A trust is a legal entity you can create for the benefit of yourself or others which holds and distributes assets you put into it according to state law and the terms of the trust itself. So what the heck does that mean? It means that a trust is an extremely flexible estate planning tool. There are many different kinds of trusts which can be used to accomplish an amazing array of goals from tax planning, to legacy building, to asset protection.
Many of our clients, if they are interested in a trust when they first approach us, are thinking of a revocable living trust. A revocable living trust set up by a qualified trusts attorney is a very flexible estate planning strategy which serves, in many ways, as a will substitute. A trust allows you to accomplish your goals with little or no court intervention and to do so without sharing the details with the world through a probate process.
For some, the probate process can be sluggish, unnecessarily costly, and lack a desired level of privacy. For these reasons, many people arrange their affairs so that their family and loved ones do not have to go through probate. A Revocable Living Trust provides a comprehensive alternative to the probate process. This trust can pass your assets to your intended beneficiaries without court intervention.
Providing for Incapcity
Many of you reading this page are years, even decades, away from your statistical life expectancy. Though most of you are thinking about what happens to your family and your assets when you pass away, there is a higher probability (on any given day) that you will become incapacitated than that you will pass away. If your estate plan does not provide strong, provable authority to someone you know and trust to manage your assets if you cannot, then that plan is not really protecting you or your family. You are leaving your loved ones open to the likelihood that, if you become incapacitated, they will have to go to probate court just to get authority to use your assets to take care of you. Yes, this is true even if you are married! A spouse does not automatically have the legal authority needed to manage all assets in most cases.
A durable power of attorney, well-drafted, provides some protection in this area and is certainly better than no incapacity planning at all. A revocable living trust, however, provides a stronger, more reliable, and seamless transition of power over your assets to the person you choose in the event of your incapacity. This way you are assured that the right person, with your best interests at heart, has the proper authority over your assets and can use them to take care of you and your family.
Minimizing Estate Taxes
One thing we’ve learned over the years as trust attorneys is that the laws and regulations surrounding the estate tax (or death tax) can change in unexpected ways. 2010 saw an unexpected repeal of the estate tax and change in tax basis rules that has led to higher taxes for many inheriting from loved ones. Your estate tax exposure, and the extent of that exposure, is linked to the amount of assets in your estate and how your estate plan deals with those assets. The use of a revocable living trust is an excellent first line of defense in the battle to eliminate (in many cases) or at least minimize any estate taxes your family might have to pay after your death. 2011 brought an increase to the amount you can pass on to family and friends without the burden of estate tax. However, in 2012 Congress passed legislation to create a permanent estate tax exemption of $5.25 million and indexed the exemption to inflation. The fact is, we don’t know what the future will hold, but we do know one thing for sure and that is that change is inevitable. For this reason, it’s important to work with trusts attorneys who have a client centered approach and will make sure that your estate plan is up to date.
Protecting Your Loved Ones
After your death, your trust can distribute your assets to whomever you direct (spouse, children, other family, friends, charities) and do that in such a way that each beneficiary’s interests are protected. Just some of the possibilities are:
- protect a spouse from losing the assets you’ve built together in a subsequent marriage/divorce
- protect children’s inheritance from many types of creditors
- give loved ones an incentive for doing things you consider worthwhile (finishing an education, remaining gainfully employed, staying away from drugs and other self-destructive behavior)
- prevent a child from losing his/her inheritance in a divorce
A revocable living trust, while an excellent tool, is just one of the types of trusts we can help you to explore. Some other types of trusts which may have a place in your plan include:
- Life Insurance Trust
- Qualified Personal Residence Trust
- Charitable Remainder Trust
- Grantor Retained Annuity Trust
- Gifting Trust
… and this is just a short list some of the more popular trust-planning strategies. There are many other types of trusts we can help you to put in place to help you to meet your planning goals. Working with qualified trusts attorneys like those at Smith Barid can ensure that you have the right plan in place to protect your family now and after you’re gone.