Estate Planning With Trusts

Estate Planning With Trusts2018-08-31T13:53:14+00:00


A trust is a written legal document that provides instructions on how the property titled in the trust’s name is to be managed. These written instructions can provide important legal benefits.

There are generally three people who are involved with trusts. First is the person who makes the trust. This person is therefore appropriately known as the “Trustmaker” or as is the case with married couples planning together in one trust, “Joint Trustmakers”. Second is the person or institution (like a bank) entrusted by the Trustmaker to carry out the trust’s instructions. This person is known as the “Trustee.” Third is the person who benefits from the trust. This person is known as the “Trust Beneficiary.” One advantage of Revocable Living Trusts is that the same person who makes the trust can be, and usually is, also the Trustee and the Beneficiary of his or her own trust. Therefore you can make a trust, be the Trustee who manages it, and also be the one who benefits from it.

Trusts have been used since the Middle Ages and actually predate wills. They can also take various forms. Two main types of trusts are “Testamentary Trusts” and “Living Trusts.”

When a person drafts a will, sometimes they do not want the inheritance to go immediately upon their death to a spouse or child. Instead, they want the property to be managed for the beneficiary’s protection over an extended period of time. One way to accomplish this is to state in the will that upon the maker’s death a Testamentary Trust will be created to manage the inheritance for the beneficiary. A Testamentary Trust, like a will, is legally effective only after one dies and cannot provide any estate planning protections to you or your family during your lifetime.

Testamentary trusts are created in wills and like wills they are court supervised as part of the required probate court proceedings. This supervision continues until the probate is ended. This means that if you created a testamentary trust to manage assets for your children until they turned thirty years old, your family would have to deal with probate court proceedings year after year until your youngest child turned thirty. The best estate planning attorneys seldom use testamentary trusts because of this negative consequence. Instead, “Living Trusts” are the legal tool of choice for the estate planning needs of most people.

Living Trusts are a special type of trust that go into legal effect immediately upon their signing, i.e., when the Trustmaker is still alive. They are also known as “inter vivos” trusts, which means “during life” in Latin. This distinguishes them from testamentary trusts, which, as discussed above, become legally effective only after the Trustmaker dies. Living Trusts therefore offer lifetime planning opportunities (such as instructions on how to manage one’s property if one becomes disabled) that simply cannot be had with a testamentary trust which take effect when it is too late.

Living Trusts are increasingly being used as the ideal solution for those who no longer want to expose themselves to the dangers of joint tenancy or force the estate to go through probate with a will. There are so many advantages to using trusts that recent studies report that up to half of all people who now plan their estates are using trusts instead of wills.

We are not surprised by this trend. The advantages of a properly designed and funded Living Trust include the ability to plan for a possible disability, legitimate tax avoidance, asset protection for the surviving spouse, individualized planning to protect your spouse and children, enhanced privacy, and probate avoidance. Also, because a properly drafted Living Trust can own any type of stock and participate in partnerships and limited liability companies, they can be used to help smoothly transfer the family business to the next generation. If you own a small business, a Living Trust can enhance your business succession planning.

Furthermore, with a Living Trust one can still take advantage of the probate process if desired. The difference is that with a Living Trust the family has the choice of deciding whether probate court proceedings have any benefit – it is not forced into probate as happens to those who fail to plan or plan with simple wills.

Living trusts also come in several different types. The most commonly used living trust today is the “Revocable Living Trust”.

The term, “revocable,” means that the instructions of these trusts can be amended whenever the Trustmaker desires. These trusts are popular because they provide the Trustmaker the maximum flexibility in controlling the trust assets and the ability to change the plan whenever desired. While parents are alive and healthy, they act as the trust’s Trustee and have total control over the property in it; however, if one or both parents suffer a disability, the trust’s detailed instructions state how the parents should be cared for and how property held in the trust should be managed. Additional instructions state how the children and other loved ones should be cared for after the parents die. Since these trusts are “revocable,” their instructions can be changed or canceled at any time so long as the Trustmaker is still legally competent. Also, property can be place into or removed from the trust anytime the Trust maker desires.

If you create a trust, you will need to decide what property of yours should be placed into your trust so that your trust assumes legal control over it. Property is placed into to a trust simply by changing its title to name the trust as its legal owner. This process of changing title is called “funding” the trust.

