TRANSCRIPT:
Hey everyone, it’s Tony Pacione, Managing Partner of Gasima Global Asset Management, and I’m here to talk to you today about the use of trusts in your financial planning. Look, it’s not exactly something that rolls off the tip of the tongue for everyone, but especially when caring for someone in need or making bigger life decisions and legacy planning, it’s something we need to talk about.
So let’s assume for argument’s sake that you’ve already mastered the basics—somewhere along the way in your investing life cycle, someone told you to have a long-term savings account, a retirement account, or a 401(k) through your workplace. You live below your means and have accumulated some wealth, maybe even a fair bit of wealth. Now you’re starting to think about the next generation, those around you, or just the future in general. It seems like the investing life cycle might have skipped a few chapters if that’s where you’re at.
You see, you start to build up your wealth and savings, and maybe even come into some money—whether it’s through inheritance or stock options from a tech job—and boom, you leap from building wealth or saving to now thinking about preserving it, creating a legacy, or just enjoying it. It seems like we almost went from middle school graduation gift money to a 401(k) to getting a will and life insurance. There are a lot of steps in between.
Creating a legacy and strategically planning how to set up trusts could really come in handy when you start to think about what to do with the wealth and savings you’ve accumulated. Let me start with a disclaimer: I’m not an attorney, and I’m not here to give expert advice on trusts and estates. What I am trying to do is give you the basics. In my travels as an investment advisor, and more importantly in my personal life, I’ve had to get smart about using trusts. For some reason, the basics of this topic just aren’t readily available. Yet, it’s incredibly important stuff.
Let’s be clear, the accounts we invest in can get ever more complicated for ever more complicated reasons, depending on what life throws at us. It’s not to skip through this part, but to back up and drill into our heads—much like the retirement planning industry has done—that you need to have a 401(k) account, you need to have an IRA, and you also need to learn the basics of trusts and what they can do for you.
In general, it’s as simple as this: there are two different types of trusts—an irrevocable trust and a revocable trust. By their names, they clearly imply the common-sense difference between the two: one can be revoked and changed, the other cannot. Now, why would someone choose one over the other?
In practicality, if you want to make any changes to a trust, then a revocable trust is the way to go. The assets don’t leave your hands, things are still in your name, but for planning purposes, they work well. Any assets transferred to that trust are still yours, and so you still control them. With an irrevocable trust, upon transferring the assets to the trust, the assets leave your name, and the transaction is permanent. So why would one choose one method over another? And why use trusts in the first place?
The hope is that by using trusts as an estate planning tool, you can care for the ones you love after you’re gone. For example, transferring assets to a revocable trust can be cheaper and more efficient than gifting your assets via a will and can help avoid the probate process, which is an undue cost and burden to the surviving family that may not have been planned for properly. Irrevocable trusts may be used by those wanting to minimize estate tax or protect assets from lawsuits and other creditors. Another use of the irrevocable trust is to maintain access to government benefits.
A strong example of an irrevocable trust, and something really near and dear to my heart, is a special needs trust or supplemental needs trust. My family has been blessed and challenged with caring for a disabled loved one. Anyone who has a child or family member with a disability, or someone in their life who has become incapacitated because of an accident, knows the immense emotional and financial burden this can place on a family. When the need is obvious, families typically apply for and receive some kind of government assistance via Social Security and Medicaid. The program for disabled people actually renders monthly checks through a program called Supplemental Security Income (SSI). Sounds great, right?
Well, to be clear, even the most generous state-funded programs for disabled children are going to yield approximately $700 a month, or in the best-case scenario, maybe a little less than $1,000 a month in disability checks. The unfortunate truth is that you’re going to need to privately finance the care of your loved one by yourself. This is where an irrevocable trust in the form of a special needs trust can come in handy. At the end of the day, we all try to get our retirement plan together; this is just a retirement plan for a loved one who, unfortunately, can’t save on their own.
The beauty of a special needs trust is that you can save or even ask relatives to gift money into that account while still keeping all those government benefits intact. Grandparents can leave money to the trust. There are even other accounts that go alongside the trust, like an ABLE account, which is almost like a 529 plan for disabled people. You can put up to $18,000 a year into that account without exceeding the annual gift tax exemption, and it won’t endanger eligibility for government programs. The beauty of that is you can make distributions to that disabled person tax-free.
Let’s be clear about one thing: you have to act, and you have to engage the right professionals. I’ve been there. I put together a team for my son’s special needs trusts, ABLE accounts, and all his planning by myself. Now, I happen to be a financial professional, but at the end of the day, it wasn’t like there was a billboard or a Google ad that said, “Get your special needs trust here.” And to be clear, it’s not like you need some type of special trust administrator or to pay fees upon fees for someone who only works on administering special needs trusts.
In fact, you have to watch out for a lot of scams in this space. Sadly, there have been some cases here in Florida recently where people have taken advantage of special needs families, stealing millions of dollars from those accounts. So don’t be scammed. There’s no need to overpay, and there’s no need to be overwhelmed. Everything I’m talking about here can be done in a transparent and efficient way. It’s easily accessible online, just like anything else you’ve done with any other brokerage account or retirement planning.
My point is this: you can do this, and it’s actually pretty easy. But, like my talk recently on having a plan, you need to get a plan together, and you need to act upon it. I’d love to hear from you on how I can help. Since I have personal experience in this area, I can’t tell you how sad it makes me when I speak to other families with special needs members who don’t know anything about the power of trusts to help ensure their loved one’s well-being.
So as usual, the investing life cycle always applies, and it’s no different here. Feel free to reach out on our website at www.gasimoglobal.com to book an appointment or to find out more.