One of the biggest things that we see in my office, And I know that pretty much any attorney that practices in the estate planning sphere is going to see is a trust that has not been funded. And this is something that is related to transferring your assets to the trust.
And. An unfunded trust. I always tell people an unfunded trust is not worth the paper that it's written on. So funding your trust is crucial. The problem is that very few attorneys out there actually are hands-on in assisting their clients and trust funding. And what happens is you get your trust back from your lawyer.
You get some instructions about how to fund the trust. You look at it, it doesn't make any sense, or you think it's too much work. And it seems like everything's already been taken care of you put it in the drawer and you never look at it again. And then you pass away and now your family's got to open up a probate to move all the assets into the trust.
And so this is something that's very common that happens quite often. And so you really want. Fund your trust properly. All right. But that can be a scary statement to people. Funding. The trust I have found tends to be one of the things that make people go a little bit crazy because they really don't understand it.
What does this mean? What do you mean? I have to put my assets into the trust. Like I don't understand that Nicole and I don't understand what it is you want me to do. And I don't understand what it is you're asking me to do, and I don't want to do this because I'm afraid I'm gonna lose control of my assets.
Okay, let me explain. So imagine that here you are, and you are a little kid and you are going over to your friend's house and you're taking your toys over there and you have in your arms, your GI, Joe men, and your Barbies and your cars or whatever it is that you like to play with as a kid. And now you're walking along the sidewalk and you trip and fall.
What happens? All those toys go flying out of your arms. And so I like to equate that visual image with sort of what happens when you don't do any estate planning, everything just goes flying out, right? And there's no control over it. You trip, you fall, you get disabled, you die, everything goes flying around and you have no control over what happens.
[00:05:00] Okay. Contrast this with now, here you are. You're a little kid and you're a smart cookie. And so you take your little red radio flyer wagon. You remember those radio flyers, wagons. I know that they're still out there because I have a three-year-old and we have a similar little wagon and you take your Barbies and your GI Joe's and your cars and everything.
And you put them in your little wagon and now you're going to your friend's house and you're walking along the sidewalk and you trip and fall. What happens. You trip and fall and you land flat on your face, but everything still stays in your wagon. It's all held in there. The wagon is your vessel to protect your things.
That's what a trust is like a trust, a revocable living trust I should say is like your little red wagon. It holds your things so that they don't all go flying out. When you are in a position where you don't actually have control over yourself, your person, your body, or your money. So this can happen either upon disability or upon death.
Now, when you put your Barbie or your GI, Joe, Into the wagon. It doesn't change the fact that it's a Barbie or a GI Joe. It's still a Barbie outside of the wagon. It's still a Barbie inside of the wagon. It's still a GI Joe man outside of the wagon. It's still a GI Joe inside the wagon. This is just like funding your trust funding.
Your trust is the process of putting the stuff into the wagon. Okay. The wagon is the trust, your stuff. Your Barbie is like your checking account and your GI Joe man is your savings account and your cars are your mutual funds or your actual cars. Okay. It doesn't change the nature of the things that you own by putting it into the trust.
It's still a checking account, whether it's inside the trust or outside of the trust. In fact, it's still your checking account, whether it's inside the trust or outside of the trust. The difference here with a revocable living trust is instead of it being. So for my example, Nicole whips checking account, it's now Nicole whip's trusts checking account.
And because it's my trust and I'm the person in control of my trust. I'm in control of my checking account just as I was every single day of my life. Prior to that, that I own that checking account. My mutual funds, my stocks, my bonds, any of my assets, my house are all assets. That can be held by the trust.
Doesn't change the nature of them. So I have had people say things to me in the past oh, I have to get more assets before I can fund my trust. No, that's not what we're talking about here. It's not talking about getting more things. It's about taking the things that you have and putting them into your protected device, your little red wagon so that you can protect them.
Okay. Now let's also they'll point. The flaw of the little red wagon. And some of you may have already seen that, which is okay. Now, here I am walking along to my friend's house and I'm pulling my little red wagon behind me and that bully Billy down the road comes and he smashes my wagon and grabs all my stuff out of, off of it because there's no protection to the wagon off the top.
