What is a Trust ?
Trusts are a mystery to most people. A Florida trust is one of the most beneficial planning documents there is. It can help both people with substantial assets, and people with more modest means. Jason Ponder takes you through a common sense, down to earth discussion about Trusts, what they can do for you, and the most common types of Trusts.
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Howard Iken: Hi. This is Howard Iken and today we’re going to our legal information studios to have a discussion with attorney Jason Ponder. We’re going to try to lift some of the mystery surrounding trusts in the state of Florida. We’re going to talk about trusts and estates and we have Jason Ponder here with Ayo and Iken. We’re going to talk about something that very few people really truly understand. Exactly what is a trust? Jason, good afternoon.
Jason Ponder: Good afternoon.
Howard Iken: Could you please give just a quick really brief overview? What exactly is a trust?
Jason Ponder: A Trust is a document. It’s a very comprehensive document that essentially lives on after you. What it does is it allows a person or a designated trustee to manage your assets in a way beyond your life, so they can continue to gain. They can continue to make money. They can continue to be paid out over time. Not necessarily all at once.
Howard Iken: What type of people would want a trust? What people would that actually benefit?
Jason Ponder: We see a lot in our firm trusts being set up for young families that have minor children. It’s very important because if something were to happen to you and you have minor children, they cannot access or have access to certain sums of money. What you need to do is you can set up a trust and what that does is it allows somebody to manage that money until such time as they reach the age of majority or they reach the age that you feel that they should have the type of things you are giving them.
Howard Iken: All right. Are you talking about something that could keep your kids from immediately going out and living the high life, buying new cars, and traveling all over the place.
Jason Ponder: I don’t know about you but I know that if I was 18 years old and someone gave me half of a million dollars, I would probably not make the best decisions.
Howard Iken: I would have had a lot of fun. Is a trust designed to keep us from having some of that fun when we’re 18?
Jason Ponder: A trust is designed to make sure that your money continues to fund or take care of the people you want to take care of. Yes, it can just in its nature keep people from getting themselves in trouble.
Howard Iken: Okay. Is a trust only for people with a lot of money?
Jason Ponder: Absolutely not. Like I said, I just mentioned a version of minor children. I think in our line of work, especially with dissolutions of marriage or young families, people want to make sure that something can be managed and kept so that you don’t have to set up exclusive guardianship in another court to determine who gets what and when.
Howard Iken: What exactly is involved with setting up a trust?
Jason Ponder: I want to back up just a sec. Because one of the main important things to know about a trust is trusts are set up to avoid probate. Okay?
Howard Iken: What is probate exactly? Real quick.
Jason Ponder: Probate is the process by which if something that you own or you owned jointly with somebody else, if it’s not titled specifically to somebody or doesn’t have a designation, you have to let the court decide who it should go to. Some people can do it via their will. Some people forget things that they have. This is an added insurance plan with a trust because … This is a very intricate part. We have the will that we’ve spoke about in previous videos. That’s just a simple will. The will that accompanies a trust is what’s called a pour-over will. What that does is it states, “Upon my death, I want everything that I own to be poured over and held by the trust.” The only purpose at that point is to take everything you have and put it into the trust so it can be managed.
Howard Iken: What do you really mean held by the trust? Does that mean a total stranger controls your money?
Jason Ponder: You designate individuals who you want to do certain things.
Howard Iken: You got to have a lot of trust in those people.
Jason Ponder: You absolutely do but it’s very important. If a trust is drafted correctly, yes, you must have trust in those individuals. The trust that we draft or I draft are so specific as to what you can and cannot do that any violation in that would be a break of their fiduciary duty and an immediate person could step in.
Howard Iken: All right. I got to point this out. I’m noticing the similarity in terms that are being used. We’re talking about some sort of document called a trust but we need to name someone we have a lot of trust in. Is that a coincidence?
Jason Ponder: Not a coincidence and it doesn’t necessarily have to be the same person. Let me give you an example. Here’s the thing. There’s different types of trusts. We could spend hours on the different types of trusts and what they’re good in. The two main ones are irrevocable and revocable.
