What is a Living Trust and What are the Benefits? (Living Trust 101)

- Hey guys, Toby Mathis here with Anderson Business Advisors, and today, we're going to be going over living trusts 101. Let's dive right on in. All right, in order to understand living trusts, you have to understand the life of an asset, right?

There's no such thing as us taking it with us, so if we accumulate things during our lifetime, quite often, they're in our name or they're titled in our name or they're in our houses, they're in our safety deposit boxes, they're in all these different things. They're in our safe, you know, you name it. I've got cars in my name, got checking accounts and all these things.

If they're in my name and I cease to exist, who's going to get it? And that's basically it. I drive a car, it's in my name, and I live, and then, someday, I pass unexpectedly and that vehicle is still in my name.

So, what's going to get the DMV or the Department of Motor Vehicles or whatever it is in your state to transfer that asset to somebody else? Well, they don't just do it willy nilly, right? They need to know who is entitled to that asset.

And so, there's a couple of things that come into play. First off, during your lifetime, how you hold things, so, for example, my wife and I, we may have a joint account, which is joint tenants with rights of survivorship. So, I may have something that I own with somebody else that is already built in estate planning, that already says, hey, if something happens to me, it goes to them.

But here's the question, what happens when they pass? You're going to be dealing with this no matter what, I promise you. Every body, every estate gets to deal with what happens to your stuff when you pass.

Now, if it's a small amount of assets, you might fly under the radar. They call that a low-asset probate. Hey, I might, not even have to physically go to the courthouse to get a judge to sign off and change the name on an asset.

You know, for example, if I have a car, I may be able to get away by not having to go through a whole legal proceeding. Maybe I am able to file a few declarations. I still end up going to court, but it's not as painful.

If you have assets, you have a house and you have some assets, maybe it's a bank account and a stock account, maybe you have some real estate, this is where it gets wonky. And so, I'm going to show you the three different ways things are going to be handled, and it's going to be really, really simple once you look at it this way. Number one is there's something called intestate, and that's where there was nothing, nothing done.

You don't have a will. You didn't hold it joint tenants, or if you did, the previous tenant passed, so it says tenant, but that's how you look at it. So, husband and wife own a car, husband predeceases wife, wife gets it, wife passes, now what?

And if they don't have a will, think of, like, Prince, think of Ms. Franklin, when she passed, you have a bunch of people that pass and did nothing. You're straight into something called probate, so intestate means you're going underneath the state statutes of the state where either the asset was held or you resided, or the deceased resided.

This is where it gets really wonky. If you have real estate, and by the way, this happened in my family, so I could speak from personal experience on this, if you have real estate in multiple states, you have to probate in every single state. That's a legal proceeding where you're trying to change the name and the title of the asset.

So, the court opens up this whole proceeding, which on average lasts about 18 months in the United States, and will take up about 20% of the value of any of the assets in the estate, and I'm just telling you AARP numbers. That's the number, and since the pandemic, I think this is even bigger and longer, but you have to open up this proceeding where you're going to a court and you say, hey, here's some assets for somebody who's passed away, and here's who should get it. And there's no writings, there's no will, there's no nothing.

Here's the state statute. Here's who could be a beneficiary. Here's everybody that could have an interest.

And the court says, okay, slow the roll. We're going to put this thing on our timeline, so we have to notify all the creditors of the deceased estate, so we have to give them a period of time to make a claim. We need to notify all of the beneficiaries, potential beneficiaries, and give them a chance to have their say, which means all sorts of conflict, lots of lawyers.

Who makes money in courthouses? Lawyers make money in courthouses, right? So, all of a sudden, they're opening it up, and now the can of worms is open, and it's really tough to put that lid back on.

Just about every horror story you hear about probate involves this or the second one, which I'll be going over. So, this one equals, and I'll put this in red, because I don't like it, probate. Lots of money.

Probate takes a long time and it's expensive. Number two, your good old fashioned, my lawyer told me to do a will. Gee, I wonder why, right?

