Robo-Advisors Meets Robo-Trustees

Posted by Ned Armand, President of Eastern Point Trust Company on Apr 23, 2015

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Robo-advisors, such as Wealthfront, have been making headway lately by providing their clients with an automated wealth management service. Kiss Trust is doing the same for trust funds, making it affordable for all to establish a trust.

Key Takeaways

  • Automating financial services lowers cost, which means affordable investing and financial planning for more people.
  • Betterment, Wealthfront, Charles Schwab, and others are considered robo-advisors, are disrupting the financial planning industry by bringing affordable, automated financial planning to low income individuals.
  • Kiss Trust's proprietary, patented trust software brings low-cost, high-valued trust solutions to millions of Americans, and others across the world.


Automated Financial Services Disrupt An Entire Industry


Robo-Advisors Pave The Way For Automated Financial Planning

Robo-advisors, such as Wealthfront, have been making headway lately by providing their clients with an automated wealth management service. The service goes as far as investing a designated amount of cash into a collection of Index-based ETFs. The typical use for a robo-advisor is as an inexpensive alternative to hiring an investment advisor or broker. This technology has advanced into the trust industry.

The Only Robo-Trustee: Kiss Trust

Bundled trustee services include an intuitive, self-automated trust creation process, trust documents, lifetime fiduciary services including asset management, and institutional trustee services. Bundled trust products are not a legal service, but offer individuals the power to self-create and manage their own trust fund. With the advances in technology exploding in the personal finance sector, robo-services are becoming ubiquitous in wealth management, financial planning and estate planning.

Essentially, robo-trustees take wealth management a step further than robo-advisors. Robo-advisors assist in creating and implementing investing strategies. The account can be liquidated upon the owner’s demand. The individual is then faced with the challenges of planning for use of the assets. Preparing a will or trust, planning to minimize taxation of assets, controlling the use of those by future generations, and simply budgeting use of the assets to mitigate the dissolution of the estate are worries that arise in planning for our final estate. Using a robo-trustee eliminates those problems.

An all-inclusive robo-trustee provides a one-step solution to current financial planning needs as well as final estate planning requirements. It provides a means to trust creation, investment management, and trustee services.

As a relatively new service within the last decade, robo-trustees and robo-advisors are a disruptive force in the financial services industry. They offer the chance to create a self-service trust and institutional trustee services for a small fraction of the cost of traditional trust solutions.

See For Yourself! Compare Costs of Kiss Trust vs Your Local Attorney or Bank

 

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Tags: Estate Planning, Trustee, Financial Advisor, Wealth Management, Robo-Trustee, Robo Advisor

Advisor Series #3: Revocable Living Trusts – Unseen Risks

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 5, 2014

Today it is almost automatic for financial advisors to create “Revocable Living Trusts” (RLT) for their clients along with a “Durable Power of Attorney” (DPOA). 

Durable Power of AttorneyRevocable Living Trust, Irrevocable Trust, Kiss Trust

The DPOA is designed to address the circumstances of clients who no longer may have the capacity to act for themselves. For example, if an otherwise healthy person is in an accident and left incapacitated, temporarily or permanently. In such an occasion, the DPOA ensures that you have already chosen an “agent” and given them broad powers to act on your behalf, and in your place. Additionally, a DPOA usually indemnifies the person acting as your agent against any resulting liability arising from their actions. 

DPOA and RLT Combination

The combination of a DPOA and RLT arrangement can work with no issues when the spouse and/or family of your client cares for, protects, and preserves your client's intentions. Unfortunately, not every family fulfills this promise. 

So long as both spouses are alive and competent, any actions (changing or revoking the trust, purchasing or disposing of assets) will necessitate both spouses’ approval. The unseen risk arises when one spouse dies or becomes incompetent, the other spouse may act alone. In blended family circumstances, there are instances where this power has been abused to the detriment of the incapacitated spouse’s heirs from the prior marriage. 

Impaired Spouse Risk

Consider now the situation where one spouse is previously deceased and the surviving spouse develops a lack of capacity. Now, the DPOA is triggered and the person (agent) holding the DPOA has the power to change or revoke the RLT, or use, purchase or dispose of the RLT's assets unilaterally. 

A Better Design

While an RLT and DPOA are powerful tools, there are better design alternatives than the two of them combined. Consider this alternative design: Upon the first spouse becoming incapacitated or upon their death, the RLT is set to “Pour-Over” all of the RLT assets into an irrevocable trust with a “Spousal Support” provision. This three-part design will ensure that neither the other spouse nor the DPOA agent will be able to misuse the assets of the trust, whether by neglect, incompetence or intent. 

Also, we all know that there is often a material lag between the time that a previously capable widowed spouse may start showing signs of incompetence and the point where their ability to act is removed from them – during this time many bad financial decisions, often irreversible, may occur. This risk is compounded by unscrupulous people who seek to take advantage of such situations. However, with the Pour-Over design, only the spousal support portion of the trust could be accessed by the spouse, or anyone else, and the other provisions of the trust remain secure. 

In Conclusion

Revocable Living Trusts are powerful tools to avoid probate and protect the privacy of clients. However, RLTs have shortfalls that should be carefully considered. 

Designing your client’s RLT with a Pour-Over features into a pre-established “Sleeping Irrevocable Trust” will ensure your client’s intentions are fulfilled and eliminate many potential risks left open by an RLT and DPOA alone.

