Trust & Believe
Written by: Lisa G. McCurdy, Esq.
"No matter your age, setting up a living trust can be a powerful tool to help you accomplish a wide range of goals during your lifetime and long after. Trusts can provide greater flexibility and control over how your property and assets are distributed and when."
-Lisa McCurdy
Lisa G. McCurdy, Esq. is Managing Partner of The Wealth Counselor, LLC -- a premiere, boutique estate and asset protection law firm that helps high net worth individuals and families establish generational wealth transfer strategies and philanthropic impact in their communities.
1) Maintain Privacy and Confidentiality
Probate is a matter of public record. That means your will and other private financial and business information become part of the public record as soon as your estate is presented for probate (though controls are in place to protect social security numbers, and EIN and account numbers). A trust, on the other hand, maintains privacy and confidentiality. It is only for the eyes of those involved – trustees and beneficiaries.
2) Avoid Probate
The probate process (which is required to administer your will) can take months, and often, a year or more to complete. It can be very expensive. In some states, attorney and court fees can take up to 5% of an estate's value. A trust is designed to settle your estate in a timely and relatively inexpensive manner and, just as importantly, with privacy.
3) Protect Beneficiaries
A trust can provide beneficiaries protection from lawsuits, creditors, financial challenges, difficulties while navigating a mental illness, or divorce. Further, a trust can also protect the interests of a minor child by setting guidelines for when distributions are made.
Establishing an irrevocable trust means a future creditor or claimant cannot satisfy a judgment against the assets held in that trust. A will, on the other hand, distributes assets to beneficiaries regardless of their current situations - divorcing, drug addiction, or mental health challenges.
4) Provide for Children with Special Needs
A special needs trust provides for the health care and personal needs of a minor child or adult with special needs. It also helps to ensure that eligibility for Medicare benefits is maintained by removing the possibility that assets will increase the value of his or her property above eligibility thresholds.
Therefore, a trust can provide supplemental support which is provided by governmental programs, for instance, to fund additional care, participation in family events and vacations, and independence skills training. A will can leave assets vulnerable to loss and, worse yet, make beneficiaries with special needs ineligible for needed programs that cannot be bought.
5) Maximize Flexibility
You dictate the terms of the trust, and therefore you can place restrictions on how trust assets are managed. If you’re concerned that a beneficiary may not manage assets wisely, you can appoint an independent trustee to help make smart decisions on his or her behalf.
You can also restrict how assets may be used. For example, the trust could stipulate that assets may only be used to support a beneficiary’s lifestyle needs, such as the purchase of a home or car, or the payment of medical bills, but may not be distributed directly to the beneficiary. Further, the trust can outline contingencies that must be met by a beneficiary in order for him or her to be eligible for a particular distribution.
A will distributes assets to a beneficiary regardless of their ability (except that assets are held for minor children until they are 18 years old - hardly a milestone of maturity and financial knowledge).
6) Preserve Family Wealth
In many cases, divorce and remarriage can result in assets that were intended to remain in the family leaving the family. A trust can ensure your estate is preserved for grandchildren, even great grandchildren, and, frankly, for generations to come. There is no mechanism within a will that extends beyond the initial distribution to a beneficiary to preserve and protect assets along bloodlines.
7) Promote Family Values
A will can require distribution to a charity on behalf of the deceased but cannot require beneficiaries to use the assets they receive in a particular manner. A trust can be a powerful tool for passing down family values relative to education, home ownership, land conservation, community service, religious beliefs, and more. For example, if charitable giving is an important family value, the trust could stipulate that heirs must donate a fixed percentage of assets each year to a charitable organization of their choosing.
8) Reduce Family Conflict
Unlike a will, challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your beneficiaries and heirs reduces the potential for misunder- standing, making it more likely that all parties will embrace and respect your wishes. Further, the level of detail and formality that trusts afford builds confidence in the legal, medical, and financial communities such the validity is rarely challenged.
Probate is a public court case that provides the perfect platform for family drama to play out, rivaling some of the most popular reality shows.
9) Minimize Estate and Gift Tax
The estate tax exemption--the amount you may leave to heirs free of federal tax--has been set high, exempting many; but what about state estate tax exemption amount? The federal estate tax exemption is now "permanently" over $5 million, and temporarily over $12 million. However, some localities, such as Maryland and the District of Columbia, are less predictable, having imposed estate tax for estate values much lower than the federal, and they continue to threaten to do so in the future.
The use of an Irrevocable Trust to remove assets from your estate by gifting them to your beneficiaries in trust, reduces the estate tax calculation and provides the perfect balance among control, protection, and preservation. A will does not allow for strategic tax planning such as this.
Disclaimer: The information in this article is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.