I am convinced that every American needs a trust, and I've got four reasons why. I'm a CPA attorney, best-selling author, partner in a law firm for over 20 years, and I've helped thousands of clients around the country change their lives with a structure that always involves a trust.
Now, what kind of trust am I talking about? A revocable living trust. They are revocable trusts, meaning you're the trustee, and you can change them anytime you want. They're also extremely affordable and will be with you for the rest of your life. Whether you're young or old, married or single, these trusts are a powerful tool in your plan.
Okay, the number one reason why every American needs a trust is that it brings everything together. It is the foundation of your Trifecta, and it's going to help you build wealth and your legacy. Now, I understand that tax and legal topics are not sexy, no matter how hard I try. So what we've created to make it simple and understandable and exciting for our clients is this visual representation we've called the Trifecta.
This Trifecta helps our clients really organize their life to save taxes, build wealth, and protect it. It starts again with that Foundation being the revocable living trust and the 1040 tax return here as the receptacle of all of our income every year, and we've got to file a tax return every year.
On the left side, we want to put our operations, which are generally creating this ordinary income problem. The most highly taxed income in our lives is ordinary income. There might be a W-2 off to the side, but then this could generally be some sort of side hustle or something that's evolved into a substantial business LLC or S corporation.
On the right side, we're going to have our assets, and this is going to be generating passive income. I'd like to divide this side into two pieces, A and B. Here we're going to have our tax-free or tax-deferred buckets, which would generally be IRAs or 401ks or health savings accounts, and then here would be our after-tax money, kind of our LLCs that hold rental property or investments.
There is the trifecta. I've got a left side for operations where I'm going to try to maximize my write-offs, on the right side, I've got passive income and losses, possibly with depreciation and all those goodies, but asset protection to protect this wealth I'm trying to grow. In the middle is this wall that creates this asset protection. Most of my liability is over here; well, I want to protect my assets with this barrier and say nope, you're not getting over on the right side where I'm building this umbrella of assets.
And who owns all this? Where's it all go? You got it, down in your trust. And when you see that your trust is an anonymous name of a trust that allows for some privacy planning, which we'll come to in one of our four items. I really like this trust to create that foundational picture where we can now say, okay, as I build wealth during my life, I wanted to all be able to flow into this one area that I can then distribute or allocate, taking care of myself for the rest of my life, creating privacy, and also providing some tax planning. So, I can bring it all together, and when I can see it and I can visualize it, that's when it happens.
Number two, and that's right I said it a moment ago, privacy. In today's world of technology and everything out there on the web, we have got to be more careful than ever where our name may pop up in the ownership of assets. So, a trust, if named properly, can give you some of that privacy.
Now, more specifically, privacy is different than asset protection, much like camouflage is different than a bulletproof vest. You want both. If I'm going into a firefight, especially when I play paintball, which is super scary, I won't have camouflage and some sort of protection so that I may not be seen, but if I do get seen, I've got something under that camouflage to protect me.
The trust is part of this overall plan. When you name your trust, please do not put your name in it. You might call it the Blue Sky trust dated XYZ. Well, whenever I can get away with using the trust name in all the ownership of my assets, my name isn't out there in the public realm. Okay, now word of warning, privacy can come at different levels too. The trust is just the starting point. As you embark on this plan, you may want to go a little deeper with some additional layers of privacy, and that's great. But it starts with the trust.
Number three, avoid probate, and what the heck is probate? Well, probate is this court process set up all over America. There's probate judges, probate courts, probate attorneys, all dealing with people that died either with or without a will and no trust.
See, when you pass away, someone's got to decide where all your stuff goes. And a will might be nice. It'll say, here's where my stuff goes, and here's my executor. But a court has to approve it. Does someone have a gun to their head when they sign that will? Is it really their will?
Well, a trust allows you to bypass that entire process of probate. Now, I'm not saying a will is all bad. At least you're putting down who gets what, and you're hoping a court will approve it and handle it. But it's going to be expensive. It can take months, if not years. And if you own property in multiple states or businesses, there has to be a probate court of action in every state where you own assets. The trust avoids all of that.
No sounds kind of simple, but we need to be engaged in a process of keeping our trust funded. When we establish a trust for a client, we want to make sure that the trust is funded with at least four key assets. And then as you grow your business and live your life, you're going to always use the trust to take ownership of these four critical assets.
The first one is your home, your primary residence. We want to make sure that your home is deeded to the trust after closing. Don't worry about the loan documents. Don't worry about, oh, the bank may call, you know, the loan due because I transferred to a trust. Every state has exemptions, and all the counties around the country allow a person to transfer their own home to their own trust as long as you're not selling it. They're not going to care.
