The Cutters are die-hard Red Sox fans – sure, we watch the Patriots on Sundays in the fall and get to the occasional Bruins game. But we reserve our real sports passion for baseball. In fact, my family has held Red Sox season tickets for over five decades and I’m proud to say that baseball is a tradition I’ve passed on to my daughters too. Heck, Maeve was the best catcher to ever play for Falmouth softball and Phoebe just won MVP as a pitcher for all of Cape Cod. She went undefeated with an ERA of .96. Ok, Ok, I may be bragging a bit as a proud father. So, after supper the other night, Sophie and I caught some of the shellacking the Sox were giving the Yankees when she asked, “So, dad, who gets the season tickets when you and mom die?”
Hmmmm . . . My Sophie always gets right to the point.
But you know, I guess it’s a fair question. Yeah, a little morbid, but practical, nonetheless. I know she was half kidding, but I told her that we had a plan for the tickets, just like everything else we own. After all, a sound financial plan is not complete if it doesn’t include a legacy plan to make sure your affairs are in order should the unexpected happen. A financial plan without a transition plan for your assets can create a huge headache for those you leave behind. For example, without a will or trust in place, how will your loved ones know what you own, where it is, who gets what, and how much is left after all taxes have been paid? And since this is one area that I see missing in so many people’s plans, I’d like to talk a bit about two legacy planning tools in particular – the will and the trust – to explain what they do, and when to use them. A will and a trust (in particular a revocable trust, which is more common than an irrevocable trust) are not the same thing, so let’s dig in this week to understand both so you can decide which best meets your needs.
Let’s start with the trust. The “revocable” part of a revocable trust suggests what you might expect – it isn’t necessarily forever and you can change it. This is legal entity into which you can place assets that you’d like distributed (or kept) over the course of, and after, your life. With a revocable trust, the grantor (creator) can make changes to the trust and its conditions. You can also make alterations to how it works, or even cancel it altogether.
While the trust is in force, you (as the grantor) can receive an income from it. Prior to death, you will name a trustee who is in charge of this distribution. They have a fiduciary responsibility to ensure that the funds are used appropriately according to the trust’s terms. When you die, the assets are distributed to the trust’s beneficiaries.
And you know it’s not uncommon for revocable trusts to have the beneficiaries take over the trust. It is up to you as the grantor to designate one or more beneficiaries, but one example of this relationship might be a parent and child. A parent could create a revocable trust for a child, and the child then owns the trust once the parent passes or the child hits a certain age. And because we’re talking about a revocable trust, this beneficiary designation can change at any point up until the creator of the trust’s death.
One of the primary benefits of the trust is that it allows you to protect your assets, from the moment you establish the trust to after you die. In addition, they keep your family and other beneficiaries out of probate court. It’s also possible to use a trust to reduce costs. For example, a will has the potential to be unclear or confusing, and this could result in loved ones having to go to probate court to fight for their distribution of assets. With a revocable trust, the allocation process is quicker and cleaner. On top of that, a revocable trust doesn’t need court approval, and it stays private, whereas probate is a public process.
A will, on the other hand, is a legal document in which you dictate (in writing) what you want to happen following your death. As the creator, you can request a number of things to meet the needs of your estate and your beneficiaries. For example, you can outline how you want your property and assets to be distributed, as well as who will execute your will. The executor, like the trustee of a trust, ensures that the will is followed out accordingly.
There are other details that a will may include, too. For example, if you have children who are minors, the document can be used to name their legal guardian. Or, the will can make a bequest, i.e., a gift. This may be a specific gift, such as a ring or a private collection of some sort . . . or even season Red Sox tickets.
So, which one is right for you? Or should you have both? Well, to state it simply – a will is a written document that details an individual’s wishes. It can be effective in helping the transfer of your estate following your death, and it can include some personal wishes, too.
In contrast, a trust is designed to help you guard or distribute your assets almost immediately. Once it is set up properly, it takes effect. It bypasses the need for court approval. It’s a more complicated process to establish and is often costlier than a will, but it can save on legal fees in the long run. They are often useful for complex estates and come in handy in case of an emergency. And since they don’t need to take effect upon death, you can use them to provide for your beneficiaries if you become incapacitated.
At the end of the day, every estate is different in size and needs, so it’s up to you to work with your retirement specialist to create an estate plan that fits your unique situation. Because the last thing you want is your kids going to court over your season tickets!
So as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at jeff@cutterfinancialgroup.com. This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally-available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy.
