Money Matters with Greg
Needing guidance on finances, or just curious about investments? Join CEO and Owner of Farrall Wealth, Greg Farrall, as he dives into all things relating to money and often interviews interesting people he is fortunate enough to call his friends.
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Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
Money Matters with Greg
Not 6...7...:) Episode 168: Money Talks: Trust, Charity, and Interest Rates
Confused about trusts? You're not alone. In this enlightening episode, we demystify the complex world of trust planning and explain how these powerful tools can safeguard your legacy and protect your loved ones.
We begin by sharing insights from Opportunity Enterprises' Legacy Luncheon, where charitable giving takes center stage in estate planning conversations. The intersection of philanthropy and wealth transfer presents fascinating opportunities for those seeking to make a lasting impact on causes they care about, while potentially gaining tax advantages.
The Federal Reserve's recent decision to cut interest rates to 4.25% marks a significant shift in monetary policy. Unlike previous cutting cycles, today's market shows remarkable stability with high probabilities of additional cuts in October and December. This measured response contrasts sharply with the counterintuitive market reactions we saw in 2024, offering a more predictable environment for investors planning.
The heart of our discussion focuses on trust fundamentals: what they are, how they work, and whether you actually need one. We explore the critical differences between revocable and irrevocable trusts, the protection they offer from probate and public scrutiny, and the common pitfall of failing to fund them adequately after creation. For those with charitable intentions, specialized vehicles like Charitable Lead Trusts and Charitable Remainder Trusts deserve serious consideration, particularly for highly appreciated assets.
Whether your estate is modest or substantial, understanding the various trust options—from Special Needs Trusts to Generation-Skipping Trusts—can help you make informed decisions about protecting your family's future. Before establishing any trust, consider consulting with qualified professionals who can ensure your strategy aligns with your unique circumstances and objectives.
Ready to explore how trusts might fit into your financial picture? Contact us at greg@farrallwealth.com or 219-246-2516 to continue the conversation about securing your legacy and protecting what matters most.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.
Welcome to Money Matters with Greg, where we dive into the money conversations shaping your life, from investments to estate planning, insurance to taxes. We cover it all with a fresh perspective. Join Greg and his guests each week to get inspired and take control of your financial future. Let's get started. Securities and investment advisory services offered through LPL Financial, a registered investment advisor Member FINRA, sipc.
Speaker 2:Hey, good afternoon. It's Greg Farrell, ceo and owner of Farrell Wealth. It's a wealth management firm in Valparaiso, indiana, and I'm a financial advisor with the show Money Matters with Greg, and we are broadcasting today on WVLP 103.1 FM and also anywhere you pod, we put it on our podcast as well, and also anywhere you pod, we put it on our podcast as well. We broadcast at 1 o'clock in the afternoon on Thursdays and then 1 o'clock in the afternoon on Saturdays is a replay. And we are going to talk today about a couple different things. One just recently back from Opportunity Enterprises luncheon, a legacy luncheon that they had today. I'm all suited up with a coat and tie For that reason, you'll see on the YouTube channel when you see it, and I want to talk about that. I also want to talk about the Fed, because they did cut rates last week. I want to mention that. What exactly has happened in regards to that? And then I also want to talk about trust and how they can work in your estate plan. I'm not talking about the quality of trust that we always reach out and try to get with all of our clients, but more so estate planning and trust. So I'm not a lawyer, I do not play one on TV in any way, but we do have questions about trust, as well as conversations about trust and whether someone needs them, how they can help people. Do they need to go through the expense and the process as far as that goes, and I want to add to that. So, with that, this shows Money Matters with Greg. I'm Greg Farrell, ceo and owner of Farrell Wealth, and I'm very excited to be here today and bring you our 168th podcast. As a reminder, I just want to mention that I am a registered representative with and securities offered through LPL Financial. It's member, finra, sipc Insurance offered products offered through LPL Financial or licensed affiliates. So I mentioned that the opinions of me and our guest are merely opinions. To determine which investments may be appropriate for you, consult with your attorney, accountant and financial advisor or tax advisor prior to investing.
