The Wiser Financial Advisor Podcast

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Do I Need a Trust?

What is a financial trust? Who should have such a trust? How do we go about getting one?

In this episode, host Josh Nelson answers these questions and provides more practical advice about this critically important aspect in your financial life.


Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money.        


This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. We love feedback and we’d love it if you would pass it on to me directly: . Also please stay plugged in with us, get updates on episodes and help us promote the podcast. You can subscribe to us at Apple Podcasts, Spotify or your favorite podcast service. 

Let the financial fun begin!

Today we are going to be talking about whether you need a trust. Before we get there, I just want to say a few words about my company, Keystone Financial Services, a wealth management firm based in Loveland, Colorado. We do comprehensive wealth management and financial planning, and that sounds like a mouthful, but more or less it just means that we look at everything in a person’s financial life—their family, their income, their assets, all the things important to them—and we come up with a living, breathing plan. We continue working on that plan over time as things change, but it’s our job to be your fiduciary, your financial expert. Fiduciary means we have a legal obligation to work in your best interest. Not all financial advisors are fiduciaries, so look for a fiduciary and the easiest way to do that is to make sure you’re working with a Certified Financial Planner. That’s because Certified Financial Planners are automatically fiduciaries, and it doesn’t matter who they work for. We think it’s better to work with an independent advisor or an independent firm so they don’t have any motivations from an employer or a sales manager or something like that pushing them to recommend certain products if that company sells products, which oftentimes they do. You just want to be with a fiduciary that’s independent and a Certified Financial Planner. That isn’t a guarantee necessarily, but it does help at least make sure that you are aligned as closely as possible with someone who is truly looking out for your best interest.

One of the areas that we cover frequently in comprehensive financial planning conversations is estate planning, and we often get asked, “Do I need a trust or is my will sufficient?” My answer to questions like that will always be, “It depends, right?” It depends on the situation, because every client’s situation is different. Everybody has different family dynamics, different work history, different assets that they’ve accumulated. Sometimes there are complicated things like business interests or family farms or possibly rental or commercial properties. Bottom line, everyone’s situation is different and sometimes even in smaller estates where people don’t have a lot of income or assets, things can still get complicated. And when you talk to most people about estate planning. truly what they’re trying to do is have peace of mind so that when they pass away their loved ones are taken care of, and they want to keep things as easy as possible for the people left behind. That’s the gift you’re giving when you do your estate planning and keep your stuff up to date.

Often, as the fiduciary and financial planners, we’re the ones sitting with the family to go over the estate. Of course, emotionally it’s a tough time people are going through. Losing a loved one can really be heartbreaking, and it’s truly an honor that we get to be there with them at that time. And when we see people who have worked with a financial planner and a State Attorney putting together a plan and asking lots of questions, the estate is in good order. It helps everyone involved. It’s a different kind of peace of mind that happens when somebody passes and they’ve set up their estate so that people know they’ve been taken care of. They know that their loved one spent the time and made sure everything was organized to make it easy on the people left behind.

We see other estates that are kind of a mess—and it doesn’t have to be a huge estate for it to be a mess. Sometimes people just don’t do a lot of planning, or maybe they did some planning but by the time they passed away, the plan was so out of date that it created a mess. Sometimes that can involve extra taxes or legal fees in going to court.

We’ve seen all kinds of stuff happen in different family situations. The question we’re asking today is, “Do I need a trust?” But I want to emphasize the importance of estate planning in taking care of your family and your loved ones, not just financially but also emotionally by doing some good thoughtful planning. That will help them out immensely.

Back to the question of do you need a trust? It does depend. Bottom line is that you could just take a piece of notebook paper and write out a will. Depending on what your jurisdiction is and what State you live in, there may be different requirements as far as whether you need to have a witness or notary or something like that, but probably you could just write it on a piece of notebook paper, sign it, and make sure it’s executed legally for your State. You could be good to go, so that would be one way to do it. We don’t recommend that because there is value in making sure that somebody who has a legal mind has looked it over. We can give you names of attorneys, especially if you’re in Colorado but also if you’re in a different state, we’re pretty well networked and know a lot of people around the country to help you find somebody you could sit down with and be comfortable with. I think it’s important to make sure you’ve got professionals involved in this: your Certified Financial Planner, estate attorney, tax advisor. You probably need a whole team of people, because this is complicated stuff and it’s important to make sure the details are right. That can make the difference between things being set up well for your family or being a nightmare and causing a lot of headaches.

As advisors, we sit down with families and so I’ve seen these situations over and over across the years. I’ve seen really good situations and really bad situations, all depending on how the planning is done. So today, I’m going to share some things to think about for situations you might find yourself in. I may not be able to answer the question of whether you need a trust definitively today because it does depend, but I am going to give you some clues at least so you can ask yourself whether you need to dig into this further. Ultimately, no matter who you’re consulting with, the decision does come down to you.

