Keep in mind that this article is not meant to substitute for either legal or accounting expertise; this is merely an overview and an attorney that specializes in Estate Planning should be consulted, along with other professionals (insurance agent, accountant, financial advisor) as needed. This article will give you options to discuss with these professionals.
This is the last in a series of articles, the earlier ones being How to Begin Planning for your Estate: The Basics, How to Plan for your Estate: Intermediate, and How to Plan for your Estate: Advanced. These earlier articles explained both the reasons for and the solutions to Estate Planning…a quick summary looks like this:
Reasons for Estate Planning:
1. Directing where your assets go, both while you are alive and once you are gone.
2. Making sure the quality and type of healthcare you want is available to you.
3. Avoiding the loss of your Estate to medical expenses, taxes, or lawyers.
4. Making your loved ones aware of your wishes, in case you cannot tell them later.
Solutions to Estate Planning:
• A Will
• A Living Will
• A Medical Proxy
• Long Term Care Insurance
• Long Term Care Communities
• Gifts
• Trusts
This article will focus on Trusts. Trust law is complex, more so than any other issue involved in Estate planning. The basic definition of a Trust is an arrangement where property is given by one (we’ll use the term Donor, although there are several terms that could be used), managed by another (the Trustee), for the benefit of another (the Beneficiary). Now, why would you use a Trust, instead of a Gift or just providing for someone in your Will? There are many reasons. Here are some common examples.
To provide privacy: Wills are public documents, Trusts are private. As a parent, you may not wish to disclose publicly how much each child is getting. If your Estate is large, this can also prevent scam artists and other unsavory people from realizing how much your beneficiaries have inherited.
To provide terms for disbursement: A Trust can be established so that minors or other beneficiaries designated (possibly those that might not manage their money well) receive their inheritance in a structured manner. Monies can be held until the beneficiary reaches a certain age, or can be dispersed at set amounts over time. They can also be designated for specific expenses such as education.
To provide asset protection: Trusts can separate money from your Estate, to minimize taxes, attorney’s fees, and the access to this money by your creditors. Trusts can reduce the size of your Estate while still allowing you to receive benefits from this money/property while you are alive.
Now that you have some understanding of why you would use a Trust, here are some common Trust types to discuss with your attorney:
Fixed Trust: This type of Trust allows you to determine specific payments from the Trust to the beneficiaries. These payments can begin or end at a certain age, or continue throughout the beneficiaries’ lifetime. A correctly established and managed Trust can even extend beyond one generation and flow through to the next, so that even unborn grandchildren can benefit from your generosity.
Incentive Trust: This type of Trust can provide motivation and compensation for certain behaviors, by allowing the beneficiary to qualify for a larger payment from the Estate if certain conditions are met…i.e. graduating from college or getting married. This can be challenging to do correctly and arrangements must be made for the Estate should a condition not be fulfilled by the beneficiary.
Protective Trust: This type of Trust allows the Donor use of current assets by putting these assets into the Trust and naming the Donor as one of the beneficiaries. Similar to a Life Estate (another good asset protection option), the Donor could put their home into a Protective Trust with their children as additional beneficiaries. The Trustee would be instructed that during the Donor’s lifetime, they have the use of the property, after which the Trust dissolves and the property goes to the other beneficiaries.
Trusts are NOT something you can do on your own. A competent Elder Law or Estate Planning attorney is needed, preferably one who has dealt with planning Estates that are/were in similar size to your own. Ask for references and check them; find an Estate that they planned and have been disbursed so you can see if there were any complications. This is a tricky type of law, more so when your Estate is larger; and by the time you would realize something was done wrong, you probably wouldn’t be around to fix it.
Remember, these article are less about your mortality and more about your immortality. We all have the gift of being able to help others…if you anticipate leaving this Earth doing better than being completely broke, it is a wonderful option to give your Estate to one or many, rather than having it taken. For those of you who have had an inheritance at one point in your life, you can realize how it helped you achieve your goals or made your life easier in some way. Even if what you received wasn’t particularly life-changing, perhaps you were comforted by knowing this person did their very best to provide for you and show you that they cared, right up until the end. And for those who haven’t been provided for in the past, this is your chance to do what your parents didn’t or couldn’t. Use and enjoy your money while you have it…and when you’re gone, pass it on.
