Wealth For Generations
Dive into the essentials of wealth management with Ian Weiner and Todd Whatley on Wealth For Generations. This podcast brings you concise, expert insights on investment strategies, retirement planning, Estate Planning and financial well-being. This dynamic team of a Certified Financial Planner and Certified Elder Law Attorney are perfect for anyone from beginners to seasoned investors, our episodes focus on empowering you with the knowledge to make informed financial and estate planning decisions. Join us for clear, friendly guidance to navigate your financial future with confidence.
Wealth For Generations
Two Big Mistakes Many Times Seen in Trusts
How can you ensure your legacy is safeguarded for your children and future generations? Today on Wealth for Generations, Todd Whatley and Ian Weiner unpack two critical components of trusts and estate planning to help you protect your family's financial future. We kick off by diving into the intricacies of trust distribution terms, explaining why simply creating a trust isn’t enough. Todd reveals how specific provisions shield your beneficiaries from potential financial pitfalls such as bankruptcy, divorce, and lawsuits, ensuring their inheritances remain secure.
In the next segment, we shed light on testamentary trusts and the often-overlooked complexities of naming trustees. You'll learn about the advantages of choosing corporate trustees, who charge fees only when the trust is activated, and the importance of selecting reliable yet cost-effective trustees. We stress the necessity of consulting experienced estate planning attorneys to review and amend your trust with protective provisions, emphasizing the long-term benefits that far outweigh the initial costs. Todd and Ian provide expert advice on how to structure testamentary trusts to safeguard your beneficiaries’ financial well-being.
Finally, we address the sensitive issue of successor trustees and managing a trustee's incapacitation, particularly with conditions like dementia. Todd suggests a humanized approach by allowing a trusted child to make the call, backed by safeguards to ensure fairness. We conclude with practical financial guidance on legacy building, offering actionable insights to help you manage and grow your wealth. Tune in for an episode filled with expert advice and practical tips to secure your family's financial legacy. Don't forget to visit our website and subscribe to Wealth for Generations for ongoing support and resources.
Welcome to Wealth for Generations, the podcast where you learn to grow, protect and preserve your wealth for generations. Our hosts on today's show are Todd Whatley, a certified elder law attorney, and Ian Weiner, a certified financial planner. Join us and our expert guests as we uncover the mindsets, tools and strategies to help you maximize your wealth and impact. Let's embark on this journey to secure your legacy. Please note this podcast is for informational purposes only and is not intended as financial or legal advice. Always consult with a professional regarding your specific situation.
Speaker 2:That's right. This is the Wealth for Generations podcast, and my name is Todd Whatley, and I am here, as always, with my co-host, mr Ian Weiner. Hey man, how are you, todd, doing? Well, good, it's been a week or two.
Speaker 2:It's been a week or two. We've been busy, man, I've been on vacation, it's just. Yeah, we've been busy with a lot of different things. And today Ian's kind of allowed me to jump on one of my soapboxes and I know this is a podcast for financial, sometimes legal, stuff. Today's going to be very legal.
Speaker 2:But today's podcast is, if you have a trust, you need to listen to me, all right, because you think, ok, good, I've done a trust. You need to listen to me all right, because you think, okay, good, I've done a trust, I'm done, it's taken care of, but it's not. I mean, a trust is kind of like a car. There's a lot of different kinds of cars. You can drive a Ford Escort or you can drive a Cadillac or you can drive a Ferrari. Okay, there are all kinds of cars and there's trucks and there's all you know. Vehicles do different things. Trust do different things and it's very much based on the person who created it, the attorney, hopefully the attorney who created it. They have biases in different things and here is and today's topic is going to be one thing that I see a lot. And, ian, you've seen a lot of trust, and before you started working with me, were these two things a big thing on your radar?
Speaker 3:You know, it's really something where we just didn't focus a ton on that or really look at it that much.
Speaker 2:Most financial advisors don't right. They're like, oh good, there's a trust.
