4 Seasons Podcast

Trust Fundamentals: Beyond the Ultra-Wealthy

• Jeff Bingham • Episode 16

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 Can Setting Up A Trust Be A Good Idea As Part Of A Wealth Strategy? 

Trust planning doesn't have to be intimidating or exclusive to the ultra-wealthy. In this enlightening conversation, Jeff Bingham demystifies the world of trusts, offering practical guidance on when these powerful financial tools make sense—and when they don't.

Have you ever wondered if a trust might benefit your financial situation? Jeff walks through the fundamentals, explaining how trusts function as legal and financial documents where grantors place assets for specific beneficiaries with detailed instructions for distribution. Whether you're concerned about protecting assets for minor children, creating guardrails for adult children who might not handle a large inheritance responsibly, or planning for a special needs situation, trusts offer customized solutions for diverse family circumstances.

One of the most valuable segments addresses common misconceptions about trusts. Contrary to popular belief, most trusts don't automatically shield you from taxes—in fact, trust tax rates climb to 37% after just $15,000 of taxable income. Jeff also delivers a critical warning about naming trusts as beneficiaries of retirement accounts like IRAs, explaining why direct beneficiary designations often provide better options and more favorable tax treatment. With current estate tax exemptions at $15 million per individual ($30 million for married couples), many historical tax-avoidance strategies are now unnecessary for most families.

Whether you're just beginning to consider wealth transfer strategies or looking to refine your existing estate plan, this episode provides clear, actionable insights to help you protect your legacy while avoiding unnecessary complications. Ready to determine if a trust belongs in your financial toolbox? Schedule your complimentary consultation with B&H Wealth Strategies and take control of your financial future.

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

Speaker 1:

Welcome to the Four Seasons Podcast brought to you by B&H Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect and enjoy your wealth. Ready to turn your financial dreams into reality, dare to dream. And now here's your host. President of B&H Wealth Strategies, jeff Bingham.

Speaker 2:

Trust aren't just for the ultra wealthy. They're powerful tools that can protect your assets, simplify estate planning and give you more control over your financial legacy. In this episode, jeff breaks down when and why a trust might be the right move for you. Welcome back everyone. Skip Monaco hosts slash producer. Back in the studio with Mr Jeff Bingham, president of B&H Wealth Strategies. Jeff, how have you been this week?

Speaker 3:

Great Skip, you've been a minute or two with a few issues that we've resolved here since we last were on the air, so looking forward to it.

Speaker 2:

That same here, jeff, and ready for the weekend, so like recording on a Friday. Absolutely and ready for the weekend.

Speaker 3:

So like recording on a Friday.

Speaker 2:

Absolutely, that's a good thing. Yeah, absolutely so, Jeff. I'm excited to dig into this because I really don't know a lot about trust and they can trust and they can sound intimidating, but I know you'll make it practical and clear. So my question is can setting up a trust be a good idea as part of a wealth strategy?

Speaker 3:

The short answer is yes, they can be, but they're not always necessary as well. So we'll try to talk through that. But yes, let's just I'll go through what I'll an academic definition, as best I can, of what is a trust. Right, how do you define a trust? And a trust is simply a. It is a legal and generally a financial document to where a person, an entity known as the grantor, is going to put assets of some description into a trust and then the trust is then going to outline and will have benefits. The trust will have beneficiaries and it will outline in that trust how those assets are to be dispersed to the beneficiaries through income and maybe different times distributing some principal and those kinds of things. So you can define those. So where that's useful from that standpoint is that when those assets go in there and you've got minor children or you've got maybe children, you have to think about an individual that sets this trust up. Anyway, you've got minor children, the trust could be handy for that You've got. You can have adult children that you don't trust, if you will using that word, with getting all of a large sum of money at one time, so that money can go in there and then it can be for their benefit over their lifetime and have different descriptions of how they might be able to get more of it than just the income under certain situations. But they don't just get it all at one time and have the ability to go by the yacht and go on vacation and do those kinds of things and spend money very quickly, because not everybody handles money the same way and many of my clients will have some concerns about leaving their children, their legacy asset, in that manner right there. And then you can also have special needs children you can also have.

