Who should have a trust?

There are many different reasons why you might want to have a Trust. You might want to avoid probate; provide for minor children; provide for someone too young or who lacks the ability to manage money; avoid paying federal estate taxes; contribute to charity; distribute real property, particularly if it is located in another state; keep property separate; provide for yourself and your care if you become incapacitated and avoid a conservatorship proceeding, maintain privacy; and decrease the possibility of a legal challenge to the way you want your property distributed. If any of these situations apply to you, you should consider using a Trust as part of your estate planning.

Probate is the legal process where a court oversees the payment of debts and distribution of property under a Will. This can be a slow and costly process if the estate is even moderately large and complicated, and all details of the estate are made public as part of the court proceedings. Several states have summary procedures for small estates, but if your estate doesn’t qualify for a summary procedure, you would be a good candidate for a Trust. If you transfer assets to a Trust while you are alive, when you die, the assets belong to the Trust, not to you, so they are not included in probate, but will be distributed in the way you direct in the Trust documents. The process of distribution will be private and confidential.

Minor children can’t inherit property, but require an adult to manage property for them until they reach the legal age of majority in the state where they live. A parent can nominate a guardian for the child’s financial matters in a Will, but the probate court will have the final say on whether to approve the appointment. If you transfer assets to a Trust that is for the benefit for your children while you’re alive, you can name the Trustee(s) and alternate Trustees who will control the Trust when you die. It’s possible for a court to remove a Trustee you have appointed, but only for misbehavior, so you have more control over who will control your children’s assets.

If you leave children assets in a Will, the children receive full control of the assets when they come of legal age. In most states this is 18, and if the assets are large, an 18 year old may not be ready to manage that amount of money. If you set up a Trust, you can control when the young person will receive full control of the assets, such as at age 25 or 30. Some older adults are also unable to manage money well. This may be because of a developmental disability or just because the person lacks money skills. If you want to leave assets to someone like that, you might want to set up a Trust that will control the assets throughout the life of the Beneficiary. People also want to leave money for the care of pets that survive them, and a Trust is a good way to do that.

If your estate is over the minimum amount for paying Federal Estate Tax ($2 million in 2008, $3.5 million in 2009, no tax in 2010, and a $1 million minimum starting in 2011) Trusts can be used to exempt some of your assets from your taxable estate. This can reduce your total estate to an amount below the estate tax minimum. You can also receive tax benefits during your lifetime by setting up a Trust that makes a donation to charity when you die but keeps the income for you while you’re alive.

Probate laws differ from state to state, so to avoid unforeseen results under different laws, if you own real property in different states you can put that property in a Trust while you’re alive so there will be no change when you die. The Trust will continue to own the property, and there will be no reason for the various states to be involved in how the property is distributed.

If you want to make sure that certain property isn’t divided between beneficiaries, which might result in the property being sold, you can put property in separate Trusts and give separate instructions for distribution. That way, it won’t be possible for a court to decide that the property can be divided and/or sold.

If you become incapacitated from old age or some accident or illness, someone will need to take care of your financial affairs for you. By setting up a Trust where another Trustee will take control of your assets if you become incapacitated, you can prevent someone from filing a petition to be named your Conservator. A court will only appoint a Conservator if no other arrangements have been made, so the court is not likely to grant a conservatorship to someone else if you have already made adequate arrangements for your own care. This allows you to choose who you want managing your affairs and allows you to exercise future control in the way you set up the Trust.

In a conservatorship hearing, all of your affairs are made public, including details of your alleged incapacity. Most of us would not want the details of our private lives to be discussed by others in a public courtroom, so a Trust that avoids this is useful. Trusts can also provide privacy about your assets. If you don’t want all the details of your assets and the assets you are passing to others to be made public, you can use a Trust to preserve privacy.

Finally, if you think someone might challenge a Will because they don’t like how you want to leave your property, you can make such a challenge much more difficult by using a Trust instead of a Will. To prove a Will invalid the challenger has to show that you were incompetent at the time the Will was drafted and executed. A Trust isn’t just drafted and executed at one point in time. Assets are often transferred to the Trust over a long period during the person’s lifetime and the Trust may manage those assets for many years before the death of the Grantor. While you must be legally competent at the time you set up a Trust, it is more difficult to prove such a Trust invalid than a Will, since the challenger has to claim that the person was incapacitated not only when the Trust was set up, but during every transaction that the Grantor carried on during the life of the Trust.

Case Studies: Utilizing Insurance in Trust Planning

Case Study 1: Avoiding Probate and Ensuring Privacy

Mary is a successful business owner with significant assets. She wants to ensure that her estate avoids the probate process and maintains privacy. Mary decides to create a revocable living trust and transfers her assets into the trust during her lifetime.

By doing so, she ensures that her assets will not go through probate upon her death, saving time and reducing costs for her beneficiaries. Additionally, since the trust does not become part of the public record, Mary’s financial affairs remain private.

Case Study 2: Providing for Minor Children and Protecting Assets

John and Sarah have two young children and want to ensure their financial well-being in the event of their untimely death. They establish a testamentary trust within their will, designating a trusted family member as the trustee. The trust will hold and manage the children’s inheritance until they reach a certain age, ensuring that the funds are used for their education, healthcare, and general well-being.

By utilizing a trust, John and Sarah have peace of mind knowing their children’s financial needs will be met and that the funds will be protected until they are mature enough to handle them responsibly.

Case Study 3: Planning for Incapacity and Controlling Assets

Sarah is a successful professional but worries about what would happen if she were to become incapacitated due to an accident or illness. She establishes a revocable living trust and designates a trusted friend as the successor trustee. In the event of her incapacity, the successor trustee will step in and manage Sarah’s financial affairs according to the trust’s provisions.

This avoids the need for a conservatorship proceeding, where a court would appoint someone to manage Sarah’s assets. By setting up a trust, Sarah retains control over who will manage her affairs and ensures her wishes are followed even if she becomes unable to handle her finances.