We are so happy to welcome a guest blogger, Isaac Brohinsky, CPA/PFS, MAcc, MDiv. He is President of Financial Independent Advisors here in Jacksonville. Today, he's talking about trusts and how they can fit into a well-rounded financial plan. Learn more about Isaac and FIA at the bottom of this post.
A comprehensive financial plan is more than just examining your wealth and ability to achieve financial independence. When we look at a client's financial plan, we look at what you have, what you need, how to protect what you have, how to legally pay the least amount of tax possible on what you have, and what happens to what you have left over at the end.
Strategies for transferring wealth to the next generation should be part of any good financial plan.
One of the questions that always comes up is whether or not a client needs a trust. But that question simply opens the door for a myriad of other questions. There are many different types of trusts available, including strategically designed and innovative trusts to get an inheritance into the hands of your heirs with minimal estate tax bite. We are not attorneys, but we work with great and competent attorneys who can help design trust strategies for tax purposes and to best meet your goals.
A revocable trust is a great way to title assets in such a way that they avoid the probate process. We often see clients set up a trust for the assets they can think about and title with a pour over will that says anything we forgot about gets put in the trust. The goal is to make sure your heirs get as much of your estate as possible and probate attorneys get as little as possible.
A trust is not always necessary. If your estate consists primarily of financial assets, those accounts are properly titled with beneficiaries and contingent beneficiaries, and your other assets are titled properly or accounted for in your will, you may be able to make the probate process cheap and easy without even having to involve a trust document.
Even when your assets are all titled properly, and a trust may not be necessary for probate purposes, you may want to consider a trust to place limitations on how your assets are distributed when you are gone. One of my favorite old Bugs Bunny cartoons is the one where Elmer Fudd inherits $3 million dollars. But the trust says he doesn't get a penny if he harms any animals (especially rabbits). While examples like that and others in pop culture make for funny scenarios, you can use a trust in the real world to put requirements on your beneficiaries in order for them to access the wealth you leave them.
In some cases, your beneficiaries may be too young or even immature to suddenly have access to significant wealth. In other cases, the maturity of your beneficiaries may not be consistent across the board. A trust allows you to determine, for example, that the younger sibling who has their advanced degree, family, and career all in order has no restrictions while the older sibling who is still living in the basement gets a monthly check to cover basic needs.
Examples of how a trust can distribute wealth:
Another consideration for trust creation is when a second marriage is involved. Like a prenup, the question of trusts to divide assets between children and "bonus" children can lead to uncomfortable conversations. However, a good trust design can protect your children from a previous marriage from being left out and protect your children from your current marriage from past marital relationships.
For those who have no beneficiaries, the question of a trust comes down to discovering what you are most passionate about. A charitable trust is a great way to take advantage of tax benefits during your lifetime while leaving a legacy with the dollars you leave behind. You've heard the saying; you can't take it with you. If you are passionate about your hobby or recreational activity, a charitable trust can be used to help organizations that introduce those who are less fortunate to that activity you love. Certain types of charitable trusts can also be designed to provide you with a significant up front tax deduction, monthly funds to live off of, and a mechanism to get the remainder of the funds to your charities of choice when you pass.
There are some key decisions when it comes to strategic trust design. The first is finding an excellent attorney to build these documents. Second is finding a qualified fiduciary advisor who you trust to manage the funds in the trust. And of course, it is important to make sure that your successor trustee is someone you trust the most to fulfill that role as a fiduciary and always do what is best for the trust's beneficiaries.
Want to get in touch with Isaac? Reach out to him directly at isaac@fiajacksonville.com.
Isaac J. Brohinsky, CPA/PFS, MAcc, MDiv
Isaac J. Brohinsky is a Founding Partner and President of Financial Independence Advisors, LLC. Financial Independence Advisors, LLC is an SEC registered investment advisory firm that specializes in individual and business financial planning. Isaac holds a Personal Financial Specialist (PFS) designation from the American Institute of Certified Public Accountants.
In addition to financial planning, Isaac is a CPA Partner with Financial Solution Advisors, LLC. He has over two decades of tax planning and outsourced CFO experience. Isaac holds a Masters of Accounting and Masters of Divinity from Liberty University. Isaac is on the Elder Board of his church Westside Chapel, serves on the board of Elevate Jacksonville, Inc, and is a director of FSA Gives Back, Inc. He is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants.
Isaac resides in Jacksonville, Florida with his wife Bethany and sons Elijah and Benjamin. Isaac and Bethany have been extraordinarily blessed through the adoption of their two sons from Ethiopia.
