March Monthly Newsletter – How to Use a Trust as a Financial Planning Tool

Clients frequently ask whether they should leave their assets in a trust. It depends. Of course, if your net worth exceeds $11 million, putting your assets in specific types of trusts can be helpful for federal estate tax issues. However, for most Americans, federal estate taxes will not be a major concern. So why else would you want to leave your assets in a trust? Before you say “I don’t,” or “It’s too complicated,” take time to learn more about what a trust can do for you.

What is a Trust?

A trust is a legal arrangement under which you transfer assets to a trustee’s care. The trustee then holds and manages those trust assets for the benefit of one or more beneficiaries. Within that trust there are instructions on exactly how and when to pass assets to your beneficiaries. Managing assets requires time and patience. At some point, you might not have the time or interest to stay on top of your assets, or you might lose the ability to because of illness. A trustee can manage your assets for you and your loved ones if and when that time comes. That sounds simple enough, but a trust is also so much more: It’s a multipurpose planning tool that delivers a surprisingly wide range of benefits beyond potential federal estate tax strategy. Let’s take a look at scenarios that might call for a trust.

Benefits of a Trust

  • Protecting Assets Against Lawsuits – We all know that America is a litigious society. If your child inherits your assets outright at your death, they are subject to creditors, divorce and lawsuits. Leaving the assets in a trust can help protect your child’s inheritance against these potential losses. Imagine if your child, after just receiving his inheritance from you, is involved in an accident that is their fault. The child’s trust would be protected against legal judgments.
  • Protecting Assets For “Spendthrift” Children – What if your child has CBD – Compulsive Buying Disorder? In other words, your child is a shopaholic or “spendthrift.” Would he or she blow through an inheritance meant to last years in a matter of weeks? If you set up a trust, your money stays in trust for the benefit of your shopaholic child upon your death. The trustee distributes an amount on a monthly basis for your child’s support and pays a monthly allowance. In this scenario, can your child go to the bank and pledge their trust as collateral? No. Why? Because your child doesn’t own the assets, the trust does. The trust acts as a barrier and protects your child from him/herself. Trusts and financial planning work together for a healthy future for your child.
  • Protecting Assets for Children with Illness or Addiction – There are other reasons you would want to protect your children from themselves, such as if your child suffers from a mental illness, or alcohol or drug addiction. Or, perhaps your child will be challenged in managing their own assets because of lack of time and/or ability. Again, a trust helps with these situations in managing the assets over their lifetime. Or, what if you die when your daughter is unmarried, and she has minor children – no prince charming can marry her and take her money since it’s in the trust. What about divorce? Picture this – you die, your child inherits your money outright, then later gets a divorce. The assets that are in her marital estate could be part of the division of property. Instead, if you leave your assets in trust for your child at your death, and, if they later divorce, the trust is generally not considered marital property.

Benefits for Blended Families

Trusts can be one of the most powerful vehicles for settling your affairs, taking care of your loved ones and carrying on your wishes, especially when you have a blended family. Blended families take many forms – married couples in which one or both spouses have children from a previous marriage, for example. For blended families, certain trusts can provide financial support for your spouse and your children. For example, you likely want to avoid the situation in which your children don’t get anything because everything is left to your surviving spouse.

Benefits for Those Who are Charitably Inclined

If you are charitably inclined you might also want to consider establishing a charitable remainder trust, which allows you, as the grantor, and possibly your spouse and children, to receive an annual payment from the trust during their lifetime, with the balance going to a charity or donor-advised fund when the trust terminates. You may also receive an income tax charitable deduction based on what the charity will receive when you contribute your assets to the trust. Charitably-focused trusts, such as charitable remainder trusts, can be a great tool to handle distributions from qualified plans, as well. This is especially crucial with the recent passage of the SECURE ACT if you do not want your IRA, for example, to pass directly to a child as a beneficiary.

Negating a Probate

If you had an experienced estate planning attorney draft your trust and properly funded the trust by titling your assets in your trust, then your beneficiaries might avoid the court-supervised process of settling your affairs, or probate, altogether. Probate is a hassle in many states. People like the idea of avoiding probate for the sake of privacy and efficiency. By and large, probate adds cost and time to the process of settling your affairs. Not to mention, it is a public process . When your will is admitted to probate, it becomes public record and is viewable by anyone who wishes to see it. Trusts are a way around that. So before you decide that having a trust is too much work during your lifetime, too complicated and too expensive to have included in your estate plan, consider the many benefits a trust can provide not only during your lifetime but after you die – for you and your loved ones.

Source 1: How to Use a Trust as a Financial Planning Tool by Sarah Duey – January 28, 2020

Putting Your Health Savings Account to Work


Seven dollars. That was the per-day cost of a maternity room in Jersey City, New Jersey, in 1942. Sure, adjusting for inflation brings us to $110, but that’s still unheard of. Try to find a hospital room for around a hundred dollars today! The bloated cost of healthcare isn’t a new discussion on the American airwaves. Healthcare always seems to be on the front lines of any discussion of the rising costs of modern life.