Speaker 3:

There's ways to set up trust that are gonna benefit charities. But then you can also get some what we call charitable remainder trust and things of that nature that are you have some tax advantages by putting some assets in the trust as an individual and then the charity can benefit from the ultimate disposition of those assets to them. But you can also receive income from these things. So there's a lot of different types of trusts that are out there. The typical ones that we see more than anything today you'll see what we call revocable living trust that are out there.

Speaker 3:

There are a lot of those that we run into and I think maybe off camera when we were talking about these things and Matt and you and I have talked about this a little bit is that oftentimes I'll see where trusts are used when they're not necessary, and then vice versa, the other side of that coin can be true as well necessary, and then vice versa, the other side of that coin can be true as well. That's kind of the definition of a trust, but they can be very useful tools if they are. Again, it's asking the three questions that you always hear me talk about. It is where are you, where do you want to go and how do you want to get there? And that's the ultimately, when you set these trusts up, you're looking at a disposition of these assets, how you're going to leave your legacy.

Speaker 2:

Primarily when you're looking at trusts, how does a trust differ from a will in terms of asset protection?

Speaker 3:

The will is just a document that tells you where your things are going to go, and the will, then, can refer to the trust right when you're naming your beneficiaries, your children, your grandchildren, your charities, you know, whatever it may be, whatever, wherever you want the money to go. And so the will, then, but just it can either be as simple as just an I love you will, which a lot of people have, which is when a husband and wife do one, you get mine, I get yours, and that's very easy. And then at the, at the second death, if you will, if you will I guess that was my pun right Then it then defines, or the will can define where the assets go. But it's a, it really is a document that is necessary, but it doesn't really spell out how you really want to handle this. You're not going to be able to say you want to put these assets in in a place where my kids can't get it for a period of time. My minor children can get it, I want to use for college education, whatever it may be.

Speaker 3:

That's not what a will is going to be. So it's going to name, let's say, a trust of some description that the will might name, and then that will fund that trust at the death, the second death, of the parent and child situation here. And then they'll go into the trust rights here. So they differ tremendously from that. And again, the veil that a trust can do from an asset protection. Lawyers are pretty good at penetrating those, but you do put up a bit of a veil around that. A will doesn't do anything to protect the assets. Let's say it just defines what your wishes are right, and a trust puts a bit of a veil. It's a legal, it's legal documents. So you, so you put what I would call a veil. But those most I don't know this will be maybe a little bit out of bounds for me to say, but many trusts can be penetrated by. Lawyers are pretty clever people. Matt's dad, my brother, was one. So I say that with all due respect. Yeah, Matt's dad, my brother was one.

Speaker 2:

So I say that with all due respect Gotcha, gotcha. What are some misconceptions that people have about trust?

Speaker 3:

I think probably the one that I see probably more often than anything else is that somehow a trust is going to keep the taxes away. It's going to avoid whether it be estate taxes or even income taxes in some situations, and that's not what a trust does. As a matter of fact, when you name a trust as a beneficiary of some certain types of assets tax qualified plus IRAs for what was your 401k? Now you've got an IRA rollover and you name the trust as a beneficiary which is, in my opinion, is never a great idea, and we can circle back on that. But trust tax rates are extremely high. After $15,000 worth of taxable income in a trust, you're at a 37% tax bracket, right off the just almost immediately the size of asset at all. So they're very tax heavy, if you will. They're taxed very heavily. Now you can have pass-throughs and stuff and it can go to the ultimate income beneficiary of the trust and various things. There's ways around that, but if it's not done well, the trust can be more of a tax trap. It's not the word that I'm looking for, but you can see where it can create a lot of unnecessary tax right In certain situations.

