The Flexibility of Trusts in Estate Planning

Trusts are incredibly flexible tools that can accomplish many different estate planning goals. They are useful for those who want to provide more assurance that their desires will be carried out upon their death, protect assets from those who might prey on heirs financially and help reduce or eliminate estate taxes.

Trust can be used for any type of asset: money, bank accounts, investment accounts, real estate, life insurance policies, cars and furniture. The key feature of a Trust is that it creates a separate legal entity that owns and manages property for the benefit of beneficiaries. A trustee is appointed to administer the Trust pursuant to the document’s precise instructions. The trustee must adhere to those instructions or risk being personally liable for breach of fiduciary duty.

The process of creating a Trust can be complex, and it is important to consult an experienced estate planner for guidance. Once the trust is created, it must be funded, and this means moving the appropriate assets into the Trust and renaming them as Trust-owned. The trustee can then distribute those assets to the beneficiary of the Trust, either immediately or over time based on the rules set in the trust document.

Discretionary trusts are often employed for beneficiaries who may be unable to responsibly handle large sums of money on their own, such as a spendthrift relative or someone with addiction issues. The trustee can withhold or delay distributions to these beneficiaries, and he or she can also be granted the power to distribute to third parties like landlords, educational institutions or medical providers.

One of the most common uses for a Trust is to help reduce or eliminate state and federal estate taxes. It is crucial to speak with an attorney about the various types of trusts that can be used to minimize or eliminate these taxes. A tax professional will be able to advise you on the type of trust that is best for your situation, taking into account such factors as the value of your assets, who you would like to inherit from you and whether you wish to preserve a generation-skipping exemption.

A trust can provide more assurance than a Will that the Grantor’s wishes will be carried out. It can specify exactly how assets should be distributed, and can also limit the surviving spouse’s control of trust assets, prevent them from disinheriting children from the first marriage and prevent a second marriage that could trigger additional estate taxes. It can also stretch out distributions to beneficiaries over a period of years and protect the heirs from creditors, predatory lenders and others who may try to take advantage of them. It can also avoid probate by keeping the assets out of the estate and in the hands of a trustee, avoiding public record and publicity.