A will guarantees probate. A will is when you go to court and you say, look, Toby wrote who should get the assets. Here's where everything goes.

And again, we have to open it up and say, here's all the creditors out there. Here's all the potential beneficiaries. Here's all the assets' potential beneficiaries, and now they look at it and somebody might go, whoa, wait, Toby had what?

Well, that's a lot of money. I want a bigger piece. Why does he get all of that?

Why did he get the plates? Why did he get the Christmas plates? Then sis says, but I want all the art, and somebody else says, but I want this.

I want that, I want this. (imitates crash) I always say, it's like, it's like there's kindling, tons of dry kindling, and then people, there's flames everywhere. The lawyers are flames.

(imitates explosion) You want to see families tear each other apart, do this. And I've been doing this for more than two decades, guys. I've seen horror story after horror story.

I've seen litigation. There's actually a case in Georgia where a brother and sister litigated over a toy that was worth less than three bucks. It was about 3.

95, actually, and the reason we know it is because it was a little Tweety Bird, plastic Tweety Bird, like, "I tawt I taw a puddy tat," Tweety Bird. They both wanted it. It had lived in mom's kitchen.

When I say live, it was an inanimate object. It wasn't a real Tweety Bird. It was a piece of plastic that was in mom's flipping kitchen.

They both wanted it, and they litigated over it. The lawyer found a Tweety Bird identical to it on eBay for $3. 95.

He said, hey, we'll throw them in a box. We'll shake it up. You each take one, nobody will know.

Nope. (growls) When there's grief and greed and frustration and lawyers, it gets expensive. Just, if you haven't heard the stories, go ask, go into a restaurant one day or go into your church and say, hey, does anybody have any good probate stories, like some weird, wacky crud that happened?

Yes. You'll have a bunch of people saying, oh my god. Or if you really want to tick somebody off, like, if you hate somebody, make them your personal representative in that situation.

Here you go. But probates are expensive. Like, if you're in California, it's going to cost you 8% of your estate as a starting point.

There is a scale, it's on a statute. You have 100 grand, it's going to cost you eight grand, period. Four for the personal representative, four for the lawyers, and that's assuming everything goes hunky-dory, but it's transferring, again, an asset that's in your name when you pass, and we need to figure out who's going to be the owner, and so we're going to look at this.

Now, here's the problem with wills. They're very shortsighted. You can't create a legacy with a will.

You're just saying here's who gets my stuff. My third category is what I prefer, and what I think everybody could benefit from. When you hear my words, understand what I'm talking about.

Number three is a living trust. Now, a living trust, there is no probate. I'm just going to put a line through it, but I'm going to let you know, there's no probate.

Hopefully, you could see that. No probate. It's private.

It's not a public record. Probate's when you go in for a will, everything's out there for the public to see. When you go in and you're doing a living trust, it's private.

You don't need the judge. Everything's already in the trust's name. Hey, I have a living trust.

Everything's in the living trust. Fantastic. I have my business interests, I have my real estate, I don't have to go to every state, assuming that the assets make it into that living trust.

So, it's not enough just to have one, you got to fund it, but let's say there's a bank account in the living trust. To change it over to the beneficiaries or to change it over to the trustee of the trust, who's going to control that, and I'm going to talk to you about building a legacy here in a second, if you put somebody in charge of all your money and all your assets, and you say, hey, you're in charge. You're the trustee.

All that trustee has to do is they get the death certificate and they have their certification of trust. The bank may want to see the trust document to make sure that you're the trustee. It shows here's the trustee provision.

If Toby passes, who's the successor trustee? Who runs all those assets? That's what a trust is.

A trust has three parties, the party that funds it, the party that oversees the assets, and the beneficiaries, the people that get the benefit of whatever those assets are. They don't have to, like, during my lifetime, I'll be all three. I get disabled, I can't function, you know, my dad had Alzheimer's, so I'll just use that as an example, I have Alzheimer's, my wife could be the trustee or a bank or a trusted friend, or an attorney or an accountant or fill in the blank, and they could be watching over.