Howard Iken: Okay.
Jason Ponder: Okay. I want to go into revocable because that’s the most common and it’s the most used for families or for individuals that don’t necessarily have gobbles of money. Revocable trust. When you set this up, you are the settlor, the person that sets it up. You are also the trustee, the person that manages it during your lifetime. Everything you do is just as if you were an individual, however, you’re doing it in the name of the trust. You’re managing it, you’re buying, you’re selling. You’re putting real estate on the market. You’re investing your moneys in certain things.
Howard Iken: Let me just make sure about this. I have a 7-year-old. If I made a trust, am I giving control of everything I own to my 7-year-old, which obviously wouldn’t be the best idea.
Jason Ponder: No, you’re not. You’re giving everything that you own. You’re continuing to maintain your control over it. Then, upon your passing, you’re electing an individual or individuals to manage that for her care or for anything. The Trust has to have a reason, a purpose.
Howard Iken: Let me just get this straight. I want to take care of her but realistically anything she would control right now would become candy at the store that you would buy. Does she have any decision making authority if she’s named in my trust?
Jason Ponder: No, she does not. The person that manages it or the trustees manage it until such time as you either distribute it or pay it out to her or she becomes of an age where she’s able to manage her own affairs.
Howard Iken: Okay. Terrific. I’m assuming this would be a good way to provide for my child.
Jason Ponder: Absolutely.
Howard Iken: Does that leave my spouse out of the equation?
Jason Ponder: Absolutely not, because embedded in trust you can have other trusts. One of them can be a spousal trust where you can provide a portion, half, a quarter, whatever you want, to your spouse. That will be used for her health if we call it HEMS. Health, education, maintenance and support. You put money aside, the trustee pays money to your spouse for those things. The other portion can be used for your child or set up for your granddaughter.
Howard Iken: What can be put in a trust exactly? Just cash?
Jason Ponder: Anything and everything. You name IRAs in the name of the trust. Life insurance policies in the name of a trust. You usually want to have a person above you. Okay?
Howard Iken: What is that?
Jason Ponder: Let me give you an example. You have a life insurance policy and you’re married. You name naturally your spouse as the next person in line if something were to happen to you or the person that’s paid out. What you also want to do is add a beneficiary. That beneficiary needs to be the trust. If something were to happen, God forbid, at the same time to both of you, the trust would own the life insurance policy and it wouldn’t be paid out or wouldn’t have to go through the process to determine if it goes to your minor daughter.
Howard Iken: Let’s say something does happen to myself and my spouse. I had come to you beforehand to have a trust made. Who manages the assets at that point if something happens to both the adults?
Jason Ponder: Your named trustees. During your lifetime you are the master of your assets. When you pass, that revocable trust becomes irrevocable and the people that you’ve named, those two people that you trust, they then take over and manage it.
Howard Iken: I’ve got to have someone I really believe in.
Jason Ponder: Absolutely.
Howard Iken: What if someone who I believe in goes absolutely nuts and starts spending the money on themselves? Can they do that?
Jason Ponder: There are checks and balances with a trust. They are placed in trust accounts so you can see what’s coming in and out. If you are a beneficiary under a trust and you determine that somebody is mismanaging the trust, you can absolutely challenge that person and say that they need to be removed and the court needs to appoint someone or ask for yourself to be appointed.
Howard Iken: Ultimately, is there anyone checking that the money in a trust is spent correctly?
Jason Ponder: There is no person that oversees all trusts but I always let my clients know it’s important that if you feel that there may be an issue, you have co-trustees who work together.
Howard Iken: You can have several people
Jason Ponder: Absolutely. You can say they have to have unanimous decisions. You can say majority rules. You can put barriers or protection plans in place even though you have multiple people managing the trust.
Howard Iken: Do the people who manage the trust get paid for their time?
Jason Ponder: They can get paid for their time or you can ask for it to be waived. Most of the time, yes, there is a provision that if you are moving the trust forward there is a certain amount that you are paid out of the trust.