Many people I’ve talked to say, “My situation is pretty simple. I want to keep this as easy as possible for everybody.” And sometimes that’s a good answer. Sometimes things can actually be pretty simple and can be accomplished in a simple way. However, more often than not we realize that the family situation is more complicated than it seems. People might think it’s simple because they don’t consider themselves to be an ultra-wealthy family with oil rights and multiple business interests and private jets and things like that. But I can tell you that you don’t have to have a massive estate for things to get complicated. Sometimes there are family dynamics that can make even a small estate very complicated, so estate planning is not just for ultra-wealthy people. If you have any stuff and any people that you care about, you need somebody to look at this and come up with a plan.

So I’m going to give you some specifics today about different situations we’ve seen people use trusts. There are multiple ways that you can pass assets on to someone. Today, we’re going to assume a context around you passing away. We’re not really talking about incapacitation at this point. So there are several main ways of passing on assets. One of those is just by title. It could be as simple as that. If you’re married, you might have you and your spouse listed on an account as joint owners with rights of survivorship. That’s one of the simplest ways that something could be passed on. Say I’ve got a joint account with my wife and something happens to me, then she automatically gets the account. It just goes into her name without my name on it. There’s a little bit of administrative work in the background, but really nothing has to be retitled or transferred or anything like that. The assets stay and it just gets put into her name. Same with a house. If people are married, they would probably have both the husband and wife listed on the title of the house, so it has joint rights of survivorship.

Another way to pass assets on is through beneficiary designation. You’re probably familiar with this if you have life insurance, retirement accounts, or anything like that where you can put a beneficiary on it. Sometimes you can even put a beneficiary on the title of a property, depending on what State you live in. You could put a beneficiary on the title of your house. If say there’s a husband and wife, both on the title of the house and they both pass away, the house could go to a beneficiary if there was a beneficiary listed on that title. You can do that with retirement accounts, too. They always ask you on your 401K or IRA whether you want to put a beneficiary on that account. Usually the answer is “yes,” but not always.

It could also be a life insurance policy, or a brokerage account or bank account. Oftentimes you can add what’s called a POD or TOD, meaning “payable on death” or “transfer on death.” Most banks will let you do that even with your checking account.

Another way to do it is by trust. There are a couple main types of trusts. One is a living trust. That is a living, breathing trust. You could fund it today. In other words, you could be putting the title of your house into the name of the trust, or other investments in the name of the trust. You’d be funding that trust right now while you are living.

The other main type of trust is a testamentary trust, which means the trust is created by your last will and testament. That would be a type of trust that gets created upon your death. When the will gets administered, they say, “Oh, looks like there’s supposed to be a trust.” It becomes funded and created at that point to handle some assets.

So, there are different ways you can set up trusts. I like to look at this as a “choose your own adventure” type of situation, because you have these options. In a lot of cases we have multiple things going on. We might have a client that had a joint account with their surviving spouse and the surviving spouse gets assets that pass by title. They may have named that spouse as the beneficiary on their retirement accounts so it could transfer that way. They might also have a trust and a will. Often, things will be passed in multiple ways when somebody’s estate is settled.

Here some situations that often come up or reasons why somebody would want to set up a trust.

A trust is a separate legal entity. You could think of it as a trust being something that acts on your behalf. If you’re not able to handle things, meaning that you’ve become incapacitated or passed away, but you still want your interests and wishes to be taken care of, that’s what the trust is for. They add language that will make your wishes carried out.

One situation that’s very common where it make sense to have a trust is if somebody owns property in multiple States. Maybe there is real estate where rental property is owned in California and you’ve got your residence house in Colorado and maybe a vacation spot down in Florida. At any rate, you have property in your name in multiple states. Well, State Attorneys tell us that situation is a bit of a nightmare if the owner passes away and things weren’t handled some other way—by title or by beneficiary. Because now that means you could have to open up probate, which is the legal process that people have to go through in whatever the jurisdiction is to settle someone’s probate estate. So, the things we just talked about with title and beneficiary and trust are all ways we can circumvent that probate process and not have stuff go through there.

Now, some attorneys will look at a situation and say, “You know what, we actually want to go through probate.” Maybe there are some reasons for that. There can be some advantages to going through probate in some situations. But often I’ll hear people say, “I’ve got to avoid probate.” “Why?” is always the question I’ll ask next. “Is there a particular reason?” Sometimes there are good reasons, and sometimes there are just misunderstandings. After talking with professionals, sometimes people realize that maybe some of the assets should pass through probate. But that can get pretty darn complicated, not for you because you’ll be gone, but for your heirs. More than likely they’ll have to be working separately in those different courts in different States, which can get not only expensive but really time-consuming. People might even have to travel to multiple States to settle things out. In some States, the estate attorney who’s settling the estate for the family will get a percentage of the estate, which sounds crazy but it happens. Here in Colorado, they don’t do that, but in certain States they do, for whatever is passing through probate.

