“Trusts are sometimes offered as a ‘cure all’ solution to estate planning problems. It is true that some issues lend themselves to the use of trusts.”
Many people dismiss trusts as only needed by wealthy people. However, they actually can be used to solve many different issues. A recent article from The Mercury titled “Planning Ahead: How do you know when you need a trust?” examines the different reasons for using trusts.
Family Members with Special Needs. If your family includes a family member with special needs, you’ll want to use a Special Needs or Third-Party Supplemental Needs Trust to protect the individual’s eligibility to receive government benefits. Most benefits are means-tested, so a disabled person is not permitted to have more than a minimal level of assets. A well-intentioned family member may feel they are doing a good thing by bequeathing assets to an individual with special needs. However, they would instead be putting the person’s benefits at risk.
Special Needs planning is complex, since it usually involves several different benefit programs as well as services. An estate planning elder law attorney is often involved in helping families navigate benefits and planning for the future, when parents are deceased.
When money management is needed. The average person isn’t accustomed to managing million-dollar portfolios. Therefore, when a large inheritance is in the future, a trust with an experienced financial manager as a trustee can be a better alternative. This is good ‘future-proofing.’ For an example, a woman with a large estate dies unexpectedly, leaving adult children with an equally unexpected large inheritance. The children are suddenly tasked with managing complex investment vehicles and tax liabilities. Had the estate been in a trust with a skilled money manager, their interests would have been better protected.
Real estate in multiple states. Real estate in more than one state gets complicated for estate management. It might be easier to place all of the assets in one trust to make management easier. If the goal is to keep the property in the family, like a vacation home, a trust is an easier way to own the property and define the rights and responsibilities of the beneficiaries.
Do you need tax protection? Placing assets in trusts can remove them from the taxable estate. Tax planning is a common reason to use trusts, and many different types of trust are available for this purpose.
Do you want a trust to manage funds during your life and after you’ve passed? A revocable living trust can be used to hold your assets during life and postmortem. A revocable trust does not remove assets from the taxable estate but are used for other purposes. This type of trust is usually used in conjunction with a “pour-over will,” where assets held in your name at the time of death are “poured over” into a living trust.
Your estate planning attorney will be able to determine which of the many different types of trusts will be right for you and your family’s unique circumstances.
Reference: The Mercury (Nov. 23, 2022) “Planning Ahead: How do you know when you need a trust?”