The main purpose of a living trust is to oversee the transfer of your assets after your death. We break down the history of trusts and debunk some of the myths that have people believing this estate planning document is the one-size-fits-all solution.
Living Trusts a Cure-All? No Way: Podcast Transcript
So today we’re talking about well, death, and taxes, specifically talking about revocable trusts, they’re called revocable people call them living trusts. Often, it’s a good marketing ploy. It sounds nice to live in further legal terms there revocable trust. Now, as we talk about this, realize, guys, I’m giving you my background and experience in it. The rules themselves that apply to you depend on your jurisdiction depends on what state you’re in, what county you’re in, sometimes, whether they’re useful that depend on your assets, specifically, your family. Everybody’s family’s got its own challenges, right issues.
And of course, when you’re doing it, the laws that apply, I’m talking about you now, but I don’t already know when you’re doing this. So take my information, hopefully, it’s helpful to you, if you should decide you want to do a revocable trust or not. If you’re doing a will make sure that you take the information and verify it with your professional that you’re dealing with and your jurisdiction, you know, make sure that you’re getting the best plan that fits for you, right, it’s good that you’re doing the research and getting information by listening things like this. But you really need to make sure with a professional, it’s everything’s good fit with you.
Now let’s talk about revocable trusts. What is the trust? Right? Let’s start with that. Everybody wonders, you talk about them, I guess. But what is this trust thing? So why do we have it? Well, we got it from the British legal system is from them. They brought it over with William Penn and everybody else. And we decided to keep it once we broke up our relationship in the 1770s. Now, why did the British have trusts? Well, again, I’m going to greatly simplify this guy’s greatly simplified back in the day, the British system was that everything went to the eldest son. All right, if you were a daughter, though, if you were a second or third son, you know, become a priest, join the Navy capture some friendships or something, but you’re not going to get a big part of the family fortune because it all went to the eldest son look, great system for keeping the family fortune together.
If you have ever been to vineyards in France, you’ll see that a lot of them are chopped in little pieces, because in France, every kid has to get a piece of the inheritance. And if something gets really expensive, like land, then all you can do is chop it into little pieces. British system now everything to Ellis son, and their story. Okay, well, in that system, every once in a while, you’re gonna have a guy die, and he’s going to leave everything to his eldest son, who’s a baby. Now, what do you do? He’s a baby, he has the right to all these things, but can’t run them. So what do you do? Well, they tried a lot of things.
Originally, a lot of them ended up with, you know, the king getting a cut the action, but eventually, they came up with the idea of this trust, where you could have the right to stand up in the village square and announced to everybody that you were granting the power to your trusted friend, to hold on to your assets for your son’s benefit until he got older. There you go. Three things. There’s a grantor person who grants the power and gives birth to the trust, you have the trustee, the person you trust to manage the trust. And you have the beneficiary who benefits from the whole arrangement, same words we use still used today.
Now, back when these first came into being these were your revocable trusts, you couldn’t revoke them because well, the only person who could revoke them was dead. Right. So you had an irrevocable trust. So the trust owns these things. And now what’s the real relationship here? Well, the trustees running the trust. Remember, the trustee is not the owner, which is managing. So if they got divorced, they got sued. It’s not their money, so the trust can’t be dragged into their chaos. If the beneficiary got themselves into financial trouble, the trustee could pay their bills. But again, the kid didn’t own these things. So the kid’s creditors couldn’t get in to protect them from the kid’s creditors. Now, they changed over time, Judy adopted two new ideas, such as people only realizing maybe giving the kid the farm at a certain age wasn’t the best, maybe it was better to keep it in the trust forever. So if you give them the trust forever if the kid married unwisely or got themselves in the creditor’s trouble, problems he didn’t own.
The farm couldn’t lose it. And that way the farm could be held for generations of L listens without being lost. Another change came is revocable trusts. Now again, I’m going to greatly simplify it, guys, as we go through this. But the concepts there. So we have these irrevocable trusts great. And well, you know, they were fine. We got them from the British, we kept them. But eventually, somebody thought maybe we should apply this to our probate system. Now, what’s probate? Let’s go to that guy’s every country, every state, every religion and culture, they all have a way of sorting out who gets the stuff when somebody dies, right? There’s got to be a system in place. Otherwise, it’s chaos. So you know, creditors are paid, taxes are paid, the land is transferred to sellers, good title, the family gets what they’re supposed to look, there’s a system well, that we call probate. That’s all it is. It’s the process of dividing up your things and making sure they go to the right people when you die.
That could be the IRS, it could be your girlfriend could be your boyfriend. It could be the family or a charity. Right, but it’s the right system. The right percipient. Now probate in some states, pretty straightforward. In most states, very straightforward. So Pennsylvania, New Jersey, Minnesota, name estate, really, except we’re getting to it few very reasonable system to make sure that happens. Now, there are three states that people usually talk about are probate to pain, California, New York, Florida doesn’t have to be they just made it that way. And it’s still there. So back in the day, supposedly, there was an attorney in California who sat back after filing a will and going, what a pain that was. And maybe there’s a way we can avoid probate, maybe the way we can avoid this system and make it easier. We don’t have to go in Ah, well, what they do, we came up with this idea.
