When it comes to estate planning, there are basic documents we all need – a will, a financial power of attorney, and a healthcare power of attorney or advanced care directive. These documents are the cornerstone of any good estate plan. Beyond the basics, though, are plans that involve trusts. While not everyone needs a trust, they are so flexible that they can be helpful in many circumstances.
Privacy
Most people are concerned about privacy in transfers of property that take place during life or death. Probate, which is the process overseen by the Probate Court that transfers assets from the person who dies to the appropriate beneficiary, is a public forum. Many papers filed with the Probate Court, including wills, probate applications, and claims against the estate are open to public inspection (in Maine, the death certificate and some financial records may be unavailable for public viewing). With this kind of transparency, it is important to some people to avoid the probate process.
Assets that are transferred to trusts will generally not be subject to probate. Instead, the trust document will outline what happens to the assets in the trust at death, and the trustee of the trust is charged with making sure that happens. Because the probate process is not needed to transfer these assets, the only people who are entitled to information about the trust and its terms, or the assets in the trust, are those who are involved. This is obviously a more private outcome than documents of public record.
Professional Assistance in Case of Incompetence or Disability
In addition to avoiding probate, revocable trusts can provide assistance with managing financial assets during incompetence or disability. Unfortunately, for many of us, there will come a time when we are no longer able or willing to manage our own affairs. If that happens, someone else needs to step in and take care of a range of tasks, from day-to-day bill payment, to income tax coordination, to investment management.
The trustee under a revocable trust is charged with managing the assets in a trust for the benefit of the person or organization named. The most common form of revocable trust names the person who sets it up (the Grantor) as the initial trustee, and gives that person the total access and freedom to deal with the assets in the trust however they want. The trust will also provide, however, that if the Grantor is unable or unwilling to serve as trustee, a successor will step in and manage the assets for the benefit of the Grantor (or his/her spouse or children). The successor trustee can be an individual or a professional trustee, such as your bank, broker, or other advisor. The successor trustee will then be charged with paying bills, investment management, etc. for as long as the trust lasts. At the death of the Grantor and his/her spouse, the trust can terminate and pay out to the next generation or can continue for the benefit of the next generation.
Providing for Children
For most parents of minor children, the issues that stall the estate planning process are selecting a person to become guardian of the children and handling financial assets for the benefit of the children. Unfortunately, too many parents allow these issues to stop the process, leaving these decisions in the hands of the Probate Court, which will then act without guidance. Guardianship issues should be addressed in the wills and powers of attorney for parental delegation of parents with custody of minor children.
Financial issues can be addressed with a trust under a will or in a separate trust document, which is set up to receive assets from the probate estate of the parent, proceeds from life insurance policies or benefits from retirement accounts. Again, the trustee is charged with managing the assets for the benefit of the children and paying out what is necessary for the child’s health, education and support until the child reaches a certain age, commonly 30 or 35. By making such provisions, parents are assuring that the entire balance of their estate does not pass outright to their children as they reach age 18, and that during the course of their early adulthood, the children have a partner to help make financial and investment decisions.
Minimizing Estate Tax
Most of us, in our estate planning process, attempt to minimize estate taxes to the greatest possible extent. While every individual is allowed a unified credit against the estate and gift tax that permits a certain amount in assets to pass free of tax ($12.92 million for the Federal exemption in 2023 and $6.41 million for Maine in 2023), proper planning is needed to make sure that the credit is used to its full advantage, particularly in Maine. For married couples, this most commonly involves a basic estate planning tool called the Credit Shelter or Family Trust. Properly structured, the credit shelter trust allows both spouses to take advantage of their unified credit, therefore allowing the full use of both spouse’s exemptions. As of January 1, 2026, the current tax exemptions will “sunset,” or revert back to earlier amounts (expected to be $7 million for Federal), unless congressional action changes this course. Trusts are frequently written in broad terms to maximize tax benefits at the time of death.
Other Planning Needs
The world of trust types is broad. Depending on a person’s situation, trusts can be created to meet a lot of different types of needs. There are trusts for charitable planning, for special needs beneficiaries, for care of a pet, for management of real estate….
Trusts range from simple to complex and can be designed to meet almost any need. You should always consult legal counsel to get personal advice regarding your situation and the state you live in. This is an area where one size definitely does not fit all. The attorney and other estate planning professionals you work with will not only assist you with preparation of the trust itself, but may also help you in the process of transferring your assets to the trust and dealing with any income and estate tax issues that arise. The time and effort you spend now in establishing a complete estate plan is worth the benefits you and those you care about will receive later.
Rev 09/23
The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless agreed to in writing. Please contact us to discuss your particular situation.
