Dave Ramsey’s Misguided View of Estate Planning and How It May Hurt Your Family

March 28, 2010

Dave Ramsey is most widely known for helping people get out of debt, as heard on his daily radio program, and seen in his Total Money Makeover seminars and materials, and his Financial Peace University.  I’m a big fan of his advice on getting out of debt.

Yet, like many well-known people, Mr. Ramsey gives his opinion on a wide range of topics . . . and people listen and follow his advice – whether it is best for them or not.  You see, the problem with giving your opinion on an area that is not your forte, is that people will listen to – and follow – your advice, even to their detriment . . . not realizing that the advice is not proper for their particular situation.

Which brings me to Mr. Ramsey’s question and answer column in the Business section of the 3/22/10 Grand Rapids Press, in which a reader asks him “can you please explain the difference between a will and a Trust? Which do you recommend?”  I’ve been told by several other estate planners that Mr. Ramsey’s views of estate planning are misguided, but this is the first time I’ve seen it myself . . . in print!

He does make some great statements, like “everyone needs a will, but not everyone needs a trust.”  Agreed.  And, “a will . . . tells everyone what to do with your stuff when you die.”  And that, in my opinion is where the accuracy and the good advice stops (abruptly).

First, one factual inaccuracy – he defines a trust as “something you put money into after your death by virtue of your will.”  Not entirely correct.  There are living trusts (which he mentions later) and testamentary trusts.  What he is referring to in this case is a testamentary trust – a trust the terms of which are contained in your will and which does not become effective until you die and your will is probated (note: it does NOT bypass probate).

Second, he alludes to a will being the way to tell your loved ones what to do with your stuff when you die, yet fails to mention that this is accomplished by trusts as well – and a trust can do so for a MUCH longer period of time and with quicker access to the money or property that the trust contains.  A trust can ensure that your hard-earned assets benefit your family for generations to come – a will cannot.

Third, he clearly is not a fan of a living trust – a trust you create (and transfer assets to) while you are alive.  His blanket statement that they are overdone in the estate planning world is misguided, although I will agree that they are overdone by some practitioners. Just like everything else, your estate plan should be based on YOUR most important goals and objectives.  And if those goals and objectives don’t suggest a trust, then you don’t need one.  I have done several non-trust plans for my clients. And he doesn’t stop there.

He goes on by saying that living trusts “are not needed nearly as much as some people think.”  Who are these “some people?”  Maybe Mr. Ramsey doesn’t think they need a living trust, but he is not an estate planning attorney, so how would he know what questions to ask to make that determination?  I approach what my clients need from the context of their most important goals and objectives.  If those goals and objectives can be best met by a living trust (or only met by a living trust), then I recommend one.  I actually think living trusts are needed for more people.  Of course, I see the increased costs – in fees and taxes – that are paid by the family that doesn’t bypass probate and doesn’t plan to avoid estate taxes.  I also see the heirs burn through their inheritance in remarkably short periods of time – something very few families I work with would like to see happen.  Does Mr. Ramsey see this?  It sure doesn’t seem like it based on his comments.

He then says that living trusts are “more of a gimmick than anything else.”  Really?  How so?  That’s a strong statement to make without some support to back it up.  He gets the basic idea behind a trust when he says “the idea is that you put everything you own in trust now and, when you die, you save on probate taxes.”  Slight correction – you save on probate costs, fees, time delay, it being public, AND estate taxes.  Much bigger correction – you also can make sure your estate is there to benefit generations to come, make sure it is protected from their creditors, ex-spouses, and not taxed in their own estate, just to name a few benefits.  A trust can also provide a much quicker means of accessing your money if you become incapacitated.  As you can see, there are many benefits beyond Mr. Ramsey’s very basic statement.

Finally, he says “it’s a good theory, but the downside is . . . you have to operate your life in a trust.  And that’s a real pain in the butt.”  Again, really?  The most important part of having a living trust is to make sure your assets are “funded” (transferred) into the living trust.  A trust can only control what it owns.  So you make the transfer – it’s just like buying or selling anything else, except the trust is the one receiving it, not an actual person.  Going forward, you buy and sell from the trust.  How is that any more difficult that buying or selling in your own name?  I don’t think it is.  It could be more difficult if you can’t remember the name/phrase used to represent the trust, which is why I provide trust ID cards to all my clients so they don’t have to remember it.

Basically it comes down to this.  You need the estate plan that best meets your goals and objectives.  Not what Mr. Ramsey thinks is good or bad, not what I think is good or bad.  If a living trust best meets your goals/objectives, then you need one . . . if not, then you don’t.  Whatever you do, you should talk with a dedicated estate planning attorney to fully understand the benefits and costs to you and your family of NOT planning and of the various options you have for planning.  It is my fear that many families who read Mr. Ramsey’s article will not do that and will not look at the option of a living trust, simply because of his comments.  I think that is sad, and that Mr. Ramsey should know better.

Please share your thoughts.  What do you think?

Comments

One Response to “Dave Ramsey’s Misguided View of Estate Planning and How It May Hurt Your Family”

  1. Terry O'Brien on October 25th, 2010 11:31 am

    I agree with your points concern Trusts. When working with Business owners they have become almost required parts of their estate plan. Too much at risk, too much exposure, too much to lose. I have worked with a number of his readers who also fight kicking and screaming agaist the concept of creating tax free savings for retirement. Roth IRA conversions and yes, cash value life insurance in this enviroment of rising taxes can create an available pool of funds that can be accessed to reduce taxes while improving purchasing power during retirement. Please continue to inform people how important it is that they review their situation and make decisions for their business, family and friends. Often it is important to know the trees not just the forest.

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