Speaker 3:I think probably much more in the weeds in trust than 99.9% of advisors, and I know a lot of advisors and I work with a lot of them across the country. I have colleagues that I work with. We interface, they ask questions, we talk to each other.
Speaker 2:And this stuff does not get addressed really at all. So I would recommend today's going to be a good day that you look at your trust. Okay, go get it, pull it out, I don't know, wipe the dust off of it you know, get it out of the closet or the fire safe or wherever that you have it, and I encourage you to open it up.
Speaker 2:And let's look at two sections. Okay, section number one probably comes up earlier than well. I don't know, it depends on your trust when it comes up. But the first thing that I want to talk about is when your trust talks about giving assets to your kids. Okay, at your death probably, if you've listed your children as the beneficiary of your trust. I want you to go to that section of the trust. It's going to be a ways back there there will be.
Speaker 2:The trust should talk about what you as the grantor, the creator of this trust, and your spouse typically how the trust functions while you're still alive, and it basically says you get to use the money. Then it will probably say if you're married, when one spouse passes away, here's what happens. Okay, go past that section. And now we're to the section that says when both spouses pass away, or the sole grantor of the trust when they pass away, and then there's going to be like paying bills and some paragraphs on that Get to the point where it says the money now goes to the children.
Speaker 2:Ok, this becomes a very important issue because if you do a trust when I do a trust for someone and I used to charge extra for this and I finally looked at it and I thought this is ridiculous. I should not charge extra because every single trust should have this language in there. So therefore I'm not going to do one that doesn't have this language. And what I'm talking about is look at the specific distribution to your children. When it says a portion or this amount of dollars or whatever goes to this child, is there a period or does it say outright, or does it say into trust for this child? Okay, of those three, options.
Speaker 3:These seem like just small things, Todd. This seems like you're picking, you're splitting hairs.
Speaker 2:here I'm being very picky here, okay, but the reason I'm being picky is two of those options are not good. The period or the outright means when you die, this money goes directly into the hands of your child and you're like well, todd, that's what I wanted. No, it's actually not. You want the money to go and benefit that child, but what, if so, with those two options a period or outright what happens is it is their money. As an individual, think cash, think cash. What if your child is going through the big three bankruptcy, divorce and lawsuits?
Speaker 3:I'm going to add one extra one. Okay, now, this isn't your family or anyone you know, this is just people that we've run into. Let's add the other one, which is substance abuse.
Speaker 2:Yeah, and spouses Yep, that's the fifth one the spouse of your children. So yeah, there's actually five.
Speaker 3:Now again. No one you know has any problems with these things, it's just our clients. But just in case you run, across someone who has a family or has humans in their family. It's good to know about.
Speaker 2:So, with periods or outright, it's going to them and if they are going through any of those five issues, your money is now at risk and could poof be gone. That's not what you want. At risk and could poof be gone that's not what you want, but it's so easily fixed. And that's where the third option comes in is you leave it to your child in trust, and that is known as a testamentary trust. Testamentary means it is created because of your death and so now, with that language in there, which I put into all of my trust, and I honestly can't figure out a good reason to not do it.
Speaker 3:We've been trying to figure out a reason not to.
Speaker 2:And when you think trust, you're thinking oh well, that's complicated and we've got to pay a trustee. No, if you totally trust your kid to be the trustee, they are the trustee of this trust and the beneficiary. And so we put just a tad bit of restrictions on the freedom of your child to write money from this trust and it's basically the restrictions to avoid bankruptcy, divorce lawsuits, lawsuits. If they are the trustees and if they can stand up to their spouse, their spouse will have no access to this money. Ok, now if we're dealing with the, the substance abuse, spendthrift they're not good with money you can split so that they are the beneficiary but they are not the trustee. Okay, and that's a pretty drastic move, but it's a beautiful move. If your kid's going to blow the money very quickly and you don't want that to happen, let's let someone else be the trustee.
