Estate and Trust Planning
Monday, September 29th, 2008
A trust serves to separate legal and equitable title. In plain English, this means that a trust holds an asset (any asset like a house, car, or bank account) in the name of one person (called the Trustee), but that the asset is really for the benefit of someone else (called the beneficiary). Why have trust and pursue trust planning? The use of trusts gives flexibility and power in controlling how your assets are used if you become incapacitated or pass away or desire to control or protect your heirs. Different types of trusts can actually be created for all kinds of purposes, and you will hear terms like “Special Needs Trust”, “Land Trust”, and “Revocable Trust”. Trust planning requires that you simply be precise about your desires and what you wish to accomplish so that you get accurate retirement help from a trust attorney who can draft the documents properly. Proper trust and estate planning can result in several benefits:
- reduction of estate taxes
- protection of assets from creditors
- managment of assets for those who don;t have the knowledge or ability to do so
- control of how your bequest i8s used after you’re gone
- avoidance of probate
A Trust is simply words on a piece of paper–words that rare recognized by the legal system as valid documentation of your desires. The most common trust used in estate and trust planning is a revocable living trust, sometimes referred to as a revocable inter vivos trust. Within the generic living trust are “sub parts” or flavors, such as A-B Trusts, Disclaimer Trusts, QTIP, and QDOT Trusts. Living trusts are the most flexible type of trust used in trust planning because the trust can be amended or revoked at any time by the competent trustor (the trustor is the creator of the trust- synonymous with grantor or settlor). Revocable living trusts are the most basic type of trust and often acts as the starting point for estate and trust planning.
Typically, you will be the initial trustee (e.g. person who controls the assets in the trust) of your trust and you will name Successor trustees to manage and control your assets when you are unable or after you pass. As long as you are living and have the mental and physical capacity to act as trustee, you will continue to do so and have full control over all of your assets as you would without a trust including spending, moving assets around, buying and selling real property and investments. At the time you become incapacitated or upon your death, the named successor trustee (usually a family member but often an attorney or CPA) will gather your assets, pay valid debts, claims and taxes and distribute your assets according to your wishes as directed in your trust. Selecting a knowledgeable succesor trustee is a crtical issue in trust planning as you want someone who will make good business decisions to settle your estate.
Although a trust allows assets to pass without probate (which can be lengthy and costly court process), a complete estate plan includes a pour-over Will, as a safety mechanism to move any assets into the Trust that may have accidentally been left out. A will is also necessary to name guardians for any surviving minor children. Even in the process of trust planning, wills are used.
A Trust can contain provisions that can reduce or eliminate some estate taxes (by divisions of an estate into parts) and a trust permits you to specify conditions for the distribution of your assets. A living trust does not require a separate tax return during your lifetime, but other types of trusts which are irrevocable are separate financial entities and will have their own taxpayer ID and complete a tax return. While trust planning may sound complex, it is a common and straight forward process when done by an experienced estate planning attorney.
Typically, trust planning is am arena of financial planning that does not lend it self to tools like a retirement income calculator, financial planning software or monte carlo simulations as this planning is very individualized and is qualitative vs quantitative in nature.
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