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Getting to the Basics of Trust Planning

| February 08, 2016
Estate Planning

Over the years we’ve written several articles about estate planning. This week I would like to address a specific aspect: trusts. A trust is simply an agreement under which property and/or assets are held and managed by one party for the benefit of another party. Once again, begin by narrowing down what you want. Is it…

…to provide for disabled or incapacitated family members, or those with special needs?

…to give back to the church, your community or your favorite charity  - now or at death?

…to protect your spouse in regard to an inability to handle money wisely?

…to protect your assets from litigation risk?

…to protect your assets in the event your health fails and you need nursing home care?

…to keep the utmost privacy and avoid probate?

…to control how your life’s work is managed and/or distributed after you die?

…to make gifts to remote descendants?

…to protect your assets from a second marriage in the event something happens to you?

…to transfer or sell your business to your heirs?

…to avoid estate taxes that will eat up what you have worked so hard to assemble?

… 1, 2, 3, or more of these things?

So let’s make it happen. Over 50 types of trusts currently exist, and effective use of these trusts can possibly help you reach your goals. They can be created during your lifetime or at your death, and each varies in flexibility, control, planning tools and laws by which it follows. Here are just a few ways a trust can be of assistance:

Imagine:  You wish to protect your assets in the event you need nursing home care, leave a large portion of your estate to your church, and yet you need income today. A charitable remainder trust might be the answer for you.

Imagine:  You wish to lessen yours and your spouse’s combined taxable estate and provide income for your spouse when you die, protecting those assets from a second marriage. A bypass trust might help you accomplish these wishes along with a few other legal documents.

Imagine: You have dysfunctional children. Wait a minute…we all have dysfunctional children! It’s just a matter of how dysfunctional they are. You wish to leave cash assets to your children, yet you would like to control how these assets are distributed over time. Trusts enable you to establish and carry out these wishes.

Although the details of each trust can be extremely complex, the basics of a trust remain the same across the board. And there are generally 3 parties involved in the creation of a trust:

  • Grantor (Trustor): The party who funds the trust with property or assets. (An easy way to remember this is “the one with the ‘o’ is the one with the dough!”)
  • Trustee: The party who manages and administers the trust abiding by the trust agreement set by the Grantor.
  • Beneficiary: The party who receives the benefits of the trust.

A trust can be funded with almost any asset: your home, investments, your business, real estate, etc; and can be directed in almost any manner. The main issue is determining what your wishes are regarding distribution. Another crucial element in trust planning and estate planning is selecting a trustee or your trust, and an executor of your estate.

The information about the specific trusts in this article is merely generic and might not be appropriate for you due to your family, the size of your estate, or your tax situation. Just as a doctor asks questions that you haven’t considered in order find an explanation for your illness and prescribe a plan for healing, it is important to have your Life Consultant ask pointed questions about your unique situation and help you work with an estate planning attorney.