Speaker 3:

And it doesn't most trusts unless it's an irrevocable trust where you're getting the assets and you almost have you got to give up control, do nothing from the death tax or the estate tax, what we used to use a lot back 20, 30 years ago, that you'll still see a lot of them around, or what we call irrevocable trusts, and those were designed to avoid estate taxes, the death tax. But see the death tax now and I think I'm right about this, you can fact check me on this but I think for individuals it's $15 million. So a married couple has the ability to pass on without estate actions to each other and then ultimately to the children, the grandchildren, et cetera. A $ couple has the ability to pass on without estate actions to each other and then ultimately to the children, the grandchildren, et cetera. A $30 million estate? Now I don't. I can tell you that I know some fairly wealthy people that might be worth that much, but I don't have any clients that are that that falls into.

Speaker 3:

They're all underneath that and you get something that are approaching the 15. So you gotta be, you gotta be planning, you gotta think about all these kind of things. So that's what used to be in the old days, though it was like $2 million or it was $5 million. It graduated up. But with the new tax bill and what it was from coming out of the first tax bill it would have sunsetted back to a much lower rate. But with the big beautiful bill that we've talked a little bit about in the past that extended the estate or the death tax, if you will, to that $15 million exemption right there.

Speaker 3:

But any other trust now charitable remainder trust they've got some tax advantages into them. Those are a little more complex so it won't go in. But that's certainly a way to plan for charities for your ministries or for your university or other medical research projects. That would fall under 501c3 to tax exempt organizations. You can get some tax benefits out of those as the grantor of that trust. But they don't avoid you're not avoiding income tax and estate taxes really with many of the trusts that are out there today, again, unless you've got a large estate and you're using revocable trust.

Speaker 3:

That was a long-winded answer to a fairly short question. But we're living where what we call revocable living trust are come are, are handy to have for, using layman's terms, east Tennessee. Handy terms would be that's where we are. Or you've got. You've got real estate, not just your home home, but you've got real estate.

Speaker 3:

You have real estate maybe in multiple states and around here you get people have property and live in Tennessee but may have a farm, you know, just across the border in Virginia and living trust can be quite, quite useful in multiple properties in multiple states and you can define how that wants to play out and you can, and with living trust you can, put language in there about the home.

Speaker 3:

Let's say you've got a home. I don't know that you always want to have a living trust, get the home when the husband and the wife died. But you can say the language that can be in there is that if one of the kids wants to buy the other kid out, let's say there's two kids and so you arrange, you put the language in there that kind of defines that. So you don't, if you don't have and maybe you should never have this, I don't know confidence that your children will behave properly with the money that you're going to leave them, then trust can put language in there that will dictate their behavior. I guess might be a way to put that.

Speaker 3:

Gotcha, keep them in line, keep them in line. Control your asset strings from the grave right. Control your assets from beyond, and that's what a trust can do.

Speaker 2:

Very good, jeff. Thank you for walking us through that. I feel a lot better knowing exactly what the different kinds of trusts are, and feel it feels a lot less mysterious. So really appreciate your insight and we'll look forward to seeing you again on the next step.

Speaker 3:

Let me say one thing as we end here, because I, If I could leave one kind of thing as we talk about trust and people think about them, be very careful of thinking about naming a tax qualified an IRA which was your 401k. A lot of people just refer to their IRA still as 401k funds, but once you leave, generally you're going to roll that into an individual retirement account. Be very wary of leaving a living trust, that trust as the beneficiary of that, of leaving a living trust, that trust as the beneficiary of that. It is best to name individuals, your children or your grandchildren, or even the charities, as the ultimate beneficiaries, because it gives them more options to do that with, because it is going to become a taxable event. It may not be taxed at the trust level, but it will be taxed at the individual level. If you go through the hoops and having a CPA distribute K ones if there's beneficiaries named in the trust, just be very wary of doing that. And then, but other assets, different conversation.

Speaker 2:

Gotcha. Thank you for pointing that out and adding that in All right, jeff, thanks again for clearing all that up. I think I understand it more than hopefully I'm sure our listeners do too. So appreciate your insights and we'll see you next time. Thanks, skip, you have a great weekend.

Speaker 1:

Thanks for tuning into the Four Seasons Podcast brought to you by B&H Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretirecom. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc. Member FINRA, sipc. B&h Wealth Strategies and Silver Oak Securities Inc are not affiliated.