Beyond Retirement with Flexible Planning Tools

Beyond Retirement with Flexible Planning Tools

June 02, 2021

You’ve worked hard to build your wealth, and you have the nest egg for your retirement years. This milestone is an excellent time to prepare for the years ahead and make sure your estate plan is up to date. Just as you worked hard to build your wealth, you should also work hard to ensure you pass down the remaining wealth in a manner that makes sense for you and your loved ones. If you don’t, the government will be happy to handle your affairs; they probably don’t have the same plan in mind.

Having an estate plan in place can be the best way to pass your assets to your beneficiaries according to your wishes. While many people think of the will as the foundation of estate planning, trusts can be the cornerstone that allows you to name who will get your assets and control how they will get those assets. Essentially, permitting what they call control from the grave.

Trusts are legal agreements that create the opportunity to design how assets are passed down and managed. Trusts provide the ability to specify terms, decide who receives inheritances, when they receive them, and more. The control and flexibility trusts provide are one advantage, but there are also other benefits. Depending on the structure of the trust, it can shield assets from creditors. Some forms of trusts can even effectively remove assets from an estate, which may reduce estate taxes. Trusts are also outside of probate, which can preserve privacy as well as save time and money.

Understanding Trust Terminology

To make things confusing, trusts, like most other legal structures, have specifically defined terminology. Fortunately, I have the super-condensed version of trust terminology for dummies to help simplify things.

Trust aka a basket to hold things

While we briefly talked about the more technical term of trust and why it can be beneficial, think of a trust as an empty basket. It’s your job to make sure that you put assets into the basket and create the rules to manage those assets. It is essential to understand that you just have a really expensive basket if you don’t put anything into your basket.

Grantor aka maker of the basket

The terms grantor, trustor, and settlor are all used interchangeably within estate planning, and believe it or not, they all mean the same thing; they refer to the person who creates the basket and makes the rules. Depending on the type of trust, the grantor may also be the trustee, the beneficiary, or both.

Trustee aka the manager of the assets

The trustee is a company or a person that holds and manages assets on behalf of the beneficiaries. Their responsibility is to manage the trust and make decisions with the beneficiaries’ best interests in mind. Trustees typically have a fiduciary duty, meaning they are legally required to act in the trust’s best interest.

Beneficiary aka who reaps the benefits

The term beneficiary describes the person, persons, or entities designated to receive benefits from everything held in the basket. They do not have any management control.  Remember, you also may need to do some extra work to get your beneficiaries ready to receive the money. 

Structuring a Trust: Control is Key  

All trusts fall into two different categories: revocable or irrevocable. When choosing between the two, the critical thing to consider is how much control you want over the assets.  

A revocable trust can be changed and altered at any time during the grantor’s life. It doesn’t become permanent until you pass away. Your ability to revoke the terms of the trust offers tremendous flexibility and allows more control. As your family situation changes, children get older, mature, divorce, etc., you can adjust your trust terms to accommodate your wishes. All that flexibility comes with a price. Irrevocable living trusts do not offer protection from creditors or provide tax shelters.

Yet, if you are looking for a safe way to pass assets, a properly constructed and functioning revocable trust can help ensure your assets are passed down correctly and will allow you to specify the controls you would like in place.

On the other hand, irrevocable trusts are very different. Once you place assets into an irrevocable trust, you relinquish control. Any assets within the irrevocable trust are no longer yours. Once you pass away, the assets will still be disbursed to your original beneficiaries, but you cannot make changes to those beneficiaries or the management rules along the way. Why would you give up so much control? Better asset protection from creditors and the possibility of reduced estate taxes are two good reasons to consider the tradeoffs.

Irrevocable trusts are difficult, if not impossible, to change and are not suitable for everyone. Consider the use of an irrevocable trust:

· If you are wealthy and want the possibility to reduce your taxable estate.

· If you have a disabled dependent.

· If you are likely to be sued and need asset protection. 

The Bottom Line

Trusts are incredibly flexible instruments that can help streamline the wealth transfer process for your heirs and avoid probate time and expense. As a grantor, you can make your trust as simple or as complicated as you want, depending on the goals you are trying to achieve. Both financial planners and attorneys can offer critical support in your estate planning. If you are unsure whether a trust belongs in your estate plan, email us at We are happy to discuss how to tackle accomplishing your goals.  

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.