Halloween 2018 is on the books and it was a great time. Several families in our neighborhood this year gathered around fire
pits in one driveway and greeted hundreds of trick-or-treaters in a wide array of creative costumes. I confess I will always be drawn to the Disney classic princesses. And there is no tale as retold as that of Cinderella. The big take away—it was all about the way the shoe fit.
We can create an estate plan that fits just like that glass slipper. It will be customized just for you, to ensure that the legacy you want to leave is what your family inherits. Don’t believe for a minute the fairy tale that a trust is only for the spoiled entitled rich kids that make headlines with their antics. The reality is that trusts are a foundational estate planning tool with a solid history for ensuring a person’s wishes are carried out.
Better than a magic wand, the trust provides a means for protecting your property after your lifetime from divorce, lawsuits, creditors, and more. There are so many types of trusts that we can design to make the shoe fit.
Types of Trusts
● Revocable Living Trusts. These trusts are the foundation of many estate plans. They contain your instructions for how your assets will be handled upon your death or incapacity, which go into effect while you are still living. Since these trusts are revocable, you can change or cancel provisions at any time during your life.
● Incentive Trusts. These trusts typically contain provisions to encourage or discourage certain behavior and promote family values. In order for the beneficiary to receive funds from the trust, he or she must adhere to the particular requirements set forth by the grantor.
● Beneficiary Controlled Trusts. In this scenario, the beneficiary – typically the grantor’s child or grandchild - is also the trustee. He or she has the discretion to distribute assets to him or herself for health, maintenance, education, or support. There is a co-trustee, who can be removed by the beneficiary/trustee, with the authority to access the trust for the benefit of the beneficiary beyond his or her health, maintenance, education, or support.
● Asset Protection Trusts. These trusts offer perhaps the strongest financial protection against creditors, lawsuits, and judgments. In some types of asset protection trusts, the trust maker can also be a beneficiary, allowing him or her to still receive the benefits of the assets. Protective legal language and proper management of the trust are critical when you use these trusts.
● Offshore Trusts. An offshore trust is similar in nature and effect to other trusts, except that it is generally created in a jurisdiction where the laws are more favorable to settlors looking for privacy and asset protection. Notably, as long as the jurisdiction recognizes the legal concept of a trust, a trust may be located in any country. That being said, these trusts are subject to close scrutiny and extensive reporting requirements imposed by the U.S. government. As a result, they are really only appropriate for sophisticated, high net worth individuals, couples, and families.
● Life Insurance Trusts. This is an irrevocable trust that is set up specifically to own a life insurance policy. Ownership in an existing life insurance policy may be transferred to the trust or the trust can purchase the policy directly. The settlor cannot serve as the trustee and he or she relinquishes any right to dissolve the trust or make any changes to it. These can be a great fit for anyone with a large life insurance policy and whose estate is subject to estate taxes.
● Testamentary Trusts. This trust does not become effective until the grantor passes away. Testamentary trusts are generally made within a will. The will becomes effective immediately, but the trust is not created until the maker of the will dies. Unlike living trusts, testamentary trusts do not avoid probate – the legal process by which a court oversees the distribution of assets from a deceased’s estate.
Seek Professional Advice
You don’t need a fairy godmother to make sense of all of this, but you do need a good estate planning attorney to give you that perfect fit. Come in for a free consultation and see how we can turn your wishes into reality.