Do You Need a Trust?
Trusts are an important estate planning tool for many individuals but they are not right for every estate plan. Trusts can be simple or they can be complex and fairly expensive to establish and maintain. There are many different kinds of trusts and they are established for a variety of reasons. This newsletter provides a very brief overview of the different uses of trusts but every individual has unique needs and goals and only a consultation with an experienced estate planning attorney can help you understand whether a trust, or a variety of trusts, is right for you.
Trusts for Parents
Trusts can be particularly useful for parents of young children because a trust allows parents to create a plan for the financial future of their minor children. A trust designates a trustee to manage the money for the benefit of the children. The trust maker can also create a list of specific expenses to be covered by the assets in the trust.
A trust established for the benefit of minor children can be established through the last will and testament. This type of trust is typically funded with the assets in the estate. A trust can also be established while the parent is living but it must be funded by current assets or the trust itself can purchase assets for a trust which is in effect while the trust maker is living.
Custodial Accounts Instead of a Trust?
Custodial accounts may be a good alternative to trusts for managing assets for minor children. Custodial accounts can be less expensive to establish and maintain then trusts. States tend to have state-mandated limits on the age at which a custodial account must be entirely turned over to the beneficiary, while a trust can be drafted to allow parents to make distributions of varying amounts or percentages at different times.
Using Trusts to Protect Property from Outside Threats
Trusts can be used to hold and protect real property or businesses from creditors and from outside liability. A trust can be a great way to protect a family business or a family cabin from being distributed to someone outside the family in a number of different scenarios (civil lawsuits, divorce, or death). Whether a trust is appropriate for your own particular situation will depend on many different factors and the cost and time required creating and maintaining a trust should be a consideration before making the decision to place property in trust. An experienced estate planning attorney can help you decide whether a trust is appropriate.
Trusts as Tax-Saving Instruments
Trusts can be useful tax-saving devices but they are only beneficial if your estate is large enough to have estate tax consequences. Understanding the costs of establishing and maintaining the trust as compared to the tax savings is an important consideration before you decide whether a trust is the right estate planning tool for you.
For families who have a second home (usually a vacation property), a trust can provide not only protection from outside sources, but it can also provide some structure for managing property as it is handed down to future generations. If you leave a vacation home to your four children, for example, they may not agree on who should pay the taxes, or mow the lawn, or even on how they will decide who can use the cabin at different times during the year. A trust can provide as much or as little detail for the future maintenance and sale of the property over time. Using a trust for vacation property can be a wonderful way to maintain peace in a family in the future.