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Tags: Estate Planning, revocable trust, Financial Advisor

Advisor Series #2: Revocable and Irrevocable Trusts! Why Not Both?

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 3, 2014

There is much misinformation and misconception surrounding revocable living trusts and irrevocable trusts.

Advisor, Irrevocable Trust, Blended Family Trust, Revocable Trust, Kiss Trust

Picking the Right Tool

At first glance, one could seemingly identify the main purpose of these trusts merely by observing their names. Revocable living trusts (RLT) are just that, revocable, and can be revoked and amended at any time by their grantor(s). Irrevocable trusts are irrevocable and cannot be revoked or amended by their grantor(s) (however, they may be amended by the trustee if provided for in the document).

10 Gallons of Water in a 5 Gallon Bucket

Often, revocable living trusts are used for tasks that they were never meant to achieve, such as managing the grantor’s assets after their death. Revocable living trusts are wonderful tools to manage assets of the grantor(s), avoid probate, and provide maximum flexibility during the grantor’s life. However, upon the first grantor’s death, the power left to the surviving spouse to revoke or amend the trust is a risk that can be abused.

Bring in the Ringer

Irrevocable trusts are a perfect second act to a client’s estate planning; the better design is for the RLT to “pour over” into the irrevocable trust after the first spouse (one of the RLT grantors) has died. Having an irrevocable spousal support trust established in advance to manage the assets after the death of the first spouse, will allow for the surviving spouse to be provided an income stream and assets to meet their needs. Additionally, the irrevocable trust protects the integrity of the deceased spouse’s intentions, and distributes the assets according to the language of the trust upon the death of the surviving spouse.

Let’s recap what we have learned;

  • RLTs are great tools for your clients, and should only be used for avoiding probate and providing flexible asset management during the lifetime of the grantors, but RLTs are often misused, and doing so introduces new risks.

  • The RLT should be designed to “pour over” its assets into the pre-established irrevocable spousal support trust. With this plan in place, the surviving spouse is provided for and both spouses’ intentions are protected from being altered by the surviving spouse (or their attorney).

  • Irrevocable trusts can be created as “sleeping trusts” which sleep awaiting the passing of the first spouse.

  • Finally, the use of an RLT as the sole trust in a blended family opens the door for even greater risk
Help your client's evaluate all of their trust planning risk factors by downloading our Final Estate Planning Checklist below.


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Tags: Blended Family Trust, Irrevocable Trust, Inheritance Trust, revocable trust, Financial Advisor

A True Story: The Blended Family Folly

Posted by Ned Armand, President of Eastern Point Trust Company on Oct 31, 2014

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Financial advisors know blended family situations are inherently complicated. Protecting the assets of any family is difficult enough, but when you introduce other marriages and children into the mix, it can turn routine estate planning into a nightmare.

The following is a real-life example of the toxic outcome of poor estate planning associated with a blended family.

The Blended New Family

Planning for the future, the husband and wife created a revocable living trust and placed their combined assets within it. The revocable living trust was to distribute all assets after the death of the latest living spouse, with half of the estate going to each spouse’s biological children (per capita).An advisor’s client had been married, had children, and then divorced his wife.The client later married another individual who had children from a previous marriage as well. The marriage never sat well with the children from either side of the family, and caused strife between the spouses.

The husband predeceased his second wife and the widow revoked the revocable living trust, and then replaced it with a will. In the new will, the widow stipulated that 100% of the assets (that were previously held in the revocable living trust) were to be given only to the children from her previous marriage, leaving her late second husband’s children with nothing. Regardless of his intentions, in the end, the second wife’s newly constructed will blocked the husband’s own biological children from receiving $2.2 million in assets.

The husband’s surviving children took this matter to court. Unfortunately, the judge ruled that since it was in fact a revocable trust, the husband had left his widowed wife the power to revoke the trust. The wife’s power to revoke the revocable living trust was thus upheld.

It’s Not Always Happily Ever After

While the damage is now permanently done, this could have all been avoided had the advisor guided the couple into setting up a blended family irrevocable trust. Once assets are placed in an irrevocable trust they cannot be removed, unless they are being used for the specific purposes the grantor of the trust intended. With this level of control, the spouses could have created a steady source of income for the surviving spouse, stipulated how much of the assets held within the trust each set of  children would receive, and they could have even gone so far as to stipulate when and how the children could use the assets.

Additionally, they could have selected an independent professional trustee with fiduciary experience to oversee and manage the irrevocable trust and its distributions. This would have further guaranteed that the terms of the trust were followed and ensured the distributions were provided according to the intentions of the grantor(s). 

A Lesson Learned

Blended families have special estate planning needs and risks. The possibility that your client’s spouse would cut their deceased partner’s biological children out of their estate after your client’s death is a harsh reality to face, but a reality none the less. Leaving the planning and distribution of your client’s assets until after their death is ill-advised. Advisors and clients alike can look to the low-cost, turnkey trust creation platforms that exist online today to assist in solving blended family financial planning problems.

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Tags: Blended Family Trust, Irrevocable Trust, Financial Advisor

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Kiss Trust is the only patented total trust solution in America. Kiss Trust Is a self-help trust creation tool with integrated trustee services and access to over 5,000 mutual funds, 1,000 ETFs and a brokerage account with stocks and bonds. Kiss Trust lets you create a powerful custom irrevocable trust without the expense and trouble of hiring an attorney.

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