Speaker 2:Okay, now that I got that out of the way, let's get into OE. One of the places that is just near and dear to my heart is Opportunity Enterprises, which is an organization you can find at oppentorg. Their mission is incredible, their values are amazing. Their vision is insane. So what they do at Opportunity Enterprises is help adolescents, kids and also adults with intellectual disabilities really gain a quality of life. They embrace the value and the inclusion that brings to a community and OE really does always really show innovative services that empower people through this person-centered approach. That is just phenomenal what they do.
Speaker 2:I just came from their legacy program and many of the donors that have given in their legacy and also in their beneficiaries in regards to their estate plan, they've named Opportunity Enterprises in multiple different ways to have a piece of their estate plan and it just was touching and I love the organization. They do some great things in this community as far as helping. But they also gave me an opportunity today on the podcast to really talk about what are your values and what are your thoughts. I've been thinking deep about your money and how money affects your family and then having those charitable inclinations in life and having those charitable inclinations after death. What exactly is your plan and how does that look for an organization like Opportunity Enterprises that is changing lives here locally in the region of northwestern Indiana and also throughout the state, as well as being an emblem and a symbol for other organizations to follow with what they do, how they employ people, how they show a lot of self-worth, allow individuals of all different abilities to have a self-esteem and really build them up in many different ways.
Speaker 2:In regards to occupational therapy, to physical therapy, I volunteer in their fishing program. I started for kids at their camp called Camp Lakeside that was donated by very generous benefactors here locally. They built a respite center for families to help for those that care for many of these individuals. For the families to come in and they didn't have a fishing program, so I started one really to just try to drown worms and have some fun with the kids and really kind of teach them how to fish in lots of different ways and what fishing teaches in regards to patience with kids. So that's a little tough at times but we try to drown some worms and try not to stick any kids. I stick myself more than anyone, which is probably a good thing. So that's really how I started. I've always had a love affair for Opportunity Enterprises, ever since I was a part of United Way and on their board and I just wanted to mention as an organization. Obviously it's fantastic. So Google Opportunity Enterprises sustain their mission and fund their mission for future generations. So we're going to talk about that a little bit later in the show about opportunities there as far as trust and the ability to do charitable remainder trust and whatnot.
Speaker 2:But initially I would really want to make sure we get through the Fed and what exactly happened with the Federal Reserve last week. So let's take it from there. So the Federal Reserve cut interest rates last week to take the Fed funds right down to 4.25, which was the upper bound or the upper band overall. But moreover, the release of the updated dot plot that came about that we're always looking here in regards to finding out where the Fed's going to go next. The committee really symboled that there are two more interest rates that could be appropriate this year. There is now up to a 91% probability of October and then there could be as much as a 72% probability in December, and that would take Fed funds right down to three and three quarters since last December.
Speaker 2:And the continuation of this rate-cutting campaign that began last September, which has seen sort of like an unusual reaction out of the Treasury market, which has really been fascinating for us to see. Typically, when you get a cut, the Treasury market cuts as well and it goes down. But when the Fed delivered its first 50 basis point rate cut last September, bond markets responded in a way that really kind of defied four decades of precedent. Instead of falling, as expected, the 10-year treasury yield surged, which really created one of the most counterintuitive market moves in recent memory. And the progression was really this relentless 45 basis point higher after 25 days, 78 basis point higher after 50 days and 93 basis points higher after 180 days, and the 10-year treasury ultimately rose well over 100 basis points from then the September lows. And this move was really remarkable at the time, not only just for its magnitude but for the breaking historical patterns. That's not supposed to happen. And in previous five Fed cutting cycles, dating all the way back to the 1980s, the 10-year Treasury deal declined on average by nearly 1% within 100 days of the first Fed cut.
Speaker 2:And part of the explanation lies in how aggressively markets had positioned for cuts. Before the Fed acted, everything had gone down in regards to. You know, in anticipation of this, by September 2024, markets had priced in at 10 rate cuts before the end of 2025 at a level of easing. Really that proved wildly optimistic at the time when slowing economic conditions really kind of fell short and bonds really sold off sharply. So why is this different? And I just wanted to bring this up to say. History has a tendency to repeat itself and while the market's reaction last September was far from ordinary, the most recent rate cuts could be less interesting, at least relatively, at least relative to history. And so now markets have priced in, in our view, a more realistic rate cutting campaign, sort of like through 2026. And currently markets are priced in two more rate cuts this year and then roughly of roughly 25 basis points. So you know, you're at a half a percent by the end of 2026.
