Tag Archives: trust

Do We Need a Trust?

Trusts come in different shapes and sizes, and some will work for you and some will not.  A good estate planning attorney, or perhaps your banker or financial planner, will need to know quite a bit about your individual situation before being able to recommend a trust. 

Trusts can be invaluable for asset management purposes.  Suppose for example, that your 25 year old son is not good with money right now. An inheritance held in trust and managed by a family friend or a professional trustee can help him manage his funds so that he has a nest egg for his first home or a bit tucked away to help him through a layoff later in life.  Or perhaps you are concerned that an adult child’s marriage is  rocky, and want to see that your money goes to your children and grandchildren, not to the soon-to-be-former spouse.  A correctly drafted trust can help with that.

It also is a good tool for incapacity planning.   If you create a trust and put assets into it, your trustee can see that the assets are managed if you ever become incapacitated.

Assets held in trust also avoid probate.  Because a trust is an entity, not an individual, when the person who funded the trust dies, the trust can continue to operate according to its terms.  This can provide privacy (probate filings are public), and continuing access to trust assets by the beneficiaries or the  remaining spouse.

Irrevocable trusts (ones that can’t be changed or revoked) can be used for estate tax planning, to hold life insurance policies, for Medicaid planning, or for other types of asset protection. 

When you think about doing a trust, think about your goals, who would be a good trustee, and find someone who is knowledgeable about tax law and estate planning to help you with the process.  Think about what assets should go into the trust, and how the beneficiaries are likely benefit (or not) by having assets held in trust.  Not every situation is right for trust planning; sometimes the simple approach is the best one.  Estate planning, whether trust based or will based, should be carefully tailored to reflect your situation, because each family, each inheritance, and each set of goals are a little bit different.

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I’ve GOT a will…

But I made it two spouses, three children, and two businesses ago.  When your life changes, your estate plan should ideally keep up with those changes.  You do not need to revise a will every time something changes in your life –many documents are drafted to take some changes into account.  However, as part of your financial planning, you should revisit your estate plan every 3-5 years, and definitely in the case of a divorce or marriage

Divorce:  In some states marriage or divorce nullifies a will, health care proxy or power of attorney.  In other cases it may not.  If you and your spouse are on good terms and you want him or her to make the decisions about your medical care, it is best to revise your health care proxy to make it clear that this is your desire.  Similarly, you may not want your soon to be former spouse to have the ability to write checks from your bank account, but even if divorce nullifies a power of attorney, simply being in the process of divorcing will not.  Revoke or change your health care proxy, will, and power of attorney if you realize that your spouse is no longer a trusted partner and you are heading your separate ways.

Wills, trusts, health care proxies and powers of attorney are powerful documents; take a look at them from time to time and be sure they are still relevant to your life.

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But Doesn’t Everyone Need a Trust?

I recently had a client explain that they wanted a trust because Suze Orman said that everyone needed a trust.  Now, in general, trusts meet many needs, and are often a good idea.  Especially if there are minor children, adult children who might do better with structured payments, or long term care planning concerns, trusts can fill a valuable need.  However, just as not everyone NEEDS a prenuptial agreement, not everyone needs a trust. 

Trusts help  you avoid much of the probate process, but there are other ways to do this, too.  If your assets are jointly held with your spouse, and one of you dies, the assets will go “by operation of law” to your spouse without going through probate.  In a similar way, anything with a beneficiary designation (life insurance, annuities, most retirement accounts) will go to that beneficiary directly.  The probate court will oversee any assets that pass through your will, and sometimes this can be a good thing.  It does take time to probate an estate, but if the assets are fairly limited, the cost of setting up a trust may not be appropriate.

Regardless of whether you do or do not need a trust, please call an advisor you trust before you make important estate planning decisions, I know that you aren’t cookie cutter clients, why should you have a cookie cutter estate plan?

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Putting a residence into Trust

First, a trust is a form of ownership that separates legal title from beneficial ownership.  So something held in trust is “owned” by trustees for the benefit, according to the terms of the trust, of the beneficiaries.  A trustee is a fiduciary, and is required to follow the terms of the trust.  Trusts have been around for centuries, and are used to serve several different purposes.

You might consider putting your home in a trust so that when you pass away it will go directly to the beneficiaries, without going through probate.  You might also put a residence into trust so that you don’t technically own it anymore, but you can still benefit from it in some way (you might be able to continue living there, for example).  Assets held by trusts often provide protection from creditors.  If your son is a beneficiary of a trust, a creditor or divorcing spouse typically could not reach the principal of the trust, as he does not technically “own” the assets.  People also put homes into trusts for Medicaid planning, or for estate tax planning.  These types of trusts need to be irrevocable and carefully drafted. 

Trusts take on-going work and administration once they have been created.  Irrevocable trusts, in particular, require their own tax ID number, and tax returns must be filed annually.

When you put a residence into trust, you take the title of the property from your name, and put it in the name of the trustees.  This is accomplished by drafting and executing a deed which is then recorded in the local registry of deeds. 

Trusts can be confusing or relatively straightforward; they can provide asset protection, a way of planning your legacy, or a way of protecting your family from unexpected events.  They’re an outstanding way of creating structure for a family member who has special needs, or unpredictable spending habits.  If you decide to do trust planning, choose your attorney carefully, and be certain that your advisor has experience working with the type of trust you need.

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What’s in a “Basic Estate Plan”

I know that lawyers hate to admit that there is any such thing as a basic, vanilla estate plan.  The truth is, there is such a plan and some people have a need for one.  Equally true, however, is that you should probably have some good advice before you decide that you are one of those people.  When I talk about “basic”, I’m talking about the following items (this is somewhat specific to Massachusetts residents).  In later posts, I’ll describe each in some detail and give tips for getting organized to create one.

— Will

— Trust (maybe)

— Health Care Proxy

— Power of Attorney

— Emergency Guardianship Proxy (if you have minor children)

— A complete review beneficiary forms

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