by Rebecca J. Sargent, Esq., CTFA

When it comes to estate planning, there are a few basic documents we all need – a will, a financial power of attorney, and a health care 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 person, is a public forum.  Most papers filed with the Probate Court, including wills, death certificates, inventories, and accountings are open to public inspection.  For that reason, it is important to some people to avoid the probate process. 

Assets that are transferred to most trusts will not be subject to probate.  Instead, the trust document will spell out 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 better for those who are concerned about privacy.

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 to.  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 and the like 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 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, most 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 ($1,500,000 in 2004), proper planning is needed to make sure that the credit is used to its full advantage.  For married couples, this most commonly involves a basic estate planning tool called the “Credit Shelter” Trust.  Properly structured, the credit shelter trust allows both spouses to take advantage of their unified credit, therefore allowing $3,000,000 in total assets to transfer tax free, while giving the surviving spouse some ability to access the assets.

Practically, this arrangement works as follows:  The couple’s assets are divided so that each spouse owns roughly an equal amount.  When the first spouse dies, approximately $1,500,000 of his or her estate would pass to a credit shelter trust.  This trust would pay income to the surviving spouse for life, in quarterly installments, and principal would be available to the surviving spouse for her health, education and support.  The remainder of the estate could pass outright to the survivor.   This arrangement would allow the assets in the credit shelter trust to be taxed in the first spouse’s estate and take advantage of his unified credit.  At the death of the surviving spouse, the credit shelter trust can terminate and pay out or continue on for the next generation.

Trusts range from simple to complex and can be designed to meet almost any need.  You should always consult legal counsel to get the best, most personal advice.   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 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 08/19

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 we agree in writing after a personal consultation. Please contact us for a consultation on your particular situation.