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Do You Really Need a Trust?

Do You Really Need a Trust?

Although many people equate “estate planning” with having a will, there are many advantages to having a trust rather than a will as the centerpiece of your estate plan. While there are other estate planning tools (such as joint tenancy, transfer on death, beneficiary designations, to name a few), only a trust provides comprehensive management of your property in the event you can’t make financial decisions for yourself (commonly called legal incapacity) or after your death.  Do you really need a trust?

One of the primary advantages of having a trust is that it provides the ability to bypass the publicity, time, and expense of probate. Probate is the legal process by which a court decides the rightful heirs and distribution of assets of a deceased through the administration of the estate. This process can easily cost thousands of dollars and take more than a year to resolve. Or course, not all assets are subject to probate. Some exemptions include jointly owned assets with rights of survivorship as well as assets with designated beneficiaries (such as life insurance, annuities, and retirement accounts) and payable upon death or transfer on death accounts. But joint tenancy and designating beneficiaries don’t provide the ability for someone you trust to manage your property if you’re unable to do so, so they are an incomplete solution. And having a will does not avoid probate.

Of note, if your probate estate is small enough – or it is going to a surviving spouse or domestic partner – you may qualify for a simplified probate process in your state, although this is highly dependent on the state where you live and own property. In general, if your assets are worth $150,000 or more, you will likely not qualify for simplified probate and should strongly consider creating a trust. Considering the cost of probate should also be a factor in your estate planning as creating a trust can save you both time and money in the long run. Moreover, if you own property in another state or country, the probate process will be even more complicated because your family may face multiple probate cases after your death, one in each state where you owned property – even if you have a will. Beyond the cost and time of probate, this court proceeding that includes your financial life and last wishes is public record. A trust, on the other hand, creates privacy for your personal matters as your heirs would not be made aware of the distribution of your assets knowledge of which may cause conflicts or even legal challenges.

Another common reason to create a trust is to provide ongoing financial support for a child or another loved one who may not ever be able to manage these assets on their own. Through a trust, you can designate someone to manage the assets and distribute them to your heirs under the terms you provide. Giving an inheritance to an heir directly and all at once may have unanticipated ancillary effects, such as disqualifying them from receiving some form of government benefits, enabling and funding an addiction, or encouraging irresponsible behavior that you don’t find desirable. A trust can also come with conditions that must be met for the person to receive the benefit of the gift. Furthermore, if you ever become incapacitated your successor trustee – the person you name in the document to take over after you pass away – can step in and manage the trust’s assets, helping you avoid a guardianship or conservatorship (sometimes called “living” probate). This protection can be essential in an emergency or in the event you succumb to a serious, chronic illness. Unlike a will, a trust can protect against court interference or control while you are alive and after your death.

Trusts are not simply just about avoiding probate. Creating a trust can give you privacy, provide ongoing financial support for loved ones, and protect you and your property if you are unable to manage your own assets. Simply put, the creation of a trust puts you in the driver’s seat when it comes to your assets and your wishes as opposed to leaving this critical life decision to others, such as a judge. To learn more about trusts – and estate planning in general, including which type of plan best fits your needs – contact me today.

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How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

Parents who develop an estate plan often do so to provide for their heirs financially. Many want to make sure hard-earned assets, family heirlooms, or closely held businesses stay within the family. Indeed, a common question is what cost effective options are available to protect one’s child’s inheritance from a spouse in the event of untrustworthiness or divorce. Thankfully, there are many ways to structure your child’s inheritance to help ensure it will remain in the family for future generations. Let’s look at a few of the options now.

Create a Trust

A trust involves three parties: (1) the person creating the trust (you might see this written as the “settlor,” “trustmaker,” or “grantor.”), (2) the person or entity holding the trust property for the benefit of the beneficiary, known as the “trustee”, and (3) the person(s) that benefit from the creation of the trust, known as the “beneficiaries.” Choosing a trustee who is independent can be a great way to eliminate any arguments that one beneficiary has more control to receive assets than what is actually provided in the trust documents than other beneficiaries, a helpful situation when you have an untrustworthy son- or daughter-in-law.

A lifetime trust is a type of trust that – as is evident from its name – lasts for the lifetime of the beneficiary and passes to the next generation of beneficiaries upon his or her death. It is commonly referred to as a “generation-skipping trust” and can also dramatically reduce or eliminate estate taxes. Assets in a lifetime trust are protected against commingling in the marriage and, therefore, cannot be pursued by a spouse. When assets are held by a trust your children – and, by extension, their spouses – cannot access these assets. Therefore, even in the event of a divorce, an ex-spouse cannot pursue them.

