Estate Planning for Beginners Part 2: Trusts
June 28, 2011
We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect family assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.
There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it can be revoked or changed so long as the grantor (the person who created the trust) is still living and is competent to do so. Logically enough, an irrevocable trust generally cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.
The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to their guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.
A trust, much more than a simple will, allows the grantor far greater control over his or her assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.
Summer is a Time for Giving
June 18, 2009
Summer is a time for iced tea and watermelon, long days in the pool, vacations at the shore… and for many people summer is also a time to volunteer for your favorite charity. With school out and free time at a maximum the time is ripe to get to know your community—and contribute with a donation of time.
Whether by volunteering your time in a soup kitchen, helping out at grandma’s nursing home, teaching handicapped kids to ride horses, or donating a percentage of your income, a majority of the population chooses to give back to their community in some way. There are organizations and websites (such as www.volunteermatch.org) dedicated solely to helping us in our charitable endeavors. And the good news is that a Living Trust or Will can help you continue giving even after your death.
With a Living Trust or Will, you can choose to give any amount of your estate to your favorite charity. Some people leave a specific dollar amount; others leave a percentage of their entire estate. And you can name your one favorite charity or divide the amount among many charities. Your estate planning documents give you endless possibilities to take care of the important people—and causes—in your life.
The Wall Street Journal: Every Child Deserves a Little Trust
June 4, 2009
If you’ve been weighing the pros and cons of setting up a trust for your young child, wondering if you really have enough assets to warrant such an expense, you must read Stacey L. Bradford’s recent article in the Wall Street Journal entitled “Deciding if Your Kid Is Trust-Worthy”. In her article Bradford explains why every parent should consider a trust for their minor child, even parents with small estates and few significant assets.
You see, legally, non-adult children cannot inherit large sums of money (and if you have a home or a life-insurance policy then you have “large sums of money” to pass on to your child); if a parent dies and leaves this money directly to a minor child the court will step in and appoint a guardian to manage your child’s money for him—and this guardian may not be the trusted friend or relative whom you might have preferred. A trust will prevent your child from having to grow up with the added level of bureaucracy required by such court-appointed guardianship, and allow you more control over how the money is managed and spent.
Bradford goes on to explain the other benefits of creating a trust for your minor child (paying for education, delaying the age at which your child has outright access to the money, reducing taxes, etc.), She also gives helpful tips about how to choose a trustee, “The trustee holds the purse strings, so don’t delegate this job lightly. You need someone who is trustworthy, is good with money and has great attention to detail.”
Bradford’s article is a great introduction to trusts for parents of young children. And if you find this article helpful, you may want to check out the book from whence it came, The Wall Street Journal’s Financial Guidebook for New Parents.
How Far Would You Go To Control Your Heirs?
May 15, 2009
A trust is one of the most flexible and most powerful estate planning tools, and not just for avoiding unnecessary estate taxes. Many of the clients who come through our office choose to create trusts for other reasons as well; namely to protect their heirs from predators, creditors, and sometimes even from themselves. Sometimes a client goes even further than that, and wishes to place restrictions and attach conditions on an inheritance. In general, these conditions are enforceable—as in the case of a beneficiary being required to have graduated from college before having access to his inheritance—but is it possible to take these conditions too far? Should a grantor be able to restrict who his beneficiaries can marry?
This is the issue that is being argued right now In re Estate of Feinberg, 383 Ill. App. 3d 992, in what is being referred to as “The Jewish Clause” in this article on the Trusts and Estates website. In this case, grantor Max Feinberg:
“created a trust in which he declared that any descendant of his — that is, any descendant other than his children — ‘who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.’”
At first the Illinois court ruled that such a clause was invalid as going against public policy, but one judge’s strong dissenting opinion has resulted in the Illinois Supreme Court agreeing to hear the case.
Although the case is being heard in Illinois, the decision could eventually have an impact on trusts created in other states, and so we put this question to our readers: How far should a grantor be able to go in placing conditions on an inheritance?
Jinies.com