WHY A TRUST?
A Trust is a significant and flexible estate planning tool which meets a wide variety of estate planning goals.
I like to think of a Trust as a bucket which holds things of value: your assets, bank accounts, investment accounts and your tangible personal property, for example. When you create the Trust document, you select a manager called a “Trustee” to watch over the bucket. The Trustee could be a trusted friend, family member, financial institution or professional. The Trustee does not act for his or her own benefit, but for the benefit of “Beneficiaries” (your family, friends, or charities, for example) who are named in the trust document. The Trustee invests the assets, oversees the investments, and may have the power to buy and sell whatever is in the Trust. The Trustee then pays out the income and principal in accordance with written instructions included in the Trust document.
Trusts can be created in a will (a testamentary trust) or during your lifetime (an intervivos or “living trust”). A living trust may be revocable or irrevocable. A revocable Trust can be changed at any time; an irrevocable trust, generally speaking, cannot be altered.
You may have concerns about giving a child or grandchild an inheritance or gift outright, believing he or she is too young, immature or unstable to manage a large sum of money. You can establish a Trust to avoid a lump sum gift to that child; the Trust puts a trusted person in charge of managing that child’s inheritance.
You write the entire script for the Trust, a script that the Trustee is obliged to follow — for example, you can provide that the Trustee use trust funds for education expenses but that after college, the Trustee only give your child or grandchild a small allowance to allow them to develop a good work ethic. The Trustee can be instructed to use Trust funds to purchase a car, pay for a wedding or provide for a down payment for a house. You may give the Trustee a right to withdraw a certain amount from the Trust to give to your child at a prescribed age, for example 1/3 the trust amount at age 25, 1/3 at 30 and the balance at 35.
On the other hand, you may choose to have the Trust funds or assets remain in Trust for the lifetime of your child, shielding family assets from creditor claims and divorce proceedings. The Trust that continues for the lifetime of a child also ensures that your grandchildren (and not the child’s spouse) receive what is left in the Trust on the death of your child. In other words, the Trust allows you to control the distribution of your assets to your beneficiaries over time.
The uses of a Trust are numerous. A Trust is an effective tool for estate tax, income tax and generation-skipping tax planning. It can also be very effective for Medicaid planning — to protect your assets from the costs of long term illness.
Gifts or inheritances to a special needs beneficiary who is currently receiving Medicaid or SSI will cause that disabled person to lose their public benefits. He or she will have to spend your gift or inheritance before they can go back on those programs. However, if the gift or inheritance is placed into a Special Needs Trust, the person with special needs can both maintain their benefits and enjoy the gift or inheritance from you.
Another exciting use for Trusts is for pet planning. Many people fear that they will outlive their pets. Providing for their pets through the establishment of a Pet Trust will ensure that there is a system, trusted people and instructions in place to ensure your pet’s proper care.
A Revocable Living Trust is commonly used to avoid the expense, delay, and lack of privacy of probating a will. Creating a Revocable Living Trust is recommended if you have real estate in more than one state (calling for a probate in each of those states), if you are concerned about privacy (Wills become public documents), if you anticipate a Will contest (because you are either disinheriting an heir or are giving your heirs unequal shares of your estate), or if you and your spouse have an estate tax plan in place which will necessitate two probates instead of one.
Trusts are also used for creditor protection, planning for a beneficiary who requires assistance with financial management, and planning for a beneficiary who has creditor, substance abuse, or divorce problems.
Trusts are a very flexible tool in the estate planning and elder law attorney’s toolbox and can be applied creatively to accomplish numerous planning objectives.
Meg Rudansky is a Sag Harbor-based attorney who specializes in the areas of Elder Law, Estate Planning, and Probate. She can be reached at 725-4778.