Many of your clients have probably heard of trusts, but most likely don't know what they are. Some clients may assume that they do not have enough money to justify a trust. Others may believe that trusts, and not wills, must go through probate. And while you likely studied estate planning to prepare for your certifications, you yourself might not have all the answers. So, to help you in your next client meeting, we at GoGo Estate have put together this helpful little article to remind you what trusts do so that you can better explain them to your clients.

What Are Trusts?

A trust is a legal arrangement in which a trustee holds and manages assets on behalf of beneficiaries. It can be used to achieve various financial goals such as asset protection, tax planning, and estate planning. When a person creates a trust, they transfer assets, such as property or investments, into the trust, and appoint a trustee to manage those assets on behalf of the beneficiaries. The trustee has a fiduciary duty to act in the best interests of the beneficiaries and to manage the assets prudently.

Trusts can be revocable, which means you can change the terms of the trust or revoke it entirely during your lifetime, or irrevocable, which means the terms cannot be changed once the trust is created. Trusts can also be used to minimize estate taxes by removing assets from your taxable estate. Additionally, trusts can be used to protect assets from creditors or to provide for the care of minors or individuals with special needs.

Overall, trusts can be a valuable tool for managing your client's assets and achieving their financial goals. However, the specific type of trust that is best for your clients will depend on their individual circumstances and financial objectives.

Explaining Trusts to Clients

At GoGo Estate, we believe it best to explain estate planning in relatively simple terms. This not only allows our customers to maintain a firm grasp on difficult legal concepts, but allows gives them the ability to make informed decisions for themselves. Here are a couple of suggestions:

Keep It Simple, Stupid

Trusts can become complicated quickly. However, they don't have to be. Here is how one advisor we know explains trusts to his clients:

The Bucket Analogy

Imagine you're in a play room. There are lots of toys strewn about on the floor. The kid playing in the room wants to bring the toys over to her friend's house, but carrying them all in her hands doesn't make much sense. Afterall, what if she loses one of her toys along the way. So, she decides to get a bucket.

She throws all the toys in the bucket. As her mom drives her to her friend's house, the toys stay in the bucket and don't fall out as they move along. Once she gets there, she dumps all the toys onto the floor of her friend's playroom just as they were in hers. Now they can both enjoy them together.

The toys in this example are the client's assets. Without proper planning, they are floating around in the ether. If they die, someone else will have to come along and try to claim them, which takes a long time. If, however, the client were to put their assets into the trust, they wouldn't have to worry about passing them down from one generation to the next. Instead, everything would be passed down quickly and efficiently.

Use Colorful Examples

People remember weird things. When you approach the subject of trusts with your client's, it's important to give colorful, real world examples so they can understand what you're talking about. Here are a couple of examples that we like:

The Comic Book Nerd

Imagine you have a client with a large collection of rare and valuable comic books. They want to pass these books down to their children. however, they are also afraid that something might happen to the books in the interim. To address these concerns, your suggest to your client that they should create a trust and transfer ownership of the comic books to the trust. They name a trusted friend or family member as trustee of the trust, and instruct the trustee to hold the comic books in a safe place and manage them carefully.

When your client dies, their kids are named as beneficiaries. This means that the kids will eventually receive the comic books. However, because the comic books are owned by the trust, they are protected from creditors or legal claims against your client and their estate. Furthermore, additional conditions may be set to ensure the comic books are cared for. For example, the trust terms could require the trustee to store the comic books in a climate-controlled environment or to only allow the beneficiaries to access them after they reach a certain age. In this way, the trust acts as a kind of "safety deposit box" for your client's assets, protecting them from potential threats and ensuring that the assets are passed down to their loved ones according to their wishes.

The Beach House

Now, let's say that your client owns a beach house. They wish to pass it down to their children and grandchildren. However, they worry about potential family conflicts over how the property should be managed and used.

To address these concerns, you suggest that your client create a trust and transfer ownership of the beach house into the trust. The client appoints a professional trustee (maybe your company) to manage the property on behalf of the beneficiaries. The trust also contains certain conditions to ensure that the beach house is used in the way the client wants.

The trust may also include provisions for resolving disputes. For example, if two siblings can't agree on when to use the beach house, the trust could require them to work with a mediator or to follow a specific schedule for using the property. In this way, the trust acts as a "referee" for the family, ensuring that everyone plays by the rules and that the beach house remains a source of joy and togetherness for generations to come.

Conclusion

In conclusion, explaining trusts to clients really isn't that difficult. All you have to do is talk on their level, which we know you're good at anyway. For more, be sure to check out GoGo Estate's helpful advisor resources.