Use Prenuptial Agreements

In addition to creating a trust to protect your children’s inheritance from an untrustworthy spouse, your children can use a prenuptial agreement as a tool for asset protection. A prenuptial agreement is a document that details an agreement between your child and his or her spouse about the characterization of assets owned at the time of marriage and those earned after marriage. This legal document also provides the couple to agree upon the division of assets in the event there is a divorce. Because enforceability of prenuptial agreements varies by state, it is important to seek the advice of an attorney like myself before drafting and signing the contract. It may be an uncomfortable suggestion to bring up with your children, but it can be an incredible benefit in the event of a later divorce.

Other Planning Ideas

Beyond the actual legal tools, it is important for you to let your wishes be known to the family. One way to do this is to have a family discussion about your estate plan, explaining your intentions and reasons as to why it is set up in this manner. Additionally, using clear language in your estate planning documents that specify the intent or purpose in leaving the inheritance to benefit descendants – and not their spouses – can further solidify your wishes are followed. Finally, choosing a trustee that is independent will keep control over the funds in the trustee’s hands and not your child’s untrustworthy spouse. This will also allow you to manage or overcome any conflict that you may not have been expecting.

Bottom Line: Seek Out Estate Planning Help

If you wish to make sure your descendants receive a portion of your estate, discuss these intentions with your children and devise an estate plan that will guarantee this desire is fulfilled after your passing. Whether you have no estate plan, or have one that more than a few years old, sit down with me to create or update this plan to suit your goals.  Contact me for more information. I look forward to being of service to you!

 

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Choosing a Successor Trustee

Choosing a Successor Trustee

If you have a revocable living trust, you probably named yourself as trustee so you can continue to manage your own financial affairs, but eventually someone will need to step in for you when you are no longer able to act due to incapacity or after your death, this person is your Successor Trustee. The Successor Trustee plays an important role in the effective execution of your estate plan.

  • Because successor trustees have a lot of responsibility, they should be chosen carefully.
  • Successor trustees can be your adult children, other relatives, a trusted friend, or a corporate or professional trustee.

Responsibilities of A Successor Trustee

At Incapacity: If you become incapacitated, your successor will step in and take full control of your trust for you – making financial decisions involving trust assets, even selling or refinancing assets, and other tasks related to your trust’s assets. Since your trust can only directly control assets that it owns, it’s vitally important that you fully fund your trust. Your successor may also be involved in paying bills and helping to ensure you get the care you need.

After Death: After you die, your successor acts just like an executor of an estate would – takes an inventory of your assets, pays your final bills, sells assets if necessary, has your final tax returns prepared, and distributes your assets according to the instructions in your trust. Like incapacity, the successor trustee is limited to managing assets that are owned by the trust, so fully funding your trust is vitally important.

Your successor trustee will be acting without court supervision, which is why your affairs can be handled privately and efficiently – and probably one of the reasons you have a living trust in the first place. This also means it will be up to your successor to get things started and keep them moving along.

What You Need to Know:

Your successor will be able to do anything you could with your trust assets, as long as it does not conflict with the instructions in your trust document and does not breach fiduciary duty.

It isn’t necessary for the successor trustee to know exactly what to do and when, because your attorney, CPA, and other advisors can help guide him or her, but it is important that you name someone who is responsible and conscientious.

Who Can Be Successor Trustees

As stated, Successor trustees can be your adult children, other relatives, a trusted friend and/or a professional or corporate trustee (bank trust department or trust company). If you choose an individual, you should name more than one in case your first choice is unable to act.

What You Need to Know:

They should be people you know and trust, people whose judgment you respect and who will also respect your wishes.

  • When choosing a successor, keep in mind the type and amount of assets in your trust and the complexity of the provisions in your trust document.
  • For example, if you plan to keep assets in your trust after you die for your beneficiaries, your successor would have more responsibilities for a longer period of time than if your assets will be distributed all at once.
  • Consider the qualifications of your candidates, including personalities, financial or business experience, and time available due to their own family or career demands. Taking over as trustee for someone can take a substantial amount of time and requires a certain amount of business sense.
  • Be sure to ask the people you are considering if they would want this responsibility. Don’t put them on the spot and just assume they want to do this.
  • Trustees should be paid for their work; your trust document should provide for fair and reasonable compensation.

Rest assured, I can help you select, educate, and advise your successor trustees. Also, when the time comes for your successor trustee to step in as current trustee, I will guide them through the process so everything runs smoothly. Should you have any questions about your current estate plan and your chosen successor trustees or you need to create a new plan or amend your plan, please feel free to give my office a call at 858-432-3923 or contact me online.

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