Speaker 3:So I want to ask a couple of things here, because this makes perfect sense to me. The first one I want to ask and I don't know if anyone is thinking this, but I just want to make sure they're not so, todd, let's say someone creates a trust with you and you write the provision in to allow for testamentary trust to be created. Do they have to come back to you and pay again to get this new trust created?
Speaker 2:No.
Speaker 2:Because I wonder if sometimes people think this oh, you're just trying to reel me back in later on or reel my kids in. No, I mean, I do recommend that your kids call In my office. That's a free consult. If you've paid me to do a trust, I've charged enough money that I will do that first meeting with the successor trustee for free. Come in, let's talk about it, and I'm not trying to reel them back in to hire me to do stuff. Rarely, rarely do my clients' children hire me to be the successor or to be their attorney as they do this job.
Speaker 2:Because basically, if you have a testamentary trust, you go to the bank. Show them this language. They open up a bank account called the Testimony Trust of Child no 1, Testimony Trust for Child no 2. It's a trust account that they are in control of and they benefit from. They can write checks for anything that they want to. But if they don't want to say bankruptcy, divorce and lawsuits, they don't have to. We put just enough restrictions to allow that to be protected and a court can't enforce that. Your child, the trustee, if need be, can resign as trustee and name his best friend as the trustee of the trust and that person steps in and says no, I don't have to write these checks, so it is protected.
Speaker 3:I think what's something important that we should talk about a little bit here is, you know, there's really two different roles here, two different hats that you can wear in this situation the hat that the trustee wears and the hat that the beneficiary wears, and sometimes a person will wear both hats, but each party has different things that they're somewhat responsible for, basically, you know, and so one area where I push back a little bit here is go. Yeah, there's some added expense to having someone else be a trustee, potentially. Here's where I push back and go. You know, in some situations it's worth every penny to have that happen. You know, if something were to happen to, for instance, my wife, I would probably be fine being the trustee. But if something happened to me and this is just me knowing my wife absolutely there is a corporate trustee that will take over because she doesn't want to deal with that stuff.
Speaker 2:And she'll admit that You're not doing it behind her back. She's like no.
Speaker 3:I don't want to. She literally goes I don't really want to know how this stuff works, I just want to know that I'm going to be okay, sure, and I think that's something that's super interesting. But at the same time, you know, depending on the level of complexity here, it probably makes sense for some of those folks to have someone else be the trustee to make sure that stuff is done the right way.
Speaker 2:Yeah, there's some additional complexity and if you name them now, they don't start charging right now, because you're the trustee of your trust. They don't start charging until you pass away and this trust is actually created because of your death. Then is when they start charging and it's a fee, but it's, like Ian said, for everything that they do. It's a very reasonable fee.
Speaker 3:At least some of the ones that we would recommend. I think maybe we need to say that there are some banks and some corporate trustees that I think their fees are outrageous, and we have some that are much less expensive. In fact, there's one that I'm like you guys got to raise your prices and they're like we don't need to, we're efficient.
Speaker 2:It's surprisingly cheap. It's the least expensive. I'm like you guys got to raise your prices and they're like we don't need to. We're efficient.
Speaker 3:It's surprisingly cheap, it's the least expensive I'm aware of in the United States, and they do a good job. These are little things that we talk about, that if you're not in this field, if you're not in this world day to day all the time, you wouldn't see it. And even in many cases, if you are, it doesn't happen. And so we talk about things where one line or one word can blow up your entire plan.
Speaker 2:These are some of these issues, absolutely yeah, that period at the end of this asset goes to this child period. It's done and this will sound very self-serving, but it's true. You might call the attorney who drafted that and see if they've had an epiphany and they now do it differently. But if they don't, you need to go see a different attorney. You need to see an attorney who does this full-time and has gone through this, and I just can't imagine an attorney who is a full-time, specializes in estate planning, doesn't do this.
Speaker 3:You say that, but the main attorneys here that we review there's like a handful three or four attorneys locally. That that's what they do and every single one of their trusts that I've reviewed is not written that way, I know. Sorry, I'm not trying to be, You're right. You're right.