And they will continue to go anywhere but down. Triple-digit medical costs will likely seem as strange to our kids as single-digit totals seem to us. It’s no wonder healthcare spending in the US rose nearly $1 trillion between 1996 and 2015 – that’s $50 billion a year, not in how much we spent, just how much the spending increased.

On this kind of rising tide, financial vehicles like the Health Savings Account are all the more important. Tax-advantaged, easily accessible and relatively stable, the HSA gives you more control and prerogative over your medical expenses. People seem to be responding – in 2019 it’s estimated that $64 billion will be in HSA accounts as compared to $1.7 billion in 2006.

Let’s look at a few health savings account tips that can help you stay afloat in the swell of healthcare expenses in the near future.

Triple Tax-Advantaged

The tax treatment on an HSA is unique among accounts. A traditional 401(k) has you paying out your taxes when you withdraw the money. A Roth 401(k)/IRA has you pay Uncle Sam before you put the money in. Each account has its own financial planning implications. But your HSA has no tax time – not when you contribute, not on growth and not on the time of withdrawal.

Qualified expenses shelter your HSA withdrawals from taxes. As a health-related account, these expenses range from acupuncture to xrays and essentially give you an account that is entirely taxprotected. Talk with your HSA provider and advisor about what’s considered a qualified expense in your case, and work with your doctor.

User-Friendly Investing

Unlike Roth retirement accounts and some other vehicles, there are no income limits for an HSA. Middle-class 9-to-5ers and billionaires alike can all invest in an HSA and experience the same tax treatment and savings. The only qualifying factor is that you are in a high deductible health insurance plan.

There’s no limit to how much you can have in an HSA, but there are limits for contributions. For 2020, a single person can contribute up to $3,550 a year, and a family plan limit is $7,100. If you’re 55 years of age or older, you have a $1,000 yearly catch-up option. Employers can also contribute to HSAs as a benefit to employees, but their contributions also count toward your annual limit. So, if your employer contributed $1,000 to your family plan, you could only put in $6,100 of your own money.

Growing an HSA by investing is becoming more popular. For much of their short history, HSAs have been held by banks and so are difficult to actively invest, like an IRA or 401(k). But investing opportunities for HSAs are becoming more popular and some providers now offer mutual funds, ETFs, stocks and other investment opportunities to grow your money.

In Retirement

The game changes at the magical year of 65. The government, which has been giving you tax-advantages to your HSA, now takes those away and gives you Medicare. You are no longer allowed to contribute after your 65th birthday if you are enrolled in Medicare A or B. This is an either/or situation – HSA contributions or Medicare.

All funds are still yours, of course, but your access to the money changes. You can now take distributions from your HSA for nonmedical expenses. You won’t have to pay a penalty, but you will have to pay taxes on them. Your HSA at this point essentially becomes like a 401(k), and Uncle Sam puts his hand out once you hit 65. You can also continue to pay for qualified expenses tax-free, and the same rules still apply.

Your HSA becomes a protected account you can use to continually pay for medical bills that arise and to supplement your Medicare. This makes it even more important to max out your HSA contributions before you hit 65, so you have money in the account and growing while you’re in retirement.

One final health savings account tip: you can use your HSA to pay for long-term care premiums, but the tax-free amount you can withdraw for this purpose depends on your age. If you’re 40 or younger, you can withdraw up to $420 annually for premiums, then this goes up every decade and finally maxes out at $5,270 per year after you turn 71. This is an important planning piece for the retirement years.

Here Comes the Future

We’re no longer in a $7-a-day world, not by any measure. You must be savvy and forward-thinking about medical expenses and build them into your financial plan. The HSA offers you a flexible, userfriendly way to stay on top of expenses, and a protected source of cash for the inevitable.

Maybe not all the dire headlines about the cost of healthcare will come true, but we don’t know. The one absolute about the future: whether it’s good or bad, it’s most definitely coming. How can we as your advisor team help you prepare for the years ahead? Give us a call and let’s get working on a plan that will give you confidence and clarity going forward.

Did You Know:


FALLING BEHIND – Over the last 25 years, i.e., 1/01/95 to 12/31/19, inflation in the United States(using the “Consumer Price Index”) has increased +71.7% or +2.2% annually. An individual living on a fixed-income who has not benefited from “cost-of-living” increases would have only 58% of the purchasing power as of 12/31/19 that he/she had 25 years earlier. The consumer price index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor).

U.S. vs. EUROPE – The US economy grew by +2.3% in calendar year 2019, almost double the +1.2% growth rate achieved by the 19-nation Eurozone. Germany, the largest Eurozone economy, experienced just +0.6% growth in its economy in 2019 (source: Eurostat).



“The greatest danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.” – Michaelangelo

“Listen to advice and accept discipline, and at the end you will be counted among the wise.” -Proverbs 19:20

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