Howard Iken: All right. You mentioned another type of trust.
Jason Ponder: Mm-hmm (yes).
Howard Iken: What is that exactly?
Jason Ponder: The irrevocable trust.
Howard Iken: The sounds pretty permanent.
Jason Ponder: It’s extremely permanent. Most of the time when you see that … I had a lottery winner where they were getting a large sum of money at one time. For tax purposes they place a portion of that money into an irrevocable trust. Meaning it’s designated for certain people and it’s not counted against them for their tax purposes. It’s usually to shelter taxes. I always like to use the analogy trust help protect people from creditors and predators.
Howard Iken: What kind of taxes can you actually shelter your money from?
Jason Ponder: At this current state in the state of Florida, your liability of an individual is over 5 million dollars. If you have over 5 million dollars in assets you will be taxed. For a couple, it’s over 10. A lot of people are not going to reach that burden. If you place certain things in certain trusts, and again you can have multiple trusts, you can manage and keep yourself away from those taxes.
Howard Iken: Obviously that’s for people with a lot of money.
Jason Ponder: Correct.
Howard Iken: I want to just correct again or check with this. A trust is also good for people with not so much money?
Jason Ponder: It is. Absolutely.
Howard Iken: All right. This irrevocable trust. I’m going to ask something sounding a little bit silly. Is there a way to revoke it once you do it?
Jason Ponder: There a way to unwind it.
Howard Iken: Unwind it.
Jason Ponder: There are certain provisions in which you can show that the trust should be unwound because of various different statutory reasons, but you can say, “Look, this is not correct. The purpose is no longer valid or no longer in place, the original purpose for setting this up. Therefore, the trust should no longer live.”
Howard Iken: I’m guessing that’s a bit more complex.
Jason Ponder: Absolutely. Very complex.
Howard Iken: Does it take a lot of time to create a trust?
Jason Ponder: Trusts, unlike wills, are very labor intensive. It’s not uncommon for a trust to be 35-plus pages.
Howard Iken: That’s a lot of pages.
Jason Ponder: Because you want to cover every basis. This is something that is extremely important and, like I said, it’s a road map. You need to let every single scenario that may come place, there needs to be an answer for.
Howard Iken: Let me ask you this. Is there paperwork you can buy online? Is that a good way to make a trust?
Jason Ponder: It’s never a good way to make a trust because it doesn’t necessarily contemplate state law which is ever changing.
Howard Iken: Are trusts only done by attorneys?
Jason Ponder: Trusts are only done by attorneys that I know of and that’s the only person that I would allow to do a trust. You can do estate planners. They do have large companies that can create trusts but they don’t know the ends and outs of law. In fact, estate planning companies, large estate planning firms, use attorneys and have attorneys on retainer to help them with the legal issues. Yes. Can you do it? Yes. Or you can go to one person, one attorney that knows everything, and get it planned correctly.
Howard Iken: Is it a good idea for a lot people to have a trust in addition to a will?
Jason Ponder: Trusts in certain circumstances are necessary and in certain circumstances they aren’t.
Howard Iken: This is something that’s optional.
Jason Ponder: It obviously is optional and it’s case specific.
Howard Iken: Is that something you’re able to tell someone in one meeting if they need a trust?
Jason Ponder: Absolutely. If you’re coming in and all you have is a vehicle and you’re renting. You don’t have any minor children and there’s very minimal types of assets, you can get what you need accomplished through a will. A trust is overkill and a lot of times trusts are over sold.
Howard Iken: All right. We had an interesting talk about trusts with attorney Jason Ponder and it’s much appreciated, you coming in and discussing it. Jason, do you give free consultations on trusts?
Jason Ponder: I absolutely do. I’d love to sit down with anybody and listen to what their specific situation is. I will let you know after reviewing your information what I feel is best for your situation.
Howard Iken: All right. Thank you very much, Jason. Have a good afternoon and we hope to see you some more.
Jason Ponder: Thank you.