I don’t care if you have $500,000 or $100,000,000, this video can help you. I’m going to give you six reasons of why you may want to consider a trust as part of your retirement plan and exactly how it can benefit you and your family. I’m not a lawyer, and thank goodness for that, but everything we’re going to talk about today is to help you understand how trusts can benefit you from a financial planning perspective. We want to help you protect your assets, pay less taxes, and make sure there’s more money left for those that you love. If you have a net worth of $5,000,000 and above, stick around to the end of this video because I have a special bonus for you.
Two Main Kinds of Retirement Trusts and How They Work
High level, we have two types of trusts. We have a revocable trust and an irrevocable trust. Now, in reality, there are hundreds of different types of trusts, possibly thousands of them. The concept of a trust goes back thousands of years. High level, without getting into the legal definitions and boring you with some of the granularities of what a trust actually is and the different types and the definitions, we want to keep this high level and make sure you can apply it to your particular situation. Revocable trusts are money that you can access, you have no creditor protection, and they are inside of your estate. Then, you have the irrevocable trust, which is outside of your estate. When you put money into an irrevocable trust, you have to gift it into that trust. You lose control over those assets. By losing control, it is now out of your estate. You do have creditor protection because you no longer own that asset. We’re going to talk a little bit more about this as the video goes along, but understand high level, there are revocable trusts. No creditor protection. You can access this money. The primary purpose is this helps to avoid probate. Irrevocable trusts are money that’s outside of your estate. You’ll pay no estate taxes, but you cannot access this money. The trustee that you assign upon creation of the trust is the person who manages those assets, can make distributions to whomever you’ve named as the beneficiary of the trust.
I promise you I’m not going to get too deep here. I just want to go over this concept because it will apply when we go through the benefits that we’re about to get into. Some of you may have seen this, but this is the national debt clock. We are spending $2 billion on interest on the national debt every single day in this country. We’re adding about $800 million per hour to the national debt. How does this impact you? Well, right now, per person in this country, you can die with about $12.92 million before you pay any estate tax. That’s about $25.84 million per couple. I want to take you on a little journey through history. Going back to the year 2000, you could die with $676,000 and that $1,000 above $675,000, you would actually owe 55% estate tax on. Think about this. If you died with $2 million, everything above $675,000, you would owe 55% on. Now what if some of that money is IRA? Well, then you also owe income tax on that money. If you pass it on to a grandchild, you could very possibly owe generation skipping transfer taxes on that money. You’re talking 80, 90%, possibly even more, completely gone of everything you’ve left. Now, are estate taxes going back to the 2000 levels? I don’t know, but my point here is we’re paying $2 billion a day in interest. We’re adding $800 million per hour to the national debt. At some point, it’s likely that politicians are going to come after the people that have money.
Increasing the estate tax is one way they may do that. The information that we’re sharing today, for some of you out there that have accumulated very large amounts of wealth or own businesses, it may absolutely apply to you right now. In 2026, the estate tax thresholds are coming down. They’re being cut in half, essentially. You can die in 2026 with $5 million per person, which is adjusted for inflation. It’s going to be probably somewhere around 6.2 or 6.3. As a married couple, you’re looking at about 12, 12.5, somewhere in that range. Anything above that, 40% goes to the government.
Reason 1: Losing Money by Exceeding the Estate Tax Threshold
The first reason why you may want to consider a trust for your family, for the wealth that you’ve created, is if estate taxes come down to a level of wealth that you exceed, or if you currently exceed the thresholds for the estate tax to be applied, the government may take 40%, 50%, 60%, whatever they deem is an appropriate estate tax rate from your estate. In addition to that, there are 13 states that impose an additional estate tax. The one I’m talking about is at the federal level, but there are 13 states that also impose their own estate tax. You need to speak to a lawyer, you need to include your financial planner, but this is where the irrevocable trust comes in handy. There’s a lot of ways
to do this. A lot of times people use life insurance or they make gifts into the irrevocable trust to buy life insurance to leverage those dollars, or we just start on a gifting strategy over time to get money out of the estate.
This is why the irrevocable trust is out of your estate because once that money is gifted, it can no longer be taxed at estate tax levels either at the federal level or the state level. One of the big reasons people use irrevocable trusts is to get money outside of their estate so the government cannot tax it, but also to create creditor protection.
Reason 2: Keeping Wealth Private (and Safe) from Probate
The second reason to consider a trust applies to almost everyone, to avoid probate. Probate is the process where the court follows your wishes if you have a will and distributes your assets. If you don’t have a will, you die what we call intestate, and then the court decides without your wishes being known where your assets are to be distributed. If you die right now and you do not have assets inside of a living trust or any type of trust, let’s talk about your home for example, then that is part of the public record. Your investment accounts, your bank accounts, your jewelry, everything that you own except for IRAs because they bypass the probate process, they have designated beneficiaries, but anything that goes through the court system becomes public record. Anyone can look it up, see exactly what your house is worth, what your investment accounts are worth, how much you have in the bank, and then they know how much money your children have inherited.