Another reason a trust is set up is to handle an ongoing need. In such a case, it needs to be an ongoing entity managing assets or income or income taxes for a family or a person. There are situations where that can be useful. For example, let’s say to support a special needs child. There are different types of benefits to be considered—maybe government benefits that the child is eligible for. Sometimes those benefits can get nixed if the child ends up with too much income or too many assets. Then, they might need a special needs trust to manage the affairs for that child’s portion of an estate, which they’re probably not equipped to handle on their own. In any case they will need ongoing management, so it’s important to have some mechanism in place so their needs will be taken care of. There will be somebody named by the trust, even if it’s an institution, to be looking out for the child’s best interests.

A trust would also be appropriate in a situation where you’ve got a family member who doesn’t have the capacity to handle financial decisions. Sometimes grown kids are really responsible, and sometimes they are not. So you there could be a situation where somebody has a certain kid who just blows all their money on stupid stuff. Maybe we want to set up a trust just for that kid’s portion of the estate. It also could be a situation with someone who has a substance abuse problem. They could have some history of destructive behavior and if they have the financial resources, they could end up doing really destructive things, possibly to other people as well. Their parents might be concerned about that and want to handle that child’s money a different way. Now of course, one possibility would be to disinherit them, don’t leave them any money. But often, people don’t want to do that and yet still want to provide for them in a different way.

So these are some of the complex situations I was referring to before, situations that make us want to go out and look for options to handle particular issues. Another really common things that comes up is divorce. These days, I think the statistic is 50% of marriages end in divorce. And if that marriage resulted in children, now you’ve got extra complications, especially if people get remarried. Now they’re not only trying to provide for the new spouse in case something happens but also they’ve got kids from that previous marriage to take care of as well. And often, if somebody didn’t have a will, the State has a plan for who inherits from you. If nothing else, that is a good reason to go through this process, because you may not like the choices made by the State. States have default laws. Usually that means that assets go to the spouse and then to the kids and then to other family members.

So just be aware that there’s probably some special planning that would need to happen. And if your head is spinning right now—and it probably is—that’s okay. You’re not alone. In fact, over 70% of people in the United States do not have any estate plan. So please be thinking about how important this stuff is. You don’t want your family to go through a nightmare scenario. Look into all the decisions surrounding this as if you’re going to die tomorrow or if be incapacitated tomorrow. Of course, we hope that doesn’t happen, but it could and it does. In many situations, people don’t have a lot of notice. Somebody could have a stroke or a heart attack or get in an accident and have no time to do any planning.

Don’t think this is just for old people. One reason it’s important even for younger people is that if you have any kids, your last will and testament typically is where you’ll be naming the guardian for your children if something were to happen to both parents. It’s also where you name who will be taking care of the money for the kids while they’re minors. So it’s crucially important, even if you’re young and don’t feel like you have a lot of assets.

So that’s my call for you today—to make some decisions right now, as if something were to happen tomorrow. And if you’ve already done that, verify it. Go back and look at all your plans. Look at your estate documents. Look at your beneficiary designations. Look at how you have things titled. And of course, if you’re a client of ours, we’re going to be looking at this with you, so that is something we’ll be doing as far as the financial planning goes. Also be consulting your estate attorney or tax advisor. I recommend doing this at least every five years. Go back and make sure it’s still what you want to have happen. And if you’ve got another person involved or you’ve had any major life changes—say if you’ve remarried, you need to share plans with your new spouse so the two of you are coordinated.

You can make decisions now and change your mind later. There are programs, and I’m not necessarily recommending them, but there are programs out there, companies that have online legal preparation. They have legal documents, kind of like TurboTax for taxes but they are estate documents. It is important to make some decisions to make sure it’s in writing and it’s legal. This is just my experience as a planner and as a firm. We want to make sure you are taking care of your families, not just financially but emotionally as well.

So back to the question, “Do I need a trust?” My answer at the beginning and at the end is, “It depends.”

If you’re a client of ours we’ve already been talking about this if it’s been a while since we drew up documents with you. In fact, we just had a project over the past year, of going back with every single client to verify that their beneficiaries are still correct. Sometimes people look at it and say, “You know what? That actually has changed.” Or maybe they had another kid and want to add them as a beneficiary on the account. So just keep in mind that we do want to be updating these things over time and consulting with whoever else you’re working with.

We have people contact us all the time. Most of our new clients come from referrals by our existing clients or from professionals in the area like CPAs, State Attorneys, or others we know. And we are thankful for those referrals. Today we can make recommendations and give you our thoughts, but ultimately you will need to make the decision as far as what’s right for you and your family.

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