Speaker 2:And if market expectations are realized, the Fed funds rate will end at 2026, around 3%, now absent of a recession and more inflationary pressures that ultimately, you know could happen, still above the Fed's 2% target, which is Fed funds rate, which is 3%, which is more realistic, really on the low end of our expectations that it's really priced to start this sort of rate cutting campaign last year. But ultimately looks like we're getting it at the end of this year For the Fed rates, really the Fed funds rate, to get much lower than what's already priced in the economy would need to really contract. The economy would need to really contract and we're not seeing that at all, even with tariffs pending tariffs and all the news of that, or inflationary pressures, that would need to fall back around 2% by the end of 2026. So with the current market pricing and a 10-year yield around 4.15, we think a 4% 4.5% range is really appropriate throughout 2025. I'd like to see a little bit lower and it looks like the market's already pricing that in, so you know who knows. But a 91% chance here for a cut initially in October and then another cut here in December. It looks like it's well over 50%. It's in the 70s, so no guarantees. But I just wanted to be able to mention this that we historically we're not seeing what we saw back last in 2024 and we are seeing sort of a relative calm in regards to these cuts and sort of a measured calm as well. So that's my update on interest rates and I hope it was helpful.
Speaker 2:So the show is Money Matters with Greg. I'm Greg Farrell, ceo and owner of Farrell Wealth. It's a wealth management firm here locally in Val over the nation, but our main home base is in Valparaiso where we raise our families under the Midwestern charm of a really small town here in Valpo. That's outside of Chicago. By the way, our Bears won and our Indiana Hoosiers won. I'm obviously a very big fan of both organizations, so that's a big win. This weekend, as Indiana took on Illinois, I was at the game. It was great to see so many of my board member friends that were on the I Association, as well as many ex-players, and just to have just a really great time. And now that we're all broken down and lying about how good we were back when we played, it's always good to get back. I've been back the last two weeks helping the board out and manning the tents and shaking hands and seeing people that I never necessarily played with or in something that I did, and it's just been a really great joy in the last two weeks. Hopefully we'll be able to go to Iowa and do our job in Iowa this week and our Bears won for the first time, which was fantastic. So in this area it is very Chicago-esque and it's very important to this area in Chicago that we get a Bears win. It's been a long time coming, for sure. So Monday has been super fun and the week as well. As we move on for the week for all of us Again, we're on WVLP 103.1 FM broadcasting at 1 o'clock Thursdays and then Saturdays at 1 o'clock on a replay, and thank you for WVLP for the opportunity to be able to be here today and to broadcast. We'll get this out to everybody for the Thursday airing.
Speaker 2:I wanted to talk about this next section here about trust, private trust and what trust means for families. I get these questions all the time. Should I have a trust? Why should I have a trust? And really the main reason I simply say is the main reason you want a trust and want to have a trust set up is it's an easier process Ultimately if there is a passing away of the trustee and how that might go as far as passing on their wishes. Ultimately, through a trust that is a little bit different than a will, ultimately, through a trust that is a little bit different than a will, there is a cost involved with a trust typically, and that's what I'm always wary of and trying to guide clients in the right place in regards to this.
Speaker 2:But you know basically what a trust, what we do, and really first of all, along with our trusted partners, is really really to try to provide the expertise across all aspects of a trust administration, what that looks like and that competitive advantage is really the full integration of an administration trust. We have a trust department that is available to our clients. It's called the Private Trust Company. Years ago, our broker-dealer, lpl, was running into not having the ability to offer trust services to high net worth and ultra high net worth individuals and families. So they went out and bought it and that's what they bought the Private Trust Company years ago, and they really maintain that relationship with trusted advisors and us through the trust company. So that's really nice as an advisor to have that opportunity.
Speaker 2:A lot of advisors don't have the ability to have a trust, but I really wanted to kind of dumb it down and just sort of simplify, because I have so many people ask me about what is a trust. And you know a trust is a legal structure that provides stewardship of assets for the benefit of a person or people or an entity overall, and you have a trust document that defines the terms of the trust and really should be drafted by a qualified estate planning attorney or service. And this is where I recommend you do. So, as you know, have your team, put your team together. We talk about team all the time on this podcast. Put together your team and have a really good estate planning attorney kind of look through things.