I was the one who gave the assets. The trustee could be somebody else, but it's for my benefit during my lifetime. And by the way, during my lifetime, it's fully revocable, it means I can change it anytime I want.

So, I put assets in there, it's not like I'm stuck. I can take them out. I want to refi my house, I can take it out.

They'll probably say, hey, you know the living trust. We love it, but could you put it into your individual name? We'll refi it, we'll put it right back in right after.

That'll happen at closing, fantastic. That's great, but now my house is in the trust. Guess what it doesn't need to do if something happens to me?

It doesn't need to be probated. It already has beneficiaries. So, let's say my beneficiaries are my descendants.

Hey, I just say my descendants, any blood of my blood or adopted, they're all considered my descendants. Okay, well, don't we want to give them all the assets? No, you do not want to give people a bunch of stuff that they're not prepared to handle.

We may say just my descendants for the next 300 years. We may say my descendants, period. And we may say, hey, like in my state, Nevada, we have 365 years starting point.

We can decant it and make it go longer, but we could sit here and say, hey, we want a long legacy. I want that money to be used for health, education, maintenance, and support. They call it HEMS standard.

Hey, the money's just sitting there, and if they need the money for school, they need the money because they got evicted and they don't have money for rent, hey, you're not going to be homeless. But if they asked me for the Lamborghini, no, right? And you can have an institution of trusted friends, probably going to be an institution at that point, you're going to say, hey, it's not overly expensive, usually about 1% of assets.

They manage it, they do everything, and it's for the benefit of somebody, it could be for the benefit of an organization. But what we're not doing is just handing a bunch of assets over. If you want to, you can, but with the living trust, we could actually say, hey, wait til they're 30, or only if they graduated from school, or if they've graduated from school and they're not on drugs and alcohol, right?

You actually have built in protections here that don't exist anywhere else. So, why are we always told to do the will, or your estate's not big enough, you don't need to do anything? Because of that, because they're all the lawyers out there get taught they're better off with the lawyer going through the legal process.

Why? Because we make more money. Did we just say that out loud?

No, a lot of them are well-intentioned, but the trust always works better, always. The only argument with the trust is, well, they're expensive. They used to be.

You can get a trust for $10,000. You can get a trust for a lot less, a fraction of that. At our firm, it's significantly less than that.

It's a fraction of that amount, right? And now I eliminate this, I eliminate the probate. Now, if I have assets that are still in my name, so let's say I pass away and I still have a car.

It's in my name. It's not in the living trust. Oh my god, well, now you're a low asset, but there's no beneficiaries other than the living trust, so you have a low asset estate and you're on both sides of the transaction.

Hey, Your Honor, I'm transferring to the living trust, and that's me, too, right? Super quick. No contest, no other beneficiaries.

It's just the living trust, no conflict. Usually, you can do that just with a filing with the court. You don't even have to go to court.

That's what we're trying to get to, is we want to make it super, super simple for the estate to do what you want it to do. Now, I'm just going to tease you with this last part. It's called creating a legacy.

I'll probably do some videos on creating a legacy, 'cause it's something I really believe in. Don't just leave somebody money, like if you want your future generations to know who you were and what you cared about, this is your opportunity to do it. So, let's say, for example, I love traveling, and I say to my future beneficiaries, I want you to travel, so every year, if you want to leave the United States, the trust that I set up will cover the costs for you to leave the United States for two weeks a year, as long as you're traveling and learning other cultures, 'cause I think it's really important to see the world.

Could I put that in my trust? Yes. I've done trusts exactly like that.

Put a few parameters on it to make sure they're not just going to Tahiti every year, but the trustee is basically saying, hey, it's important for the heirs to go out and see the world. So, instead of just having a trust where I just dump a bunch of money onto somebody and then, you know, and then they do whatever they do, maybe they get divorced, maybe they get lawsuits, maybe they're just not very good with money and they're doing that. Maybe they're really good and they even make it great, and then they pass it to their kids, and that kid's that grandchild, you know?

