Trusts

You hear a lot about trusts. There are those who say you’ve got to have one. Do you really? Maybe.

A trust is a legal device that separates legal ownership of an asset from the enjoyment of that asset. A trustee owns the assets of a trust, but the trustee is to manage the assets for the benefit of the beneficiaries.

A trust is one of the estate planner’s tools. There is a time when it makes sense to use the tool; there are times when it does not.

Where a trust makes sense:

If you are married, and your assets are in excess of one exemption amount for federal estate tax purposes, it makes sense to have a trust. If you leave property equal to the exemption amount to a trust for your spouse’s benefit, and if the trust is properly structured, the property left to the trust will not be in the surviving spouse’s estate upon his or her death. If that property was left to the spouse under an “I love you” Will, that property would be added to your spouse’s property. You may have had less than one exemption amount of property, and so may your spouse, but when added together, the total may be in excess of the exemption amount, and now your Uncle Sam will want to be paid. Utilizing the trust will keep the assets from getting stacked up in the surviving spouse’s estate.

If you are concerned about being able to manage your assets as you age, a trust may make sense. You can establish a trust and transfer all of your assets into the trust. You and someone from a younger generation can be the trustees, so you will be managing your own assets for your own benefit. In the event of illness or disability, the co-trustee is able to manage the assets for your benefit, without the imposition of a guardian over your estate. Upon your death, the trustee will then distribute the assets to your beneficiaries as you have set up in the trust. As the assets are owned by the trust rather than you, the assets are not probate assets, and will pass outside the probate court’s jurisdiction. While the trust is not set up for the sole purpose of avoiding probate, it can be an added benefit.

If you have children and are concerned about placing significant amounts in their hands at a young age, a trust might make sense. Your estate plan may provide that you will leave everything to your spouse and vice versa, but if you both die prematurely, your property will go to your children. If the children are under 18, unless you have done anything else, the property will be held in a guardianship, and turned over to the children when the turn 18. If you wanted the property to be tied up to a later age such as 25 or 30, this can be done through a trust.

If you own real estate in another state and the property is solely in your own name, a trust might make sense to hold the real estate, thereby avoiding a second probate administration in that other state.

In each of these situations, the trust is being used to separate the ownership of the property from the enjoyment of the property. There are other circumstances where it may make sense to use a trust. If you would like to explore if a trust might be appropriate for your circumstances, please feel free to contact us.