Speaker 2:You're trying to be really fair, but I mean, I'm trying, yeah, so I just find an attorney I know, find an attorney who uses testamentary trust and I think that's a very simple question. The front office person who answers the phone won't be able to answer that, but you know say would you please ask your attorney if they utilize testamentary trust for the beneficiaries, and that attorney, I think, will appreciate you asking that question.
Speaker 3:And, if you know, this is something where I'd love to hear from you. If you talk to them and they say, no, we don't do that, I would love to know the reason why. And would you please let us know what that is? Because I'm happy to learn something. I just simply can't think of any possible reason. I mean, if I was inheriting money, I would absolutely love to inherit it in trust, because it's in trust, yeah it's protected and that's something you can't like go back and do again.
Speaker 3:I think that's something maybe we talk about is, you know, the bankruptcy divorce lawsuit protections? They don't apply. If it's your trust that you created in most situations, 99.9% of situations, and I need you to understand that it doesn't, you don't get those protections for you that you create. This is your beneficiaries that get this. This is what's so cool about this.
Speaker 2:Right, and I explain this by saying look, you don't have to leave money to your kids. You can disinherit your children, okay, but since you choose to leave them money, you can choose to leave it in this trust. That is protected. Had you not left them anything, their bankruptcy divorce creditors would not have been able to come after the money that you didn't leave them. And so therefore, in this situation, you can leave them money, but put these protections on it. And in some states I know in Arkansas, a beneficiary can't sue the attorney. Okay, because we have this thing called privity of contract. Only my clients can sue me. But I know in some states the beneficiaries can sue the attorney who drafted that trust with that in there, and so I'm not even scared of being sued. I just don't want that phone call. I don't want a kid to say, hey, your client, my dad died and left me money and I happen to be going through bankruptcy and it's all gone. Could you have prevented that? And you're like, yeah, but I just didn't.
Speaker 3:I don't want that phone call. Imagine that conversation.
Speaker 2:Yeah, I can imagine that phone call going well, and so I don't want that phone call, and so that's why it's in every one of my trusts, okay. So look at your trust, look at how it is left to your children, and if it doesn't specifically say in trust, I really recommend that you get your trust looked at and amended to include that.
Speaker 3:Now, before we move on, let me just ask one final thing. So this is the way that I look at it, it's not even a dollar amount to To me personally, I'm going okay, could I have those protections or could I not have those protections? Let's say that I can have those protections and the cost of that is a fixed cost, which is the cost to establish the trust I mean. Could that? I mean, in your opinion? I guess? I'm asking you this because I know that you really work hard to not recommend a trust if someone really doesn't need it. But to me I go that just that alone is a valid reason that I would pick having a trust. Sure, is that a fair enough way to look at it? You're right If we're oversimplifying it.
Speaker 2:You are. I mean, I don't want to oversell trust, but that is a huge issue.
Speaker 3:It's a fixed cost and it's a known value in my mind. That's true. Anyway, I didn't tell you. I was going to ask you that you didn't. That's fine.
Speaker 2:Okay. Issue number two so if you have a trust, now go to the section of your trust, flip over. It's typically in the back After. It names trustees. So, like successor trustees, you've probably named a child or a bank or someone as your successor trustee. If you have named a person, well and so how does that successor trustee, the backup trustee, come into power? Well, one, if you die, they become the trustee. That's easy to determine. Okay, You're flatlined. The doctor has said you're dead. That's easy there. Okay, You're flatlined. The doctor has said you're dead. That's easy. There's no more decisions for you to make at that point. Black and white.
Speaker 2:Okay, where it gets really gray, where there's a lot of gray, is you are becoming incapacitated, okay. And you know, as an elder law attorney, that is one thing that I see and deal with in almost every meeting that I do. And so you don't just wake up one day and you're incapacitated. It is a slow progression from a little bit to a little more, to some, to some more, to moderate, to moderate. You know it gets worse where there's a point, there where you don't need to be trustee anymore.
