TRUSTS FOR ESTATE PLANNING

by Attorney Edward H. Adamsky

            Trusts are a useful yet misunderstood tool of Estate Planning. The problem is that there are so many different kinds of trusts. Trusts can be Revocable, which means they can be changed, or Irrevocable, which means they cannot be changed. There are many specialized trusts for particular purposes like Irrevocable Life Insurance Trusts (ILITs), QTIP Trusts (for estate-tax planning), Special Needs Trusts (to handle assets for a person with a disability), and many others. Your particular situation will determine which type of trust you need, if any.

            With all the variations, many things are common from trust to trust. The Trust document is the rules of how the trust will operate. The Grantor is the person who creates the Trust, and the Trustee is the person who will run the trust (they can be the same people). The Beneficiaries are the people who will benefit from the assets that the trust holds (the Grantor can be a beneficiary and so can the Trustee, but there need to be other beneficiaries besides just the Grantor). Every Trust has to have assets that it holds and manages for the benefit of the beneficiaries. In the past, you could not have a trust without assets so older trusts often state something like “ten dollars” or might even have a dollar bill or something stapled to a last page. Modern trust law allows a trust to exist without assets as long as there is some way in the future that it will get assets (by being named beneficiary of life insurance, for example).

            If you create a trust, you will need to change the title on bank accounts, or real estate, or investment accounts from yourself to your Trust. If you don’t, then the Trustee won’t be able to manage those assets. I often write a Will along with a Trust and name the Trust as the heir in the Will, so even if the Trust isn’t funded right away, it will be funded from the Probate estate. Of course, if one of your goals is to avoid probate, then you must put the assets into the Trust during life and not wait for your Will to do it.

            Since trusts don’t die, the assets in a trust pass (by the Trust terms) without need for probate. Individually owned assets have to go through probate if the owner dies. Trusts can be used to take care of you if you become incapacitated. You can be the lifetime beneficiary of your own Trust and have a standby Trustee lined up to handle those assets for you if you cannot do so due to physical or mental incapacity. Once the Grantor has died and the trust becomes Irrevocable (which happens automatically when the Grantor – who is the only one who could amend or revoke the trust dies) the Trust terms can protect the assets from the creditors of the new beneficiaries (depending on the Trust terms) and can handle assets for young people until the time at which the Grantor thinks they can handle them on their own (age 25, or 30, or 50!).

            This article only touched the tip of the Trust iceberg. You really need to have a thorough discussion with your Estate Planning attorney about whether a trust is right for you or not.