Or they have a broken picker, which means that they have like six spouses that they've gone through and they just divorce, and they're wasting the estate. That doesn't happen, 'cause now it's all held, and it's like, here's my value. Or maybe you believe in doing mission work, or maybe you believe in education and you go into those things and you're like, hey, I'm going to put this in my trust documents that I believe it, I think it's important that you go and you travel and you help other people.

And so, to be a beneficiary hereunder, you need to spend at least 40 hours a year, documented, doing charitable work, doing mission work, whatever. Fill in the blank. It's your money.

You get to put your intent behind it. Oh, but that's a dynasty trust. Those are tens of thousands of dollars.

No, they're not. It's called a living trust. It becomes irrevocable when you die.

And, yeah, it's the same cost as doing this. There's so much crud information out there. I just believe, in this day and age, with the way the court systems are and the way that conflict is, and there's a kind of a greed mentality going on in some of the people out there, I don't want to risk it that one of my heirs is going to mess up my estate, so I'm going to make it to where my legacy is my legacy.

If I want it to be charitable, I'll set up a charitable organization. If I want it to be something where it's just benefiting my descendants, fantastic. If I'm an education buff and that's all I care about, hey, I don't want to support him, I just want to educate him, fantastic, I could put that.

Hey, the only thing that these distributions can be used for are educational, higher education expenses at a qualified, you know, certified institution with four year degrees, or whatever you put in there. You could say I'm being very, very specific. Anybody can do it.

When you go in and the lawyer immediately says, well, that's the only for large estates, that's the same thing as, you know, you go and you order up an alarm system for your house, and ADT comes into your house and looks around and goes, you don't need an alarm system. You should probably leave your doors open. Maybe somebody will steal some of this crappy furniture.

That's not fair. They should not be pushing that value judgment onto your estate. Now, the last objection that I oftentimes hear is, like, well, I don't have any money.

It's not about now. It's about when you pass. Well, I'm older and I don't have money.

Insure yourself. Like, everybody has a story, everybody has an asset. That asset may be that we have a life and I can get life insurance and then direct the life insurance into my trust.

So, if I want to leave a lasting impression for whoever it may be, hopefully, it's, you know, maybe it's your descendants. Hey, my great, great, great grandkids, I want them to know who I was and what I represented, there's only one way to do it, guys. You have to do some sort of trust work, and you may couple it, depending on your complexity and your tax situation with a foundation or a public charity, a charitable organization, but you're always going to be starting here, 99.

9% of the time. The last thing I'll say is that that living trust covers you during your life. It also has ancillary documents for everything from a living will to power of attorneys for medical, power of attorneys for financial, has pour-over will provisions.

It has provisions that allow you to select who will watch your minor children if you have kids, things like that, all that's covered. Schedule of gifts, all that's covered. When you do a living trust, it's not like the will, where you just get this will, which only works when you die.

Instead, I have a comprehensive estate plan that works during my lifetime, during a period of times when I might be disabled or unable to advocate for myself, and it gives you advocates, and post-death. It's the only thing I know that does all these things, yet there's still an argument. I don't get it.

Everybody, virtually everybody, could benefit from using that living trust, and I'm a shocked at the level of misinformation out there. AARP had a great quote, which then got struck out of the internet, but if you know how to look, you'll go find it, back when they first did their study on probates, and they said, it's expensive, it's crazy. Most lawyers are still recommending will.

They should have to disclose the cost of probate when they do a will. Hey, I'll do a will for 99 bucks, but it's going to cost you $175,000 when you pass, versus, hey, I could do this living trust for, you know, a few thousand dollars now. And by the way, it's going to do this and this and this and this and this and this and this and this.

They should be giving you the option. I'll give you the option. If you know anybody, by the way, that needs this information, just forward this video to them.

It's easy. You don't have to use us. Just go out and make sure that you're going in with your eyes open.

If you like this type of information, please subscribe and like it and let us know, and give me any feedback that you have, any other ideas for videos as well. We want to help.