Speaker 2:You're forgetting to pay bills, or you're paying bills two or three times, or you're being unduly influenced by an outside force, be it a caregiver, a preacher, a politician who knows. But you're not doing good things with your money and we need to get you out of the role of trustee and let the successor trustee that you named typically many years ago to be the trustee, the person you trust you, take over when you can't do it anymore. So get to that section of your trust and look how does that happen? Typically is you are deemed by a court to be incapacitated. Well, that's a guardianship and I don't want you going to court the whole purpose of this— that's probably super easy, right, todd, it's no big deal, oh yes.
Speaker 2:It's a few thousand dollars in public humiliation and it's just terrible, it's good for some people, I suppose, but sorry for some people, I suppose.
Speaker 2:but sorry, so you can do this, you know, by court. Or keep reading and you will get to the point where it says or you're deemed incapacitated by physician, and sometimes two physicians. You're like, oh Okay, well, that makes total sense. Let's just you know. Okay, and that's how most attorneys do this.
Speaker 2:It makes sense until you are going through that situation, meaning that typically with dementia, as it progresses, you become paranoid and you start blaming the people who are closest to you, typically the person you have named as successor trustee. You have named them to do it, but this is the person in your dementia that you don't trust. They're stealing from you, they're trying to throw you into a nursing home and you just don't trust them anymore. And so to follow the guidelines of the trust. You don't need to't trust them anymore. And so to follow the guidelines of the trust, for you know you don't need to be trusted anymore. Your successor needs to come into play. So now for that to happen, based on the wording of your trust, says this person you don't trust has got to get you to the doctor Twice, yeah, twice, possibly twice, to deem you incapacitated. Twice, possibly twice to deem you incapacitated. So now they can really take over and really throw you into the nursing home if that's what's needed. You're not going to the doctor, and so we either. So now we can't get you to the doctor, so now we have to go to court and it's just a mess. It's like wait, wait, wait.
Speaker 2:The whole purpose of a trust is to not go through court. So how do we fix that? My trust says OK, we're going to make this very easy and you, signing the trust, you understand this and you agree to this. Look, you've named the successor trustee someone that you know and trust. Let's let them decide when you should no longer be the trustee. And so once you get to that point where you're doing things, and if this is someone that you know and trust typically a child they're not going to rush into this, but there are provisions if they do so.
Speaker 2:Basically, my trust says when the successor trustee thinks that the current trustee is now incapacitated, they simply issue a letter stating such, and it's typically to the attorney. So I tell my clients. And how this happens in real life is I do the trust for my client and the kids know of me, or possibly they were in the meeting and so they know I'm the parent's attorney. So they call me and they say Todd, mom's sending tons of money to politicians and the caregiver stealing money and she's just giving her money, she doesn't need to be trustee. And I'm like, ok, well, the provisions of the trust say you need to send me a letter and I'll draft it for you if you want me to to say you think mom's incapacitated and I will present this to your mom. And so now you, as the creator of this trust, you get this letter saying your successor trustee thinks you're incapacitated. Now you have 30 days to go to the doctor and prove that you're not.
Speaker 2:So we flip the burden to say the person with dementia has to prove they don't, or that they, yeah, that they don't have dementia and that they can still function as the trustee. So one of two things happens. Well, three things. There's three things that can happen and that they can still function as the trustee. So one of two things happens. Well, three things. There's three things that can happen. Number one the person the kid overreacted and is money hungry or whatever, and is jumping in too quickly. Mom goes to the doctor. The doctor evaluates them and says no, you're fine. And so once we get that letter, I tell the trustee back off. You're not the trustee yet Mom is still the trustee back off. You're not the trustee yet Mom is still the trustee.
Speaker 3:It's her money. Maybe that's time to reevaluate some things potentially.
Speaker 2:Yeah, exactly.