Reason 3: Loss Protection from Future Ex-spouses or Creditors
The third reason to consider a trust is to protect your children. We live in a country where we have a divorce rate of about 50 percent. If you pass money onto the kids, everything may be fine in the marriage right now, but down the road, they get a divorce, it’s possible that half of your money will go to your child’s future ex-spouse. If you don’t want that to happen, a trust can have provisions in it that protects your child from divorce and his or her spouse receiving half of your money. Along the same theme of a divorce, it could be creditors that are coming after your child because possibly there’s a judgment against them. They’ve been sued. Well, without a proper trust in place with the protections, the provisions written into that trust, then your children could lose that money to some type of judgment. It could be a car accident, could be a bad business decision, could be something that they’ve done where they are personally liable, those creditors come after their assets, and if that money is in their bank account, it could be subject to complete loss.
Reason 4: Creating Boundaries For Your Heirs
The next reason is to actually protect your kids, not from creditors or divorce, but to protect them possibly from themselves. Even your spouse may fall into this category. You can have provisions built into that trust that say an annual income of X percent must be provided, or they’re not able to access the entire corpus of the trust or principal that has been deposited into that trust until a certain age.
You can even name a co-trustee along with one of your children to make sure that there’s some oversight with the decisions that are being made. Now, if you don’t care if your kids go out and buy Lamborghinis and throw wild parties, then don’t consider this a good reason. If you do and you think it may be wise to have some provisions in there, at least to a certain age, a trust is an excellent tool to accomplish that goal.
Reason 5: Bridging Creditor Protection Gap with Inherited IRA and 401k’s
The next reason is for your retirement accounts. Inherited IRAs don’t have the same level of creditor protection that traditional IRAs do or rollover IRAs do. Now, IRA protection from creditors varies by state. You want to make sure you understand what level of protection you have in your state for your IRA, and that they may be different for your traditional IRA that you opened and contributed to, as well as it may be different for the 401k that has gone into what we call a rollover IRA. When IRAs are inherited, for the most part, you lose creditor protection. There may be some variances across states. Make sure to look into this. If you want your inherited IRA that you receive or you give to your children, or possibly that you’re going to receive from your parents, you should look into a very specific trust that is designed to house IRAs.
You want to make sure it has specific language in this. You want to work with an attorney who has drafted these trusts before and understand the correct wording because since the SECURE Act passed, if you do not have the correct wording, an institution can refuse to roll the money into that inherited IRA or to accept that IRA into that trust. I’ve seen it happen with a client who did his own trust trying to save a little bit of money. The language wasn’t in there correctly. He passed away. Money tried to go into the inherited IRA when the daughters accepted it, and it was rejected. Hundreds of thousands of dollars in taxes were due.
Reason 6: Avoiding Double Taxation with the Generation-Skipping Transfer Tax
The last reason a trust could benefit you and your family, and this is not an all-encompassing list, there are plenty of other benefits and things to consider when it comes to placing a trust as part of your retirement plan, but it’s to create generational wealth. Usually, a dynasty trust is created for this, and I mentioned earlier in this video the generation skipping transfer tax. When money goes to a skip person, which is two generations beyond you, so your grandchildren, your great-grandchildren,
the government imposes a generation skipping transfer tax, which is in addition to the estate tax on the transfer of those funds. Using your GST, generation skipping transfer tax exemption as part of an overall dynasty trust can help reduce or eliminate the impact of that tax.
Now, the law is very muddy here. You want to work with a qualified professional to help implement the right tools so you have the right language and the right tax returns are filed to make sure that you are in complete compliance with the law because there is a higher possibility when you have this type of wealth to be audited. Make sure you’re working with people who know what they’re doing. Again, make sure to include the financial planner because after all the legal work is done, there are still administrative items that need to take place. There are financial planning considerations. If you have these different professionals not working together with one another, you have a huge potential hole in your retirement plan. All of this is step five of what we call the retirement success plan, where we work with you and your attorneys to help build the financial plan. They draft the documents. We execute the financial plan. We have more videos on the channel about step five estate planning as part of our retirement success plan.
Considerations for Those With Over $5 Million Dollars
If you have a net worth of over 5 million dollars, I’m sure you’ve heard of the Certified Financial Planner Professional. What you may not have heard of is the CPWA, the Certified Private Wealth Advisor Professional. This is a designation that myself has completed and also Ed Rossi here at our firm.
Ed and I both completed this program through the Yale School of Management. The designation is overseen by the Investments in Wealth Institute, and the curriculum is designed specifically for those with 5 million and above. If you think of the CFP designation, it’s a very broad range of topics, very, very valuable, but it goes very shallow on all of these different topics for the most part, or at least compared to the CPWA. The CPWA goes tremendously deep on a more narrow set of curriculum, but it’s designed specifically for those who have net worths of 5 million and above. If you go to the CPWA website, you can probably find one in your area. If you can’t do that or you want to give us a call, we’re here to help. For this type of planning, I would recommend working with a CPWA professional if you have a net worth of over 5 million, as opposed to a CFP professional.
➡️ Do you need a Retirement Success Plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at (877) 404-0177 or click here to fill out this form for a free consultation.