The second critical asset is all of these financial assets. We want to make sure that IRAs or 401ks and even just simply money in the bank, we want to make sure that the beneficiary or ownership of these accounts all go back to the trust because when you're gone, we're going to come to this later where does this money go, and the trust will distribute it. But we want to make sure if there are stocks or mutual funds or different investments, if you own them personally and still have that will, a court has got to approve the distribution, which sucks us back into a court.
When the trust owns these stocks, like maybe some Apple stock, let's say, the trust says, oh, when I die, take that stock and give it to so and so, and the trustee can immediately take care of that sale of stock with the stockbroker. When there's a will involved, the stockbroker is going to go, whoa, whoa, whoa, I don't know if this is really a valid will. I don't know if this is really their signature. I don't want to be liable for giving this Apple stock to Little Johnny here and getting in a lawsuit from his sister Susie. So, a judge has to come in and verify it's all good before the broker sends that money out. That's why probate takes place. But if the trust is the owner of these different assets, then we can avoid that whole process. That is asset number two.
Okay, number three is life insurance. Now, that might surprise you because many of you may know that with life insurance, if I name the beneficiary, the life insurance company will send it right there. They don't have any questions. They're done. No probate. Yeah, but do you really want that 12-year-old of yours or the son or daughter that's maybe 32 years old but doesn't know how to handle money receiving a big check from a life insurance company? Have you even updated the beneficiaries of your life insurance?
One of the stories that blows my mind, it was in California about 10 years ago, there was a guy, of course, died on the golf course, as they many do. I don't know why, maybe because they feel they're closer to heaven when they're on the golf course. Anyway, this guy dies. His wife's like, oh, well, we get him in the ground. She's sad, the whole nine yards, yada, yada. Takes the life insurance policy a few months later into the company and says, hey, can I get my check for a million dollars? My husband died. Here's his death certificate. They're like, okay, sounds good. Whoa, what's your name? Uh, you're not the beneficiary. She's like, I've been married to him for 30 years. Of course, I'm his beneficiary. They go, no, it's so and so, and it was his first wife from 30 plus years ago, where they were married for about two seconds. Well, he had never updated the beneficiary clause in his life insurance. So, of course, she thought, hey, I'll call this woman up. I'm sure she'll give me that million dollars. It's mine. I've been marrying this guy for 30 years. Not a big deal.
After going to the Supreme Court of the State of California, who said we don't know what his intention was, maybe he meant the entire time for his first wife to get the money, we don't know, that's where the money goes. So, again, in this concept of keeping the courts out of our lives and also bringing everything together, when you implement the trust, you're going to go make sure that all these different assets and the beneficiary designations are organized and set forth clearly so a child under age 18 isn't going to get a big check in the mail and go blow it and ruin their lives or the wrong person get the money. We want to make the trust the primary beneficiary of any life insurance. That way, in the provisions of the trust, the money can go where it's supposed to go.
Now, number four, I want any business entities, maybe an LLC with rental property, to be owned by the trust and an operational company, LLC or S Corp over here that may even have subsidiaries in other companies. I want any of your businesses owned by your trust. That way, your trustee can step in, collect accounts receivable, sell the rental property, and run the business and bring it to closure, maybe even sell the business. A lot of times in a trust, I like to see a business continuation plan. We're going to talk about that with our clients when we design a trust.
So look at this, the trust doesn't own the rental property, the LLC owns the rental property, thereby giving us asset protection. But the trust owns the LLC, and that's okay, that's how it should be. And again, when you transfer the LLC to the trust, which we include when we design a trust for a client, we want to make sure these four asset classes are all titled and in the ownership of the trust, of which you or the trustee. So, you're still in control. There's no tax return required by the revocable trust, and these four asset classes are now in the name of the trust. So, if you pass away, your backup trustee (this is you dying, that's what the X means), then your backup trustee can come in and take over, collect all the money, and go, okay, now we're going to distribute it.
And number four is not about who gets what; it's when and how. It's the rules of distribution. The beauty of designing a trust is that you get to write the law. You can say, oh, I want money to go to these family members in a particular way. Now, if you're married, you're typically going to say to this my spouse, they get everything, and then upon their passing, it goes this way. But what happens if you have his, hers, and ours, and now we've got maybe an ABC type structure where assets are going to go to one side of the family, another side of the family, and then split 50/50 or amongst all the beneficiaries on both sides. It can get really creative, and that's okay. That's why you're planning in advance because you don't want a big lawsuit with everybody suing everybody else, trying to fight for their money. The trust lays it out beautifully.