Speaker 3:Depending on the situation, yeah, Option number two is mom.
Speaker 2:You know, in almost every situation mom goes to the doctor and the doctor's like yeah, you're incapacitated, you have dementia, you should not be the trustee. You're incapacitated, you have dementia, you should not be the trustee. And so now we have a letter saying mom does not have capacity. The successor trustee comes into play. And probably third, and most common, is when I tell mom this, she gets mad for the moment, but she has short-term memory issues and she forgets that I called and she does not schedule the appointment. And I'm not going to force the issue. I've told her she doesn't go to the doctor and then 30 days later the power switches without going to court, without really anything happening other than a letter from the successor trustee to me as the attorney to start this process. We avoid court and typically avoid bad situations and so far banks have recognized this and allowed us to transfer the trustee. Even with the current trustee screaming and yelling and being all upset, it's like hey, you didn't go to the doctor, so 30 days later you're no longer the trustee.
Speaker 3:It's a relatively bloodless coup, a bloodless coup as we call it and.
Speaker 2:I mean there's still emotions and things, but we don't have to go to court and we're able. We may lose 30 days of bad decisions, but that's a short time in relation to everything else. And so when I see a trust and I literally just left my desk, came in here, sat down to do this podcast I reviewed a trust for a client. She said do I need to redo this? And what she was wanting changed was not major changes, but once I got to these two issues, both of those were a problem and my recommendation is going to be to her you need to completely redo your trust so we can keep the name. We don't have to retitle assets, but we can do an amendment and restatement which is basically a brand new trust with the same name, so that you don't have to redo bank accounts and deeds and things like that.
Speaker 2:It's the little stuff that gets you yeah and those are things you probably don't. You know. Most people think, oh good, I've got a trust, I'm good. And people tell me, when they say, what do you do for a living? I was like I'm an elder law attorney, I do estate planning and Medicaid. Oh good, I've got a trust, I'm fine. And I just kind of smile at them. I'm like, well, I'll be glad to look at it, because there's some things I think, oh no, no, I'm fine, okay, great.
Speaker 3:Okay, whatever, it's amazing. You know, I just I don't know if I'm just a different kind of person than that. Yeah, I'm like. Yeah, I would like to make sure that I don't have a problem.
Speaker 2:So how does your trust leave the assets to the kids?
Speaker 3:That would be a really interesting question.
Speaker 2:Do they even know? I mean, my clients know because we discuss it, we talk about it a lot. They should be able to say oh, my trust leaves it to my children in a testimony trust. I would love for them to just spit that out to anyone who asks. And then next question is so how does the transfer of power go from trustee to successor?
Speaker 3:It may not be that big of a deal. Okay, good, good luck with that, you're fine. Good luck with that. Yeah, everyone's got a guy. I've got a guy, I'm sure you do, but we do things a little differently.
Speaker 2:So I hope that helps. I hope that brings some clarity and encourages you to look at your trust and, if those things are there, if you're in Arkansas or Oklahoma, I would love to talk to you and discuss that with you. Yeah, if you have questions about how yours works.
Speaker 2:Yeah, give us a call and if you're not in Arkansas or Oklahoma, I can find someone. If you want to find an attorney who does this, I will find someone for you. I know attorneys all over the country and I will be glad to help you find an attorney to help you do that, all right.
Speaker 3:Anything else, ian? No, I think that's great. Okay, a lot to talk about today.
Speaker 2:Thank you very much. We'll see you next time.
Speaker 1:Thank you for joining us on Wealth for Generations. We hope today's insights inspire and guide you in your financial journey. Remember, the path to wealth and legacy is unique for each of us and we're here to help illuminate your way. Before we part, a quick reminder this podcast does not provide financial or legal advice. The content discussed is for informational purposes only. Please consult a financial planner or legal advisor for advice specific to your situation. Visit us at wwwwealth4generationscom for more resources and don't forget to subscribe to Wealth for Generations. Until next time, keep building your legacy, one decision at a time.