Q. I hear that the federal estate tax may be repealed during this administration. If that happens, will trusts still be a useful estate planning device?
A. In a word, yes. But remember, the federal estate tax now only kicks in if your estate is valued at more than $5.49 Million at death (2017). At this high threshold, 99% of Americans will never need to worry about the estate tax and so, as for them, the estate tax has already been “repealed”. Yet trusts continue to be used as a common estate planning device and their utility has not diminished. Here are some of the nontax benefits of creating a trust:
- Avoiding Probate: One of the great benefits of using a revocable trust, in preference to a will, is that a trust is designed to avoid probate. In California, probate is a court proceeding whereby a judge oversees the settling of your estate. The process tends to be time-consuming, expensive and public. By contrast, the postmortem settling of a trust is usually more expeditious, less expensive and private.
- Management upon Disability: If you were to become disabled, and unable to manage your assets, your designated successor trustee could step forward and manage them for you, and thereby avoid the need for a court created conservatorship, which is a more involved, expensive and public proceeding. By contrast, a simple will would only kick in upon death, and therefore would not provide you any benefits for asset management during life. Note: a comprehensive Durable Power Of Attorney (“DPOA”) would be another alternative to management of your financial assets in the event of disability; but the DPOA expires on death, making a trust the better option for uninterrupted asset management.
- Protection from Creditors: Certain types of trusts can protect your beneficiaries from creditors. By way of example, if you had a child who was a spendthrift, you could appoint a trustee to manage that child’s share of your estate in a “Discretionary Support Trust”, which could remain in existence well after your demise. The trustee might be authorized to retain that child’s share in trust and pay out only as much as necessary for his needs. Under that arrangement, your child’s unpaid creditors would not be able to seize any part of his share which remained in trust.
- Provide for a Child with Special Needs: If you have a child, or grandchild, with a disability who relies upon public benefits, such as Medi-Cal or SSI, you could leave his share in a “Special Needs Trust” (“SNT”). A SNT is a special trust designed to hold assets for the benefit of a person on public benefits in a manner that does not undermine his ongoing eligibility for those benefits. The trustee would then use the SNT funds to supplement your child’s public benefits and thereby enhance his quality-of-life.
- Avoid Medi-Cal Recovery: Because of recent changes in the law, the estates of persons dying after January 1, 2017, who have received Medi-Cal benefits during life, will no longer be subject to recovery (or “payback”), if their estates do not go through probate. Since a trust is typically designed to avoid probate, holding assets inside a trust can thus avoid Medi-Cal recovery and potentially save their estates many thousands of dollars.
A trust can be as useful today as in years past, and you should still give serious consideration to using this device as part of your estate plan.