Trusts and Life Insurance

A lot of people have Trust issues… we’re not talking about psychological trust issues, we’re talking about issues they have with a legal Trust.

As someone who’s been in the financial industry for years, I’ve seen my fair share of trust issues. And no, I’m not talking about the psychological kind that come from being handed an oatmeal raisin cookie when you were expecting chocolate chip. I’m talking about legal trust issues – the kind that can have a major impact on your estate planning and financial legacy.

One of the biggest trust issues I see is people simply not having a trust at all. This might not seem like a big deal, but it can lead to some major headaches down the road. You see, a properly set up trust can keep your estate out of probate – and believe me, probate is not a process you want your loved ones to have to deal with if they don’t have to.

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The Probate Problem

Probate comes from an Old English word meaning “to prove.” And that’s essentially what the probate process does – it proves the validity of your will after you pass away. This means taking your will to court, proving it’s actually your last will and testament (and not one of 30 different versions like Howard Hughes had), and getting the court’s approval to execute it.

Here’s the kicker – just having a will doesn’t protect you from probate. Your estate still has to go through the process of proving that will is legitimate. And that process comes with some major downsides:

Lawyer fees and court costs that eat into your estate
A very public process, including notices sent to all creditors (sometimes even published in newspapers)
Assets being locked up and inaccessible during the probate process
Potential for a very lengthy process (Howard Hughes’ estate took over 34 years to close!)

A Trust Can Help

This is where a properly set up trust can be a game-changer. With a trust, you can keep your estate out of probate altogether. The trust distributes your property according to your wishes without needing court involvement. This keeps things liquid, private, and much more streamlined for your beneficiaries.

I saw this play out firsthand when my wife’s aunt passed away in 2020. She had a trust set up, but unfortunately not everything was included in it. The items in the trust were distributed quickly and easily. But everything else had to go through probate – a long, expensive process that saw the value of some assets plummet while they were tied up in court.

The lesson? If you’re going to set up a trust, make sure you fund it properly by transferring all intended assets into it. An unfunded trust is just an expensive piece of paper.

Types of Trusts

Now, there are a lot of different types of trusts out there, and it’s important to understand what each one does. Some common types include:

Revocable living trusts
Irrevocable trusts
Charitable remainder trusts
Irrevocable life insurance trusts
Spousal lifetime access trusts (SLATs)

Each of these serves a different purpose and comes with its own set of pros and cons. It’s crucial to work with a qualified professional to determine which type of trust (if any) makes sense for your specific situation.

One thing I want to make crystal clear – you do NOT need a trust to purchase a whole life insurance policy for the Infinite Banking Concept. That’s a misconception I’ve heard floating around lately. While you can name a trust as the beneficiary of your policy if it makes sense for your situation, it’s absolutely not a requirement.

The Tax Question

Now, let’s address the elephant in the room – taxes. There are a lot of schemes out there promising to help you avoid taxes through complicated trust structures. I’m going to give it to you straight – be very, very cautious of anyone claiming they can eliminate your tax burden through a trust.

The IRS has specifically warned about abusive trust tax evasion schemes. These often come with red flags like:

Claims that it’s so new your tax preparer doesn’t know about it
Promises that you’ll never have to pay income tax again
Promoters saying they don’t pay any taxes themselves

Here’s the reality – a trust doesn’t necessarily keep you from having to pay income taxes. In fact, trusts often pay some of the highest income tax rates. And trying to use an irrevocable trust to avoid taxes can seriously limit your control over those assets.

The IRS is actively going after abusive trust schemes, both domestic and foreign. If the primary purpose of your trust is tax avoidance, you’re likely to face serious scrutiny and potential penalties.

When a Trust Makes Sense

So when does it make sense to consider a trust? Here are a few scenarios:

Estate tax planning: For very high net worth individuals, certain types of trusts can help minimize estate taxes.
Asset protection: Trusts can provide a layer of protection against creditors in some cases.
Privacy: Trusts can keep your estate details private, unlike the public probate process.
Special needs planning: Trusts can be set up to provide for a disabled family member without jeopardizing their government benefits.
Blended families: Trusts can ensure assets are distributed according to your wishes in complex family situations.

Remember, these are just general examples. Your specific situation may or may not benefit from a trust structure.

The McFie Insurance Approach

At McFie Insurance, we take a different approach than some of the big marketing groups out there. We’re not here to push unnecessary products or complicated trust schemes. Our focus is on providing what we believe to be the very best for each individual client.

We specialize in designing and selling participating whole life insurance policies to maximize cash value for our clients. This approach allows you to build guaranteed, tax-deferred growth while maintaining liquidity and control over your money.

For many of our clients, a well-designed whole life insurance policy provides the financial stability, growth, and legacy planning they’re looking for – without the need for complex trust structures.

What Should You Do?

Trusts can be a valuable tool in estate planning when used correctly. They can help avoid probate, provide privacy, and in some cases, offer tax advantages. However, they’re not a one-size-fits-all solution, and they’re certainly not a magic bullet for avoiding taxes.

If you’re considering setting up a trust, here’s my advice:

Work with qualified professionals. This includes an estate planning attorney and potentially a tax professional.
Be wary of anyone promising to eliminate your tax burden through a trust.
Make sure you understand exactly what type of trust you’re getting and how it works.
If you do set up a trust, make sure it’s properly funded.
Don’t assume you need a trust to implement strategies like the Infinite Banking Concept.

At McFie Insurance, we believe in empowering our clients with knowledge. We want you to understand all your options so you can make informed decisions about your financial future. Whether that involves a trust, a well-designed life insurance policy, or a combination of strategies, we’re here to help you find the solution that best fits your unique situation.

Remember, the goal isn’t to have the most complicated financial structure – it’s to have a plan that effectively protects and grows your wealth while providing for your loved ones. Sometimes the simplest solutions are the most effective.

If you’d like to learn more about how we can help you build a solid financial foundation, I encourage you to schedule a strategy session with us. We’ll take the time to understand your specific goals and show you how properly designed participating whole life insurance can help you keep more of the money you make, grow your wealth, and achieve true financial peace of mind.

Don’t let trust issues hold you back from securing your financial future. With the right knowledge and guidance, you can create a plan that works for you – no complicated schemes required.

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