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Jim Lange: If you do do this, though, you set up the revocable trusts, you can be the trustee, your spouse can be the trustee. If you can have a joint revocable trust, that is you can combine your monies and put both of them, both of your monies into this revocable trust, are you going to have a “his, hers, and theirs” and sometimes that is appropriate, obviously, it’s a little bit more paperwork, but that might be appropriate. And you can be your own trustee.
I view your spouse can be the trustee of your joint, both be trustees, there might be situations where you might want an adult child to be a trustee. And the trust will typically say the “setors” or the people who are establishing this trust, they can do whatever they want during their lifetime. They can spend it, they can blow it this fits a house, they can live in it. They can rent it out, they can paint it green, they whatever they want to do, they can do. But it also has provisions on what happens at death, either after the first death or even after the second death. So people draft these trusts to avoid probate, for probate assets. And again, you have to transfer these assets to the trust. And this revocable trust will control the distribution of the probate assets. What are probate assets? They are typically assets that are not controlled by beneficiary designation. So what are assets that are controlled by beneficiary designation? Well, for example, your IRA beneficiary will supersede anything that you put in your will or your trust.
So if in your will or your trust, you say, I leave my IRA to Bill. And if you look to the beneficiary designation of your IRA, and it says I leave it to Joe, then Joe wins, and he is the beneficiary of the IRA. And that supersedes what the will says and it supersedes what the revocable trust says, and obviously, this should be working together that is the same, the same estate attorney should be very cognizant about who the beneficiary is of the IRAs and retirement plans, who the beneficiary is of everything else and plan accordingly. Our firm, one of the things we love to do, is we call it a strategy called ‘Who gets what?’, and we will very often have different assets go to different beneficiaries, to the most common one that attorneys routinely botch. Here’s a, you want a quick way to save 24,000 bucks? Assuming you’re charitable, even a little bit charitable.
Alright, so what most Estate Attorneys do is let’s say you want to leave $100,000 to Xyz charity after you and your spouse are gone. Alright, so they put it in the will or the revocable trust, after I am my spouse are gone, I leave $100,000 to the XYZ charity. Okay, so you and your spouse die $100,000 goes to the XYZ charity. All right now that just cost your family $100,000 because the 100 if you just left it to your family better got better have received $100,000 instead, you left it to the XYZ charity. So that’s $100,000 that your family didn’t have well what if you change who gets what? So you say I leave $100,000 and by the way you in mechanically the way you do this is through the beneficiary designation of your IRA and or retirement plan.
I leave $100,000 of my IRA to the XYZ charity. all right now let’s take a look at the implications of that. So now the XYZ charity gets $100,000 at your death, the XYZ charity could care less the form of the money that they’re getting, they don’t care if it’s an IRA, after-tax dollars, Roth IRA dollars, etc. What they care about is who got the most money? Or how much money are they getting? Alright, so in that example, your family is getting $100,000 less of an IRA. But remember, an IRA is still taxable after you’re gone. So that $100,000 that they weren’t receiving, didn’t really cost them $100,000 Let’s just to simplify, which is use a 24% tax rate that really just cost them $76,000. So, by changing who gets what, we are saving $24,000 for your family. So, who’s in effect eating that $24,000 savings that your family is receiving? The IRS? Alright…
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