Somebody can run right by and take anything out of there just as easily as I can in some instances. And so that's the thing about a revocable living trust, similar to that bully Billy that's coming down and I'm going to take my Barbies away from me and smashed them into the ground. This is sort of the equivalent of creditors, predators, nursing, home, things like that, where you're going to lose your lifetime savings because the thing is that a revocable living trust?
Your revocable living trust, I should say if you're the one that creates it does not provide asset protection to you during your life. You do not have your assets protected. Nobody. If you get sued, any assets that are held by your revocable living trust are subject to your lawsuit. If you go into a nursing home, any assets held by your revocable living trust are subject to.
Going into the nursing home. And so these are things that you need to be aware of because I have found that people really don't understand that, that they, a lot of people believe that their revocable living trust gives them asset protection, but this is not the case. And so at the beginning, I said, it's just important to understand what you're not getting is what you are getting.
That is one of the things now also remember If you don't put your things inside the wagon, they're not protected even from probate, right? So you want to make sure they go into the wagon and if you don't understand how to do this and you get those instructions and it's something that you really need to ask for more help because I would say that it's almost a critical part of this part type of estate plan.
The thing that I never liked to see happen. And one of the reasons that my office, we help our clients with their trust funding is because we don't want the kids of the families coming back and saying, why did my parents pay you to create this trust? And now I have to go to probate anyway wasn't that the purpose of creating the trust?
And so it's just [00:10:00] being aware that's something that the trust funding is something that you want to do. Also, you really do want to use your revocable living trust to its fullest and highest use. What do I mean by that? If you go out of your way to create your rule book, and that's what we call your revocable living trust, that's your rule book, right?
What you want to have happen to your stuff upon your disability or your death? You want to make sure that what you said in your rule book is in fact what happens and the problem here is that when you end up having a bunch of assets that have beneficiary designations, so let's say you put a payable on death or transfer on death, or you just fill out a beneficiary designation form for different assets, such as your IRAs 401ks.
Bank accounts and things like that, those assets are going to pass according to those beneficiary designations, not according to the rules that you set up in your revocable living trust. And a lot of people really do not understand that. And they think that what their trust says is what's going to happen.
And that is. The case when you have beneficiary designation. So you really need to understand that you want those. If you want certain things to happen, you've got to make them happen in order to make them happen. You need to have your rule book, be the final word. How you make your final word is by making those assets owned by.
Making the trust, the beneficiary of those assets so that your rule book will be what is followed instead of whatever you put on your beneficiary designations. Because a lot of times what we see is that people are just haphazardly doing that, or they just put a beneficiary designation to one child.
When they really wanted it to go to all three of their children, let's say. And it's because they don't really understand the difference of how that works. Your rule book only works. If you, in fact, have a properly funded trust. And so you want to make sure that's what's happening. So that's the purpose of the funding.
this concludes episode 23 of the smart planning one podcast. But I don't want you to think that I am finished with the topic of revocable living trust because I'm not in fact far from it in episode 24, I want to dive a little more deeply into the topic of what can be done and what options you may want to have in your revocable living trust.
And the reason that I'm going to be going into this is because if you recall, at the beginning of the episode, I made a statement along the line of it's important to know what you have, and it's important to understand what you don't have. And one of the things that we find is that. Clients can come in and they don't have trust.
That's really accomplishing what their real goals are. And part of the reason is because they aren't even aware that these goals can be accomplished with a trust and they get a little mad sometimes when I bring up these things or when other attorneys bring up these things because they say. Why didn't anybody tell me about this before?
Like, why wasn't I told that I could do this because this is something that's actually really important to me? And in this type of planning, it's not always just about money. It sometimes is about our values and what we want as goals for our family members and things like that. So while money is of course an important topic, it definitely isn't the entire topic.
And to be honest with you, for a lot of the people that I deal with you know, money. There's no question that money's important, but it's all about their family and the things that they want to do to protect and nurture and care for their family members. And so what can you do with a trust to accomplish those goals?
So that's what episode 24 is going to seek to address and. If you have any comments about that in advance or what you'd like to hear in that episode, or if anybody has any ideas of additional things that may be included into that discussion, please feel free to contact me at the smartplanning101.com website.
To read the show notes for this episode, please visit smartplanning101.com/23. And stay tuned for episode 24. Thanks for listening.
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information contained within this podcast does not constitute legal or financial advice. It's for general informational [00:15:00] purpose only. For advice specific to your situation, consult with your legal or financial professional.
