Episode 37: Pros and Cons: Understanding the Family Trust

Estate Planning Lawyer, Peter Klenk

Pros and Cons: Understanding the Family Trust

Hello. It’s Peter Klenk, Klenk Law, here to talk to you once more about death and taxes and all those fun things that everybody has on their mind and they love to talk about all the time.

Today, hey, we’re talking about Family Trust pros and cons, right? You might have heard this concept that’s been marketed a lot — this idea by financial institutions. Just, you know, it’s nothing new under the sun. It’s just a nice marketing term: Family Trust.

What they’re really talking about is a plan that entails both you and your children and your grandchildren.

So if you’ve done planning, especially with a revocable trust, with what’s called a dynasty trust for your descendants — that’s a family trust, guys. You know, that’s the idea.

But let me go through it. So if you’ve done this before already and you say, “Well, Pete, I worked with you. We’ve done that. We did that like fifteen years ago.” I’d say, yeah, don’t worry about it.

If you’d like a refresher, let’s keep talking.

But if these ideas and terms are new to you, let’s go through them quickly. And then we can talk about the pros and cons of getting into this plan. And I’ll let you know right up front — most of it’s pro. There’s a little con involved here.

So, family trust — and I’m gonna be real general here, guys, because I have this information on other podcasts and on the website, whatnot.

What that really talks about is having a trust like a revocable trust — a living trust, some people call them — while you’re alive, for you. And then having it turn into an irrevocable trust for your assets.

Now you’re talking about planning for your kids.

While you’re alive, you have the revocable trust that helps you manage your assets and take care of things. And then, when you die, it makes it easier for your kids.

The irrevocable trust is the great part for your kids, protecting them from divorce and lawsuits and whatnot.

Well, I just gave you a real high level here because this is not what this call or this podcast is about. But that’s it.

If you want to know more, of course, you can take a look or give us a call. We’ll talk to you about it.

So, okay, what’s the pros?

Well, the revocable trust is pretty nice. You set it up so that if you become sick or incapacitated someday, your backup — like maybe your child — can step in easily and take care of you.

And then someday, when you die, it’s going to avoid the probate process, which means the process is going to be faster and less expensive. So there’s the wins, right?

And then when you die, it becomes irrevocable, and the trust continues for your kids. That helps them avoid divorce issues, creditor issues, whatnot — and can even avoid inheritance and estate taxes as it continues down the bloodline.

So there are lots of advantages as you go through, right?

I’m just kinda saying those are all home run things, and it’s pretty rare I go through these things with a client where they say, “I don’t like those things.” Those are all pretty basic.

On the negative — what is it?

Well, okay, let’s go through it. In some states, like Pennsylvania right now, if you move it in, you’ll lose your own state tax deduction. Some people have that, other people don’t. That’s a big negative.

If you’re in New Jersey right now — I’m saying right now, guys, look, these laws can change tomorrow — so in the future, check.

But right now, you have to pay a transfer tax on the mortgage value, which is weird. That’s what New Jersey does. So there’s some odd little costs there.

If you have no mortgage, there’s no cost in New Jersey. If you don’t have a homestead in Pennsylvania, that’s not a problem, right? You move the deed, so it costs a little bit of money.

It’s not crazy, guys, but it does cost money to move the deed into the trust.

And of course, hey, guys — you gotta pay me to make it. So, you know, hey, everybody loves paying lawyers.

I don’t look at that really as a negative. It’s sort of a neutral thing, don’t you think?

But really, it’s not that expensive, guys. I joke, but it’s really not that much.

Once it’s set up — because you pay a lawyer, you pay the transfers — it’s set up. After that, it’s super easy, guys.

There are very few things that are gonna come back and you’ll say, “Well, this is irritating to me.”

It doesn’t create a different tax return. You use your Social Security number while you’re alive, so it’s see-through. Your accounts aren’t gonna demand it, and mortgage companies could care less.

Every once in a while, there’s a weird little thing where you get a new mortgage with a Fannie Mae-backed company — they require you to take the deed out and put it back in, which is odd.

There’s a whole story to it that we don’t have enough time under the sun to talk about.

You might have to do that in the future, but it doesn’t happen very often.

So are there some potential issues? Sure.

Are they losers for you? Probably not — unless you really love your homestead, then yeah, that’s a problem.

Then once you die, it becomes irrevocable.

I can tell you guys, I’ve never had a kid ever say, “I’m so mad that my mom and dad set up a trust for me that my spouse can’t get into when I get divorced.”

I mean, could I perceive a kid saying, “This is really irritating?” Yeah, okay — but not many.

Most people put their kid in charge, and then the kid doesn’t like it — they take the money out, right? They’re not stuck.

Now if you say, “Look, I don’t trust my kid — he’s got a gambling issue, maybe a mental health issue, he’s married to some shady person, and I just don’t feel comfortable,” and you put a bank in charge — well, now your kid might say that’s a negative because they don’t have control.

But you might say it’s a big positive, right? Because the money’s safe, and they’re being taken care of even though they don’t get to control it.

So it depends on whose point of view you’re looking at, whether that’s a positive or a negative.

And guys, that’s kinda it.

The rest is just making sure that everything’s in order.

Throughout your lifetime, if you have a revocable trust, you’re gonna make sure your bank accounts name it as beneficiary — right? Your life insurance and things.

There’s some putting around you gotta do, but the reality is it’s way less work than your kid would have to do when you die.

So if you’re looking at it as a family concept, there’s the win, right? You have to do a little bit more, but you’re saving them a lot in the end.

And in the end, it’s your money, and you’re doing this because you kind of care what happens to it when you’re not around.

You don’t want it to be wasted. You don’t want it to be lost. You don’t want somebody to take it from your kids. You want them to use it as security and safety.

So some of this work I’m talking about — is it really a negative? It’s really you helping fulfill your own wish and your intention on these things.

So I’d say, all in all, you know, there are pros, there are some cons, but mostly pros. It’s highly pro-sided.

And if you want to talk about it, call us up — 215-790-1095, right? Give us a call, set up one to talk to you. It’s free, it’s not a big deal.

You give us your information — because, you know, depending on what you have — if you have a big giant 401(k) and nothing else, then there’s one plan. If you own a bunch of real estate and no 401(k), there’s a different plan.

So you gotta help us out here — give us data, and then we can brainstorm what makes sense for you, right? What’s a good fit?

And of course, you always get a quote from us before we do anything so you know what it’ll cost.

So that’s it, guys. It’s a pleasure, as always, talking to you all.

If you have any specific questions about things, again — set up an appointment or email me. Happy to talk.

It’s Peter Klenk — like and subscribe so you hear from us in the future, of course.

And you have a great day.