Speaker 2:However, there are other opportunities for you to be able to set up a trust that it's not if it's not complicated and it's not sophisticated and it's pretty simple. You know there are other options as well. I can go into that, you know, throughout the as I talk. But basically a trust document first needs to be drafted and that describes how you want your assets managed and eventually distributed, how you want to benefit from your assets now and in the future, and how you want to be responsible for carrying out, who you want to be responsible for carrying out the instructions. It's pretty simple. So how, who and who, basically who you want to benefit, who you want to be responsible and how you want those to be managed. It's up to you.
Speaker 2:What can a trust document do for you? A trust can provide really a measure of comfort, knowing that you have a plan in place to help provide for the safe and accountable management of family assets, that to really direct to their use in accordance to your wishes, your goals and your objectives. And a trust is used to really help ensure that to properly manage your assets throughout different stages of your life, so during your lifetime. Placing your assets in trust allows you the freedom to continue managing your assets or to devote time to other priorities while ensuring this, you know the avoidance of probate, which certainly helps. That is one of the definitely one of the positives of having a trust and providing privacy as well, because the trust is now the entity. You no longer exist as the individual. You are signing on behalf of the trust. You're the trustee. The trust now is living, breathing thing. You are gone and you don't exist in the eyes of the world, so you do have that protective layer and a trust created and really funded during your life is generally called a living trust or a revocable trust.
Speaker 2:So revocable means ability to be changed. So you can change a revocable trust. There are two different kinds revocable and irrevocable. Irrevocable means that cannot be changed. So once you establish an irrevocable, it's stuck. It's the way it is. Typically use life insurance funding for that, because it's not anything you want to necessarily change down the lines as far as your life insurance planning, change down the lines as far as your life insurance planning and that is what is also short called for an islet which is called an irrevocable life insurance trust. So in the event that you're incapacitated, and a trust you know. A trust can really ensure that your needs are met and your finances are kept in order for your benefit as you get better.
Speaker 2:Now, upon your death, the trust becomes irrevocable immediately and your assets are managed and distributed by your trustee, who you've named in accordance with the instructions, throughout the trust existence, and an estate planning attorney may recommend creating an irrevocable trust during your lifetime, in addition to a revocable trust, and this may provide creditor protection, control giving to family members or estate minimization in regards to taxes. So that might be an idea too. I just want to be able to sort of explain there's two, you know, just real simple. So, really, what are the benefits of a trust? A trust can provide protection for family members who may be unaccustomed to dealing with financial matters at all, if it can offer protection of assets in case of divorce or other litigation. A trust can assume funding for specific needs such as education, healthcare, charitable interest as well, which is why I want to talk about it today, because I just had this conversation multiple times at the OE opportunity enterprise legacy benefit. So a trust provides a framework in which money is managed in a predictable fashion by people you choose, according to the standards that you set. According to the standards that you set, and a trust creates guidelines for current and future distributions that reflect your wishes. So it's really it's all about you. You're the one creating this, and then how do you want it really dictated throughout your lifetime and then after death. So a trust can also have substantial tax benefits, provide really an expedient method to kind of transfer assets, as long as you're willing to title those assets and do the work to make sure that now the trust does exist and the trust owns existing assets.
Speaker 2:One of the biggest things we see in the financial advising world and working with people on a daily basis and many high net worth clients and ultra high net worth clients is they might have a trust and it's a really shiny brass ring that they ultimately put in a drawer, but then they don't fund the trust and that's our job to be the advisor to say, hey, look, you know, did you put the house in the trust? Did you retitle the house? Did you the new investment property you just bought? Is it in the name of the trust or is it an LLC and then of which the trust owns? So all these things that are really, really necessary in regards to the working cogs of high net worth. Working cogs of high net worth Quite honestly, if you don't have a massive estate as far as money goes, I do question the time whether a trust is really necessary for the expense, because many of the assets you already have let's say you're 401k and has a beneficiary that immediately goes to the beneficiary IRAs as well.