Let's use an example. Would you like a million dollars to go to your teenager if something were to happen to you and/or your spouse? A million dollars. Oh my gosh, a million dollars in my hands when I was 16 years old, I wouldn't be here today. It would have totally messed up my life. So, with a trust, you get to put in all sorts of rules, rules that really help your child, not hold them back. You can put in provisions that say, hey, you want to go to college? I'll pay for that. You want to buy your first home? You want to start a business? Take a business plan to the trustee. Oh, and by the way, when you turn 25, you get a third, when you turn 30, you get the other third. By then, they've hopefully figured out life a little bit, and when you turn 35, you get whatever's left. Meanwhile, your trustee has been investing it and building and growing it, and you have backup trustees to help with this. See, this trust lives on and really helps make sure that your kids or whatever their age they are, whoever your beneficiaries are, really step on your shoulders and take that hard-earned money that you've built and do good things with it and not hurt themselves but help themselves.
When you have a will, you again get to say who gets what, but all these creative provisions are out the window. When we meet with a client to design their trust, we help clients all over the country. We actually have a two-page list of ideas we give them every time we have a new client with a great idea. We're like, that needs to go on the list.
Maybe they get a dollar for every dollar they earn. Maybe if they want to go serve in the Peace Corps or do some sort of missionary work for two years or three years, they can go get money for that. They can have money to fund their retirement account or buy a rental property. Anything that you want to help encourage them to do, graduate school or who knows what, you can stick a carrot out there and help them get there.
There's also, and to be honest, provisions you can put in a trust to protect your children. If they have drug addiction issues, if they are not able to take care of themselves, if they are in an accident or handicapped or disabled, the trust can then morph into what's called a Special Needs Trust where provisions are there to make sure they get money when they need it, but it's not wasted.
Well, you get the gist here, lots of options. They can include charity or other gifts or bequests in the community or your school or church and include special provisions for your children. You get to write the law.
Alright, you heard the four reasons, and some of you that don't have kids or you're in your 20s are thinking, 'I don't know Mark, that didn't really make an impression on me that I need a trust.' Let's review: privacy, avoiding probate, who gets what. But what was my first reason? That's right, the foundation, the wealth building, the legacy.
People, if you want to be blessed with wealth, if you want to do what wealthy people do, you have to start acting like it. You have to have a structure where you can receive it. You have to sometimes take a leap of faith of, 'I'm going to get organized, I'm going to build a foundation, I'm going to have my Trifecta and my structure and my entities.' Because you know what? I'm going to go out and work hard, and if I'm disorganized and I don't have a plan, how in the hell am I going to receive this? We've got to have this. We've got to be ready to go.
Now, from a Biblical standpoint, and there's a lot of old parables about putting new wine in old wine skins or new wine in old bottles. If you try to put new wine in one of these containers, they fall apart, they break. We have to sometimes reinvent ourselves. We have to really start taking ourselves to the next level before we can be blessed and also have success. Because the more organized you are, the more successful you're going to be at receiving, organizing, and building it.
In summary, get 'er done. Down below, you're going to see some links. We have specials from time to time. You can have a consult with one of our lawyers. They can be extremely affordable. If you're paying more than two thousand dollars for an estate plan without any extra structures or planning, you may be paying too much. Get a second opinion when someone's trying to sell you an irrevocable trust or some sort of trust set up offshore. Be careful.
The revocable living trust is a wonderful foundation for everybody, and I stand by it. Every American needs a trust so that they can accomplish so much more, including these four reasons and more. Thanks for watching. I'll be there with you along your journey on living the American dream. Don't give up.
https://www.youtube.com/watch?v=je9Z1BJSCAU
The video titled "Why Every American Needs A Trust in 2023" is presented by a seasoned CPA attorney, who is also a best-selling author with over two decades of experience in law. His expertise has helped thousands of clients across the United States. The focus of the video is on the importance of a revocable living trust in personal financial planning. The speaker outlines four key reasons why this type of trust is essential for every American:
The speaker emphasizes the need for organization and preparation in managing wealth effectively. He argues that having a structured financial plan, exemplified by a trust, is key to successful wealth accumulation and management. He stresses that the revocable living trust is an affordable and foundational tool for all Americans in 2023, supporting objectives like wealth building, maintaining privacy, avoiding probate, and ensuring controlled asset distribution.
In conclusion, the video encourages viewers to take proactive steps in their financial planning and consider the revocable living trust as an integral part of their strategy. The speaker's conviction is that adopting such a trust can significantly enhance one's ability to manage, protect, and distribute wealth effectively, aligning with the goals of building a lasting legacy.