September 20, 2018
You’ve decided you want to set up a trust but telling your attorney that you need a ‘trust’ is like telling a baker that you need a ‘cake’ – it leads to a cascade of questions: What’s the occasion? What ingredients do you want in the cake? Do you want to share it with lots of people or only a few? How much do you want to spend? Are there any food allergies to consider? In short, just like there are different kinds of cakes for different occasions, there are dozens of different types of trusts for different purposes. To cook up your custom trust, an experienced estate planning attorney will explore all these questions with you.
WHAT’S THE OCCASION?
There are a variety of reasons clients may want a trust:
- Assets held by a trust do not need to be probated under a Will, allowing beneficiaries to receive assets more quickly.
- To protect assets from creditors or exes in the event of a divorce.
- In order to avoid the need for an executor to be appointed by the court.
- To “gift” assets in order to save on death taxes or qualify for government benefits at a later date.
This is in no means an exhaustive list, but a few examples of the occasions an individual may seek to establish a trust.
WHAT INGREDIENTS DO YOU WANT IN THE CAKE?
Trusts can own almost any asset, including cash and real estate. Trusts also can be the beneficiary or owner of a life insurance policy or the beneficiary on an IRA or 401K. The implications of a trust owning each of these assets varies, so it is critical to discuss your plans in this regard with an attorney and accountant before making a move. It also is important to discuss the “amount” of ingredients you want to put into the trust. Depending on the type of trust, your ability to manage or access assets put into it can be limited, so it may not make sense to transfer all of your assets into a trust.
DO YOU WANT TO SHARE IT WITH LOTS OF PEOPLE OR ONLY A FEW?
Like a Will, a trust should set forth how the assets held in it will be distributed to beneficiaries upon your death. A trust is even more flexible than a Will, however, in the sense that it also may provide for the provision of income or assets during an individual’s life.
HOW MUCH DO YOU WANT TO SPEND?
Creating and maintaining the formalities of a trust can be costly. In some cases, a trust may become a tax paying entity, which means that an annual income tax return should be filed. In addition, the individuals responsible for implementing the trust – the trustees – are entitled to a commission based on the value of the assets held by it and any income made by those assets.
ARE THERE ANY FOOD ALLERGIES TO CONSIDER?
In many ways, this question can be the most critical. Trusts frequently are created to protect and grow assets for those who may not be able to manage them on their own. Whether a special needs trust or a trust created for minors, the unique circumstances your beneficiaries must be considered in drafting the terms of your trust.
These are important pieces of the pie (no pun intended) to be considered. The estate planning attorneys at Phelan, Frantz & Peek are experts in the creation of trusts for all occasions and in a variety of flavors. Contact us to make an appointment today to discuss your needs.