Speaker 2:Any tax deductible or tax deferred asset has beneficiaries that ultimately trump wills and trump a trust, unless you've ultimately named as a beneficiary to your specific account. So if it is an IRA and that's your largest highest net worth account, or it is a 401k and that's your largest high net worth, you know, unless you have a trust and you name the trust as a beneficiary, there's reasons to do so and reasons to not, which, again, I would have you consult an estate planning attorney about this. But is it really necessary? In regards to avoidance of taxes, you have an exemption. In regards to your individual exemption that's close to almost $6 million, and then your spouse has another $6 million. So if the estate's worth a little over $12 million, then you start getting into taxable issues. But for the most part, you know. Really, is it necessary? Would be a question, and really that's up to you. I mean, it really is up to each individual as to whether they decide to do it. If you do do a trust, what I do see is the failing of not funding it correctly and not funding it at all, and that's a huge mistake. So highly recommend that you, if you do establish a trust, that you then do the second and third and fourth step, which is funding the trust with actual assets.
Speaker 2:As a reminder, there are two basic types of trusts. There's revocable. Like I said, revocable trust is a trust that can change, like I mentioned, and cancel, even during your lifetime. It's really similar to will. A revocable trust can also be used to transfer assets on death, yet without that sort of formal court supervised process of probate. In many states, probate process is slow and expensive and also opens up your estate to public scrutiny. So you might want to, if you want to keep things private.
Speaker 2:For sure, once you pass away, your wishes are final and thus you know the trust becomes irrevocable, as I mentioned. So an irrevocable trust is a trust that cannot be changed and really just sort of like. You know that can be canceled as well and so it can't be canceled at any time. It's actually a separate legal entity and it is its own taxpayer as well. So irrevocable trust is something very, very different in regards to that, and so I want to make sure you understand the difference in the two so different kinds of trusts that are designed to really meet different objectives.
Speaker 2:There's lots of different kinds of trusts out there you'll hear about, so that's why I wanted to talk about really the first kinds revocable and irrevocable and then kind of examples of if your goal is to ensure privacy in a settlement or a state sort of centralized control of assets or literally take full advantage of estate tax credits provided by the IRS, you might choose, you know, might choose a living or revocable trust, and in regards to that, there are other trusts that are out there too. So you have the living trust, and the living and or revocable trust allows you to remain both the trustee and the beneficiary of the trust while you're alive, so you may control the assets and receive all income and the benefits Upon your death. A designated successor really trustee that's managed is usually a family member or a spouse or a kid or some relative you name distributes the remaining assets as trustee and they get paid a very minimal amount. It's not really anything that's flattering and honoring. Some people get really excited that they're you know, they're the executor of an estate and I tell you it's just, it's, it's just a ton of work. So, um, I don't know if it's really the most flattering offer when someone offers you as an executor of state. So I definitely would consider all the work is involved before you accept and are named as executor on an estate. But it does avoid probate in the process, so that is a good thing and it does protect your assets overall. The other trust that I want to mention, that I won't dive into per se and I highly recommend you talk to again an estate planning attorney about these, but there are such things as called a special needs trust and this is typically designed for the benefit of disabled individual Instead of giving assets directly to the beneficiary. Assets can be transferred over, transferred to a special needs trust by a family member you know, or as damages are paid because of a lawsuit, let's say those can go to the minor and to him or her, so they won't disqualify him or her. As far as government programs such as social security income, medicaid, and you name it across the board as far as housing goes. So these are things that you want to seriously consider. Talk to a special needs attorney that has the expertise in regards to this.
Speaker 2:Survivor's trust A survivor's trust is a trust created by an individual during life that becomes irrevocable, cannot be changed after his or her death. To provide a surviving spouse or a domestic partner or other loved ones really is sort of a general term for a variety of common trusts, including trusts referred to as an A trust, a marital B trust. I really don't want to get into family trust, I don't want to get into all this overall, but there is such thing as a survivor's trust that you can establish that are beneficial to your survivors. Then, like we discussed today in the Opportunity Enterprises luncheon and the Legacy luncheon that I was just at today, the Charitable Lead Trust. This really helps benefit your favorite charity while serving on any charities you can name as multiple different beneficiaries. You can really, you know, for trust purposes you might want to consider a CLT, which is called charitable lead trust, and this trust lets you pay a stream of income to a charity for a particular asset for a designated amount of time, of which really the principal goes to the beneficiaries, to the beneficiaries, and you can receive the property free of estate taxes as well ultimately. So that's a really nice way to be able to name a charity and then also benefit the beneficiaries as well.