Almost any type of property can be funded into a trust. The funding process consists of simply signing documents that name the trust as the new owner of your property. For example, some assets such as real estate, are funded into a trust by preparing and signing a new deed that names the trust as the new owner.

Other assets such as savings accounts, are funded into a trust by signing a new signature card that names the trust as the new owner of the account. Still other assets (personal property including household furnishings, jewelry, etc.), are funded into a trust by signing a document known as an “assignment” that names the trust as its new owner.

Funding a trust takes a little work, but it is well worth the effort for one very important reason: the Trustee has legal control only over property titled in the trust’s name. Any property not titled in the name of the trust is never legally owned by it and property not owned by the trust is in danger of having to be probated when its owner dies; however, property that is properly titled in the name of the trust never has to go through probate court because trusts never die!

If the funding process sounds confusing to you, thinking of it in another way might help. Some have described a Revocable Living Trust as a “magic box” in which you place all of the titles to your property. You just open the top of the box and place in it the deed to the house, the car, the checking account, the investment account, and anything else desired. Since you can name yourself as the Trustee of your own trust, you will maintain legal control over everything you put into your magic box. At any time you want you can just reach into the box and take out the title to any asset and do with it as you please. You can sell, trade, invest, or give it away just as if you never had a trust. And at your death, it is as if the magic box is automatically handed to your designated successor trustee to administer your property according to your instructions. All this happens without your property being probated.

The instructions contained in a Revocable Living Trust are limited only by the imagination and creativity of the Trustmaker. Nonetheless, most trusts will contain several important instructions including who will serve as Successor Trustee, what happens if a Trustmaker becomes disabled, and who will benefit from the trust after the Trustmaker dies.

Some of the most important instructions in Revocable Living Trusts pertain to who will replace the Trustmaker if the Trustmaker can no longer serve as a Trustee because of disability or death. The Successor Trustee will assume the legal responsibility of managing the trust’s assets according to its instructions. Accordingly, the Successor Trustee must be exceptionally trustworthy, excel at managing property of considerable value, and be capable of following detailed legal instructions. A detailed discussion of a Trustee’s responsibilities is presented in the chapters that follow.

While it is impossible to plan for one’s possible disability in a will, a Revocable Living Trust is the ideal legal tool for this important planning need. On any given day, a person has a seven times greater chance of becoming disabled than of dying. We feel that a Revocable Living Trust is not complete unless it contains instructions for the possibility that the Trustmaker may become disabled.

For example, many of our clients tell us that if they become disabled they want to be cared for in their homes as long as medically feasible. In such instances, the trust can contain individualized disability instructions such as the following:

• Authority to use trust assets to maintain the home so long as it is occupied and to retrofit it for handicapped accessibility if necessary;
• Authority to pay for services such as visiting nurses, twenty-four hour care, hospice, and other needed caregivers to make staying at home a reality; and
• A statement of the desire to participate in normal activities of daily life to the maximum extent possible including outings, recreation, travel, and religious or spiritual involvement.

Detailed instructions can be included in your trust that will enable you to leave what you want, to whom you want, when you want, and in the way you want just as if you were still alive and personally giving those instructions. You can be as creative as you desire and specify the conditions and timing of distributions to your loved ones. For example, if your children are minors, you can leave detailed instructions that inform the Trustee how to use trust assets to raise your children and the preferred type of schooling to provide for them.

Alternately, your living trust can be drafted to benefit any number of people in exactly the way you want. Possibilities include friends, grandchildren, or even charities. Such planning can be designed to benefit them immediately or even over a period of several generations.

There are several other benefits of having a Revocable Living Trust, including:

1) Revocable Living Trusts are private documents that do not require court approval.

2) Your beneficiaries will not have to wait for court permission to approve distributions of trust property.

3) Outsiders and potential predators will also be prevented from learning the terms of your estate plan and using the knowledge against your loved ones.Court challenges to wills are successful 25% of the time.

4) A Living Trust is more difficult to attack partly because its instructions are not readily available to relatives or others who might not be happy with these instructions.

5) A Living Trust can hold property owned by a family in more than one state and save the family the cost and difficulty of conducting probates in multiple states.

For all these reasons and many others, Revocable Living Trusts are the legal tools that we find most often best accomplish our client’s planning goals.

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