#214 Trusts 101: When Do You Need a Trust? ft. Peter Kim, MD
In this episode, Dr. Peter Kim takes on a topic that often generates questions from listeners and colleagues — Trusts. Whether you’re just beginning to think about how your assets will be handled once you’ve passed or if you’re already conducting research, tune in to get the answers that will help you kickstart your preparation.
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Episode Highlights
Now, let’s look at what we discussed in this episode:
- What is a trust, and how does it work?
- How is a trust different from a will?
- What are the different types of trusts?
- Who should consider setting up a trust?
- What are the benefits of trusts?
- How can physicians and entrepreneurs use trusts in their financial planning?
- How do you set up a trust?
Here’s a breakdown of how this episode unfolds.
Episode Breakdown
What is a trust, and how does it work?
Peter begins by briefly explaining what is a trust and how it works.
He mentions that a trust is a legal arrangement in which assets are managed by a trustee for the benefit of beneficiaries, according to the instructions of the trust document. It serves as a protective container for assets, dictating how they will be distributed after the grantor’s passing.
“Basically, it’s a legal document that says, where all of your assets are going to go after you pass, who’s gonna be the beneficiary of it? And who’s going to take care of it? And what are those instructions around how those are going to get passed on.” — Peter Kim, MD
How is a trust different from a will?
Moving forward, Peter clarifies a common question by differentiating a trust from a will. He says that a will is a basic legal document providing instructions for asset distribution after death, while a trust is a more intricate legal contract enabling property transfer to another person or account.
Trusts offer benefits like bypassing probate, ensuring privacy, and precise asset distribution control. Probate is the legal process for asset distribution after death, but trusts can circumvent this. Peter recommends consulting an asset protection lawyer for navigating trust and probate complexities.
What are the different types of trusts?
For the question about the different kinds of trusts, Peter mentions two main types: revocable and irrevocable.
A revocable trust allows changes, is subject to taxes, and is excluded from the probate court, ensuring privacy. Irrevocable trusts do not allow changes, are typically not subject to taxes, and are also private. Different types of trusts serve various financial goals and purposes, including marital, charitable, business, special needs, education, and life insurance trusts.
Who should consider setting up a trust?
Onward with another key point, Peter addresses which individuals should begin thinking about establishing trust.
He mentions that if you are someone with diverse income streams, either a physician or entrepreneur, with varied assets like stocks, real estate, and alternative investments, you should consider setting up a trust for asset protection and seamless wealth transfer to the next generation.
Peter shares that trusts can simplify the generational wealth transfer process and cater to specific wishes regarding asset management and inheritance, especially in cases of substantial assets or complex family dynamics. Trusts can address concerns like the timing of inheritance distribution and ensure that the process is smooth and aligned with individual preferences and family needs.
What are the benefits of trusts?
On the topic of benefits that you’ll get from having a trust, Peter shares a few that you might get.
He mentions that setting up a trust offers several benefits, including avoiding probate, ensuring faster payout, providing specificity in asset distribution, reducing conflict and court contestation, maintaining the privacy of assets, protecting assets from creditors and lawyers, and potentially reducing taxes like estate, gift, or income taxes.
But more importantly, trusts can streamline the wealth transfer process and provide various legal and financial advantages, depending on individual goals and circumstances.
How can physicians and entrepreneurs use trusts in their financial planning?
Peter emphasizes the importance of consulting with a financial adviser and attorney to optimize benefits and protect personal and business assets.
Physicians and entrepreneurs can utilize trusts in financial planning for asset protection, estate planning, and tax benefits, ensuring a smooth wealth transfer to future generations. Creating a trust can protect personal and business assets, minimize state taxes, and provide ease and security for the family’s financial future.
How do you set up a trust?
To conclude, Peter outlines the steps you need to take when setting up a trust.
He mentions that to establish a trust, one must first decide on the type of trust they want and consider factors such as heirs, asset portfolios, and charitable intentions. It is crucial to consult with a trust attorney to discuss various options, provisions, taxes, and asset management. Naming a trustee, whether a corporate entity or a trusted individual, is also essential to oversee the estate according to the trust’s instructions.
Peter shares the key likes in transferring assets into the trust so you can ensure a smooth transition of wealth to the next generation as desired.
