No two families are alike or have the same concerns about their estate planning. But many common concerns can be addressed by properly drawn relatively simple trust provisions incorporated into a revocable trust.
In real life this is only one tool of many to craft a proper estate plan. There are many ways to reach your goals for your family. I don’t mean to imply that a single trust is a stand alone solution. A proper estate plan must also include will, power of attorney, medical directives and other instruments.
At the grantor’s death
When the grantor of a revocable trust dies, the trust lives on indefinitely to carry out the grantor’s wishes. Of course, the trust should provide for successor trustees at the death of the grantor if he/she is also the trustee.
At that point the entire nature of the trust changes and the trust immediately becomes irrevocable. It then dictates the basis for a distribution scheme that can continue well into the future for subsequent named beneficiaries.
All property in a revocable trust bypasses probate at the death of the grantor. This can be a huge saving in both time and expense.
Any property passing through a probate estate becomes part of the public record. A trust keeps the entire transfer process private. That’s important to many families that don’t necessarily want to see their affairs published in the local papers.
Avoid multiple estate administrations (probates)
If a person dies holding property in several states, (for example a vacation home in Colorado and a business in New Hampshire) then each one of the states may open a probate estate for the property in their state (ancillary administration or probate). But, if the trust holds title to the property, that wouldn’t happen, which is another giant advantage to trust ownership.
Receive property from other sources
If desired, any property not in the trust can flow into it after death. The trust can incorporate property and assets from your will, life insurance, pensions, IRAs, and other trusts. All that can be managed, distributed, and invested according to your wishes for generations. Be aware you will need very precise language in the trust document to preserve the tax benefits of pension plan and IRAs.
Distribute proceeds according to your wishes
The possibilities for distribution are almost endless.
The trust can be divided into separate trusts for each beneficiary, and apportioned unequally if desired.
You can distribute it all at once, hold it for your great grandchildren, divide it into unequal parts, make gifts to charity, generate income for selected classes of beneficiaries, and even exclude family members.
Creditor protection for heirs
To be clear, there is no asset protection provided by a revocable trust during the grantor’s lifetime. But, almost bullet proof asset protection can be provided for subsequent generations.
To provide creditor protection the subsequent beneficiary may not have unrestricted rights to withdraw the principal of the trust, however they can have the right to income and additional support necessary for their “health, education, maintenance and support” according to an “ascertainable standard”. So, in practical terms you might provide for a liberal income for your spouse, children and grandchildren which is shielded against almost all potential creditors.
Asset protection available under the trust might shield them from creditor suits or other litigation judgements, unfortunate marriages, partnership or other investment debts, or medical expenses.
Suppose you had one problem child. You love him, but don’t think he can make responsible investment or spending decisions. That child can receive income for life, but never get access to the assets, while your other children can get their share outright.
Should a child have an unfortunate marriage, as long as he/she receives income but doesn’t have the right to withdraw the trust assets, the assets would never become part of the marital property. The property remains in the trust and stays in the family.
Blended families may find trust arrangements particularly useful. It’s a great way to solve those tricky distribution problems where each spouse brings property to the marriage, and children may include yours, mine and ours. Generally speaking, it’s better to decide distribution while both spouses are able rather than let sequence of death decide which descendants get what.
For instance, take a case where each spouse brings assets and children to the marriage. Each creates a trust and funds it with their assets. The trust could provide for lifetime support for the spouse, and then at the death of the surviving spouse distribution to the children of the grantor. Even if the surviving spouse were to remarry, the trust assets would eventually pass to the grantor’s children.
If desired a trust makes a very efficient way to bestow charitable gifts for all of a portion of the estate after the death of the couple’s survivor and/or children.
Estate Tax Mitigation
Not many of us have to be concerned about the estate tax with an exclusion of $11,400,000 ($24,800,000 for a couple). But, if you have that happy problem, or if you are concerned about a possible future decreased exclusion, then the trust might be split into one or more trusts to mitigate the effects of the taxes on future generations.
Consider this a sampler. We have only touched the surface. And these are the simplest types of trusts.
I’m not an attorney, don’t practice law, and this isn’t legal advice. But, these are all common situations that financial planners assist their clients to sort out. Then it’s up to qualified attorneys to weigh in on the details and prepare the documents to meet the client’s exact needs and desires.
A word to the wise: Don’t try this at home. Get properly qualified professional help.
Our advisors would be happy to review your present estate planning documents to insure that they reflect your wishes for your family. Call for an appointment or to schedule a teleconference to discuss. We are here for you. Let us help you with your estate and financial planning.