How Trusts Align With the Pragmatic and Popular Swedish Death Cleaning Movement

The usefulness of trusts is undeniable. The ability to avoid the lengthy probate process for beneficiaries is a huge advantage for your heirs. Plus, it makes the tax benefits feel like an extra bonus. The utility of this financial planning tool reminded me a bit of the premise behind Swedish Death Cleaning—the modern approach to organizing life and easing the burden on loved ones. 

We often have a love/hate relationship with planning for the future, especially when planning for our departure from this earth. Even typing that makes me pensive. If you’ve ever dealt with the untimely demise of a loved one—or a loved one who chose not to plan—you can fully appreciate the utility of a trust. We recently discussed the wide range of benefits with this planning tool, in case you want a quick refresher. 

Types of Trusts 

Some are simple and fairly easy to establish. There are also several options available to meet more complex estate planning needs and desires. Let’s dive in. 

A Revocable Trust, also known as a living trust, can be altered or revoked by the trustor during their lifetime. It becomes irrevocable upon the trustor’s death. Revocable trusts help in avoiding probate and managing assets during the trustor’s lifetime. For example: A couple with assets, which includes a family home, investment accounts, and a vacation property, might create a revocable trust. This would allow them to hold, manage, and make changes to the trust during their lifetime. Upon passing, the assets transfer directly to their children without the need for probate, reducing legal expenses.

Irrevocable Trusts cannot be altered or revoked by the trustor. Irrevocable trusts can offer tax benefits and asset protection from creditors and legal claims. One example would include a business owner that wants to shield assets from creditors. An individual looking to qualify for Medicaid by moving countable assets for eligibility purposes would also fit in here.

A Testamentary Trust works through a will and only takes effect upon the death of the trustor. These documents manage the distribution of the trustor’s estate according to their wishes. For example: A single parent includes provisions in their will to manage and distribute the assets to any young children after death via a specified trustee. This document ensures that the children’s financial needs are met until they reach the age of 25. After that, the remaining assets are equally distributed.

Charitable Trusts benefit a charitable organization or purpose. It can provide tax benefits and income to the trustor while supporting charitable causes. One example would be a charitable remainder trust set up to support cancer research—where the the trustor donates a significant portion of assets to the trust—which then provides the trustor an annual lifetime income with any remaining assets donated to cancer research. Another example would be a charitable lead trust, which provides income to a charitable organization for a specified period, after which the remaining assets are transferred to non-charitable beneficiaries or heirs.

A Special Needs Trust provides for the needs of a beneficiary with disabilities without disqualifying them from government benefits. For example: A parent of a child with special needs wants to ensure financial support without jeopardizing eligibility for government benefits. Once the trust is funded, an appointed trustee manages the funds and ensures they are used to care, educate, and support throughout the child’s life.

Spendthrift Trusts limit the beneficiary’s ability to access the trust assets directly, protecting the assets from any potential financial mismanagement. Parents that are concerned about financial management skills use this option to protect the inheritance. After the trust is funded, a reliable trustee will manage and make regular distributions to the beneficiary. This ensures the inheritance cannot be squandered or leached off to creditors.

A Family Trust manages and protects family assets and provides for family members over multiple generations. The trust could include a family home, multiple investments, and other valuable assets. An appointed trustee oversees the distribution of income and assets according to the family’s wishes. This provides financial stability and continuity for future descendants.

Ways to Fund a Trust

Now that the utility is there, it’s time to plan for funding. The good news is that there are several ways to do so. The funding of a trust involves transferring ownership of assets into the trust. Here’s how:

• Real Estate can be used by executing a deed transferring the property title to the trust
• A Bank Account can be established in the name of the trust, or you can simply transfer money from an existing account to the trust
• Investment Accounts can be retitled in the name of the trust or ownership is transferred through your financial institution
• Personal Property like jewelry, art, or vehicles can be listed on a trust schedule
• Life Insurance is a popular option, as you can designate the trust as the beneficiary of the policy
• Business Interests are yet another funding vehicle, as you can transfer ownership shares or interests to the trust through appropriate legal documentation

Each type of asset requires specific documentation and processes, often involving coordination with financial institutions or legal professionals. No universal minimum investment is required. However, practical considerations often dictate a minimum amount to justify the legal fees, administrative expenses, and trustee fees involved with set up and maintenance. It’s advisable to have enough assets to make these costs worthwhile, which often means having at least $100,000 or more (though this number can vary widely). We always recommend consulting with a legal or financial advisor to provide guidance based on your individual circumstances and needs.

Clearing the Path for the Future

With lifespans and health spans increasing, trusts can be a valuable planning tool—especially as accessibility continues to increase. It is certainly emotional to plan for a time when you are no longer here. Drafting a living will with my husband was not fun. But once you start, it becomes easier as you see the value and peace of mind that your planning will bring to loved ones.

Image from iStock by Nadia Bormotova.