Hi, thanks for coming back. What I want to talk to you today about is a way to leave an inheritance for a child and or a relative of yours or maybe even a big gift while you’re still alive. And that’s in trust. So let’s talk about, well, what would be the other alternative? The other alternative is how most of the time people receive things, a big gift or an inheritance. And that is outright or free of trust. That means that you just handed it to them.
You titled the house over to them in their sole name. You gave them the car. You left them the million dollars at Charles Schwab. You left them as a beneficiary of a life insurance policy. And you just put their individual name down. And that means they received it outright in their sole name. And it is open to possibly their creditors, a future divorcing spouse, or maybe someone they’ve now received it and they’re not quite ready to handle money.
So today I want, just for the moment, I want to talk about leaving in trust for those folks. So what does that mean?
The estate plan would say, when I pass away, I want my son or daughter and son or daughter to receive these assets in trust. Think of it as a safe deposit box with a tax ID number that’s not your child’s social security number and not your social security number. And they, if you trust them with money, can be nominated their own trustee, meaning the person that’s in charge of the trust assets, in charge of determining whether the beneficiary themselves is entitled to income and or principal of the trust and under what terms.
So let’s talk a little bit about what those trusts can do. Those trusts have one, somebody in charge. That’s the trustee. If you trust your children with money and you think they’ll do a good job with their own money they’ve inherited from you, leave them as their own trustee.
If you think they might be a little bit too young and or they need a little bit of guidance on handling that money, you can name a trustee for them. It can be a CPA, it can be your best friend, it could be a business manager. You get to name that Aunt Georgine. It can be someone you trust that will use and manage those dollars for your child until the child gets to be old enough to be their own trustee.
Now there’s somebody who’s a beneficiary, your child or your niece and nephew or whoever it is you’ve named. And then they have rights to income, what income is being produced by the asset and the principal, the actual underlying asset. So let’s imagine that you leave them a house and they choose to make it a rental. So the rents come in, that’s income. And what rights to the income would the beneficiary have? That could be just send the income straight out to the beneficiary.
From an income tax perspective, that actually might actually lower the amount of tax paid because these trusts, one of the drawbacks, and we’ll get to the benefits in a minute, one of the drawbacks is it pays at the highest federal income tax rate as soon as it earns something just over 13, $14,000. That’s a pretty low amount of income to earn in order to hit the highest federal tax bracket, state tax bracket—If you’re in a state that actually charges state taxes.
So sending the income out to the beneficiary, let them pay it on their 1040 at their tax bracket actually make sense. Talk to your CPA and your attorney as to what is best for your family. Now they have rights to principal. So what happens to the house itself? What if they need money for tuition for themselves and or for your grandchildren or they need a big major surgery or, or, or. So, or they just don’t want to be in the business of a rental anymore.
If they sell the house, so the trust sells the house, the trust now is the recipient of the sale price of the house, and that can be invested in stocks and bonds and mutual funds or another piece of property or whatever the beneficiary and the trustee think is best for the beneficiary to meet the needs of the beneficiary. Money can come out of the trust for health, education, support, and maintenance. Those are generally the standard provisions set up in most of these documents.
Health and education is fairly like understandable. Health is anything that’s health related, optical, it could be dental, it could be orthodontic, it could be the deductible on your health insurance, it could be the health insurance premium. Education paid to Stanford University for tuition and dorm fees and lab fees and those are education costs. Or it could be private high school or it could be tutoring, all those kinds of things. Support and maintenance is technically, a roof over your head and food in your stomach.
So it does not mean Lamborghini if that’s not your standard of living when the person who set that trust up for you. So if you’re mom and dad and you’ve got a child who’s living on the beach, getting around on a skateboard, living in a tent, painting the sunsets every day, then Lamborghini is not an appropriate skateboard to Lamborghini, an appropriate request for transportation.
These trusts are designed to keep general creditors and divorcing spouses out of the picture. Your family member is going to inherit, let’s say, a million dollars from you inside this trust with someone to talk to about money, trustee, with provisions to receive income and principal for whatever they need. And then it is not divisible by a court for a general creditor, and it is not divisible in the possibility of a divorce.
So it’s protected assets just for the use of your children and ultimately your grandchildren. Final great thing about these trusts is for the most part, depending on how drafted, a lot, if not most of the money, depending on the size of the inheritance you’re leaving, can pass a state tax-free to the next generation. In some states that can be 365 years, it could be a thousand years from now. In some states it could be about 120 years.
It’ll maximize the tax-free transfer to the next generation for as long as that state permits. So consider a lifetime trust for your family members. Consider the possibility of what can happen in the life of your beneficiaries when they have a protected inheritance or a protected large gift where they get access to income in principle and don’t have to divide it with a general creditor or a divorcing spouse. Have a great rest of the day. Thanks for tuning in.
Video Summary:
When you leave a loved one an inheritance, you have a choice: give it to them outright or place it in a trust. While handing over assets directly might seem simpler, it can leave them vulnerable to life’s uncertainties—creditors, divorce, or even poor money decisions.
A lifetime trust acts like a safe deposit box with rules you create. You can choose a trustee—your child, a trusted friend, or a professional—who ensures funds are used wisely. Beneficiaries can access income (like rent from a property) and, when needed, the principal for health, education, support, and maintenance.
Trusts also offer tax advantages, allowing assets to pass to future generations with minimal estate taxes. Most importantly, they provide lasting protection and guidance, so your gift supports your loved ones for decades—or even centuries.
Planning ahead means your legacy stays secure, no matter what life brings.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. California Insurance License #0K80141. AR Insurance License #15823672. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. 7989827.1 Exp 5/27