With the great wealth transfer gaining momentum on a daily basis, estate planning is top-of-mind for advisors and clients alike and when it comes to keeping the latter satisfied, the former had better have the right strategies and tools in place.
A positive element in the estate planning equation is that more than likely, 99% of clients have limited or no expertise in this field. That doesn’t mean subpar service will carry the day because it won’t, but estate planning, when properly executed, is an excellent avenue adding value even with the most demanding clients.
On a related note, it’s not a stretch to say that a revocable living trust probably isn’t something many clients are knowledgeable, but it is something that upon learning about it, clients could have “aha moments” and see that their advisor is bringing added value to the table.
Revocable living trusts, which must be established with an estate planning attorney, are potentially compelling to clients because the trust can take in assets while clients are living AND after they pass on. Importantly, that’s just the beginning of this trust’s benefits.
Important Revocable Living Trust Details
Another important element in revocable living trusts is that the creator, also known as a grantor or settlor, maintains control of the assets inserted into the trust while they’re alive. And yes, those assets can include taxable brokerage accounts.
“Your client would not necessarily give up the ability to manage, contribute to, benefit from or make decisions regarding their brokerage account simply because he or she transferred legal ownership of the account to the trust,” notes Nationwide. “Depending on how the trust is drafted, the trust creator can retain the power to modify the terms of their trust and move property in and out of it to suit their needs and goals. ”
Revocable living trusts offer clients another benefit that shouldn’t be overlooked. When these plans are properly drafted and all the “I’s” are dotted and all “T’s” are crossed, the trust can help beneficiaries avoid costly probate battles.
“Generally, unless otherwise provided for via beneficiary designation or other non-probate transfer, any assets your client has not transferred into a trust during their life will need to go through the probate process before their ownership can be transferred from your client to another person or entity,” adds Nationwide.
Another perk is particularly relevant to clients that are worried their children will fritter away their hard-earned money upon their deaths. In revocable living trusts, the creator, with the help of the estate planning lawyer, can put protections and restrictions in place pertaining to how the trust’s assets will be distributed.
Remember the SBLOC Benefit
Another benefit associated with revocable living trusts is that the trust can act as a borrower in securities-backed lines of credit (SBLOCs). A securities-backed loan is a line of credit derived from the client’s portfolio.
In fact, a trust acting as a borrower can be more advantageous because if the SBLOC is signed for by an individual and that person passes away, the debt passes onto heirs, increasing the risk some or all of the securities that were borrowed against need to be liquidate.
“However, when a trust is acting as the borrower for an SBLOC, the risk of needing to liquidate securities upon your client’s death is less of an issue because the trust would not die or terminate with your client’s passing,” concludes Nationwide. “That’s why an SBLOC made to a trust can extend the life of the SBLOC beyond your client’s life, and the securities held by the trust could continue being assets of the trust while the SBLOC is paid down or paid off completely. ”