Speaker 2:You also have a charitable remainder trust, which means this is another charitable option. Charitable remainder trust, or CRT, allows you to really receive a stream of income and a tax deduction at the same time. That ultimately leaves the asset to the charity at the end, but through this trust, the trustee will sell the donated property or assets tax deferred and establish an annuity that's payable to you or a spouse or your heirs for a designated period of time and upon completion of that time period, the remaining assets go directly to the charity. And these are really good with highly appreciated assets that are typically funding vehicles for the choice of a CRT. So high appreciation of stock when you have low cost basis is obviously one of them. So that's a CRT. And then you have generation skipping trust, which, if you want to leave money to your generation, your grandchildren, you might want to consider a generation skipping trust, which, if you want to leave money to your generation, your grandchildren, you might want to consider a generation skipping trust and this trust will help preserve your generation skipping the transfer to get the exemption on the bequest that you have to your grandchildren and avoid the tax on bequests exceeding that amount. It's really up to 45%. So there's rules in regards to generational scampi trust. Again, consult a lawyer.
Speaker 2:Irrevocable life insurance trust I mentioned that already. It's an islet and that is where you name a life insurance policy inside the islet for the beneficiaries. As far as the death policy, the policy is death benefit Proceeds are payable to the trust, which then turns around and provides cash to help the beneficiaries meet estate tax obligations. This is where we use anything as an estate that's worth over $12 million, or $6 million if there's only one spouse remaining. So when they had their exemption, anything over $12 million is a death tax of about 50-50, 5-0%. So this is a way to be able to have a check come to the heirs to help pay for anything over and above that. So if you have a family worth $30, $40, $50, 100 million, you can tell there's a big number that you need to start solving for in regards to your death tax exposure.
Speaker 2:So the last one is a trustee IRA. This is also known as really as an individual retirement trust. A trustee IRA is a trust that provides the preservation and control of your IRA assets and is where we see like if it's a Brady Bunch situation, where you have three kids from one marriage, three kids from another marriage and then they ultimately come together in regards to one marriage and they want to keep the. Each spouse wants to keep things separate for their kids. This can be trusted by somebody else, so none of the kids have to be named as trustees. This is a way that actually trust department then comes in and spreads out your wishes the way you want them. So I hope that's a nice little overview for you.
Speaker 2:In regards to trust, the show's Money Matters with Greg. We talk about money on this show. We have guests on this show that relate to money and help you with your money. That's our purpose here is to really bring you some value and hopefully help you along the way in regards to some great things Got an update on Opportunity Enterprises of the day, had an update on the Federal Reserve and rates today and then sort of did a nice little gloss over. Hopefully you were able to learn some things in regards to trust and whether you might need them or might not, or what it might be, obviously consult with your team and your team of professionals to help you with these conversations, but maybe we sort of tweaked a little bit of interest and thoughts.
Speaker 2:And if you have any questions for us, greg at farrowwealthcom, our phone number is 219-246-2516. You can also reach out at any of your socials and then, of course, here at WVLP 103.1 FM every single Thursday and then played again on Saturday. Thanks for having us today, thanks for letting us be a part of your day today. We hope we were helpful in some way and if you have any questions, obviously reach out and we'll catch you in the next one, the next episode. This episode is 168. You can't believe it. Next one is 169. And I'm looking forward to getting past the 6, the six, seven, uh, with this one. So, um, as as the young kids say, so, uh, looking forward to uh producing 168 and moving on from six seven um. Have a great week, a very profitable and valuable week, as everyone is. See ya Bye.
Speaker 1:Thanks for tuning into Money Matters with Greg. We hope you gained some valuable insights today. Remember your financial journey is personal, but you don't have to go it alone. If you enjoyed the show, be sure to subscribe and share Until next time. Here's to making your money work for you. Securities and investment advisory services offered through LPL Financial, a registered investment advisor, Member FINRA, SIPC.
