Stephanie is not rich. In fact, a bulk of her work on Poorer Than You focuses on helping middle- and low-income families with their finances.
Yet she and her husband have a trust.
You might find yourself asking, ‘Why?’
Well, as we’ve discussed before, trusts are not just for rich kids. And Stephanie was fortunate enough to find that out fairly early on in her parenting journey.
The Facebook Community that Led to Estate Planning
Stephanie joined a bunch of parenting Facebook groups when her first child was born. While she was matriculating, she started noticing an important theme she had perhaps been overlooking: If both parents pass away while the children are still minors, it’s way more advantageous to distribute your money to them via a trust.
“Other parents in these groups shared that they had set up a trust to either hold assets and life
insurance money until the kids were old enough to receive it,” Stephanie says, “or to assign a different ‘money manager’ than the person they were assigning guardianship to.”
She asked around for legal recommendations in the Facebook groups, and found a trusted lawyer in her community.
Want to set up your own trust? We can help you with that on theTomorrow app!
Why does Stephanie have a trust?
Stephanie and her husband don’t have a whole lot of wealth saved up, but they do have life insurance policies large enough to provide for their kids throughout their childhood should the worst ever come to pass.
“The most important thing with our trust is that it will make sure that the life insurance money
lasts long enough to do what it’s supposed to do for our kids,” she explains.
“The trust ensures that this money can be doled out for those things as appropriate, rather than
dumping lump sums into the kids’ names immediately upon our death.”
Aside from the life insurance policies, Stephanie and her husband also have money in their retirement accounts and HSAs. Upon their deaths, a trustee would take over, consulting with a financial professional to make sure the money in these accounts would be distributed in the most efficient manner possible.
The trust will also protect these accounts from the probate process, which is expensive and could prevent their children from accessing their inheritance for months or even years.
“Finally, and this is the hardest thing to have to think about, but necessary,” says Stephanie, “the trust has a provision for what should happen to the money if our children were to pass away with us.”
Choosing a Trustee
Being someone’s trustee is a huge responsibility. So is raising their children. They’re not only important roles, but they’re also tasks that can take up a lot of time.
For this reason, when Stephanie and her husband were choosing a trustee, they picked someone completely separate from the guardian of their children.
“The trustee doesn’t live in the same state where we would want our children to stay,” Stephanie says. “It also provides checks and balances, spreading the responsibility of raising the kids and managing this relatively large sum of money across different people that we trust.”
The Entire Estate
Stephanie and her husband have a revocable living trust. That means it can be changed to adjust to life circumstances, such as when they welcomed their second child into the world.
But a trust isn’t all that’s in their estate plan. They’ve got all the bases covered.
“In addition to the trust, we also have wills, memos of tangible personal property, powers of
attorney, and advance medical directives in our estate plan,” she says.
You can create all of these documents from the comfort of your own home with theTomorrow app.
If one of them passes away, these documents ensure assets and life insurance policy payouts will go to the surviving spouse. If both of them pass away, their money will go into the trust.
“The memos of tangible personal property cover any physical items of sentimental value that we want to make sure go to a certain person—those are pretty much the only things that won’t be going into the trust.”
By establishing a trust and entire estate plan, the couple has ensured their children’s needs will be covered in case of the unthinkable. And they didn’t need to be rich to do it.