What if I formed a trust, so I’m the grand tour, and I form it for a me as trustee. For me, the beneficiary, and I’m all three I’m grantor trust the beneficiary. And I make it so that I can revoke it whenever I want. So I can put things in it. It exists, right, it owns my house, but I can take it back if I want to. And the house has been held for me the beneficiary so I can live there right now. I imagine when this concept was first floated all the other trusts and state Attorney this fellow knew, Chad, I can’t do that. We’ve never done it that way. That’s crazy. Reality is why not. And they did and it caught on. And it’s all pretty common at this point.
So you can form a trust a revocable trust that you are in charge of as the trustee you are the beneficiary of and what’s the advantage? Well, you transfer your things into it. And then at your death, you don’t own those things, or we don’t have to follow your will to get control of them because trust did die. Trust your says at your death, here’s what we do. replaces your will. And it goes from there. So you have the trust in place. And now nobody has to file the will. So in some states saves a lot of hassle. A lot of money, love big filing fees now convenient.
But guys, this isn’t like you know, the cure for cancer or something, you still have to file your taxes, right doesn’t forgive you from taxes. So if you die because you still kept control over it, it’s still going to be subject inherits your state taxes. So what do people hire us attorneys to do? A lot of time to do tax returns, we do tons of them. They’re weird returns. And if you don’t have to do them, it’s just kind of a haze to have an attorney do it. But okay, you have to do that whether you have a revocable trust, or you use a will it’s the same tax return.
Transferring real estate selling real estate when you die. Do we avoid filing the will? Yes, but if the house has been sold, you in general, have an attorney helped make sure that process is done correctly? Well, yeah. So it’s the same process, whether you have a revocable trust or not. Or even if you’re just transferring the deed out to your children, again, usually have attorneys prep it and file it and and there you go. It’s the same whether it’s from a will or from a revocable trust. So a lot of the things that you’d hire people to help prepare do after you die are going to be the same either way, you avoid the trip to the courthouse right of filing the will. That’s what you avoid in any filing fee. But in most states, the filing fees aren’t that big, especially states like Pennsylvania, where the there’s an inheritance tax, that they’re already getting their money.
They don’t need to charge a big filing fee, because they’re already getting their money. And that’s the same money you’re gonna pay either way. Now, what does it really do for you, because it’s a tool. It does have a purpose, right? It’s good, but you have to make sure it’s it’s worth so because remember, you have to fund it. I’m kind of skipped over that a little bit. You have to put stuff in it. If you just form revocable trust and do nothing it’s done nothing for you. You have to transfer in your deeds, your business, you know your bank accounts and things. And all that takes time and money which your kids can do when you’re dead or you can do while you’re alive, right they can do with a will Are you can do now.
Now? Is it worth it? Well, again, for most people, it’s not illegal, it just you’re not getting much bang for your buck with this thing. But let’s say you have real estate in different states, you have real estate in Colorado and Minnesota and Pennsylvania, and you die in Pennsylvania. Well, to manage that property, we’d have to file your will in Pennsylvania. And then we’d have to go to those other states, because every state oversees the process it uses for transferring real estate, and they jealously guard it. So they’re not going to let you just show up, or your kids show up as a Pennsylvania executor, and say, Hey, I’m going to transfer this deed, they’re gonna want to oversee the process, they want to see the will it’s called Answer a probate, you have to go there and say, Please recognize that we have this right in your state. So if you have that in a bunch of states, it’s a hassle thing in the world to ask so so are you saving them some time and money? Yes, right. There you go.
Let’s say that you’re just getting older, you need some help, right? Especially if Alzheimer’s or dementia is involved. You want your kids to help but you’re not ready to give up control yet. You don’t need their help now, but you know, you’re gonna write someday. So you can form a revocable trust, you could put all your assets into it, you can manage it to it on your own. But when the time comes to turn over for them to take over and take control and help out, it’s just really easy, because they’re already co-trustees, they have the right to act independently, we just step in and start handling things much more simple, more streamlined.
So there are reasons to use a revocable trust, but it’s a tool that you should use when it’s it’s warranted. And now if you want to come in and talk to us about that, happy to we do that all the time. Happy to to work with you. We work throughout Pennsylvania, New Jersey at this point, happy to to walk with you or if you just want to this point after hearing this saying well, that might be for me, talk to a local professional by you run it by them, you know, you’re more armed than you were before listening to this, but you really need to talk to somebody make sure all this is a good fit for you before you do actually take on anything.
So that’s it. That’s a little bit more about death and taxes and trusts and revocable trust specifically, I will be doing some more of these so happy to try to help out and help you pick up a few things. So if you want to look around, you know if there’s any more and listen to you, that’d be great. Take care guys and be well.