Why Trusts are Beneficial in Estate Planning
Trusts and Titling
- Living Trusts are valuable tools in estate plans, and it is key to transfer the title of assets into the trust to ensure the benefits of the trust are attained.
- An estate plan that includes a trust also includes a pourover will. A pourover will essentially pours the probate assets (those assets held individually, without a beneficiary designation) directly into a trust upon death.
- It is important to note that assets held jointly with another individual or that include a transfer on death or beneficiary designation are important tools in an estate plan as a means of directly transferring assets to such individuals named on title or on beneficiary designations at your passing.
Trusts Can Help to Protect Beneficiaries
- Protect minor children’s inheritances by ensuring they do not receive a large inheritance at age 21, as would be the case if funds passed to a minor under the Uniform Transfers to Minors Act (UTMA) which holds the assets in an UTMA account until the minor reaches age 18 or 21, depending on how the assets are given to the minor.
- Include a “spendthrift clause” to protect assets in a trust form passing into the hands of a beneficiary’s creditors. A “spendthrift clause” contained in a trust states that the money and other property held in a trust is to be held for the benefit of the beneficiaries and not their creditors. If worded properly, at least in most states, this clause will protect the beneficiaries so that their creditors do not receive the money before they do.
More on selecting the right Trustee
Trusts Can Provide for Different Beneficiaries
- Situations involving a second marriage with children form a prior marriage may utilize a living trust by providing income and principal to the spouse during life, with a remainder to the children. This ensures that the spouse is taken care of during his or her lifetime, and the children ultimately receive the property.
- Benefit a spouse and a charity by using a split interest trust, such as a charitable remainder trust or a charitable lead trust.
If there are minor children who need more property for their education or other needs, a trustee may have the discretion to distribute to the beneficiaries in varying amounts, as needed.
Trusts Can Protect Property…Consider “Special” Assets
- You work hard for your money and you don’t want it wasted. A trust may mandate professional investment management or require a corporate trustee.
- How to deal with a family cabin? Keep it in the family and help resolve family conflicts by transferring the cabin to a trust and identifying a trustee who will access costs, scheduling use of the cabin, etc.
Trusts Can Provide a Lifetime Gifting Vehicle
- Most estate planning for large estates involves gifting to children, spouses of children or grandchildren.
- Trusts for minor beneficiaries are preferable to conservatorships because of age limitations.
- Trusts for minor beneficiaries may be more flexible than Section 529 plan gifts.
Trusts Can Provide Insurance Planning
- Life Insurance owned by a person is included in his or her estate at death. Large insurance policies can significantly increase a person’s taxable estate. Consider an Irrevocable Life Insurance Trust to help plan for tax savings.
Trusts Can Exercise Control over the Beneficiaries
- Trusts can provide or withhold benefits under certain circumstances, such as addiction.
- Mandate professional investment.
- May limit benefits to earned income from employment.
- May require second opinions on spending decisions for a spendthrift child.
Trusts Can Plan for Disability Funding
- Name a co-trustee. This may prevent the need for a guardianship or conservatorship down the road.
- Special Needs Trusts can be used for limited protection of your own assets and to enhance the quality of life while sill qualifying for certain governmental benefits, such as medical assistance.
Re-Titling Assets Into the Trust – Funding the Trust
- The most important key to using a trust is funding a trust. If this is never completed… assets are not transferred to the trust…then you essentially have “an empty gas tank” or “an empty purse.”