Estate Planning: Should I Set Up a Trust?

Post Written by: Kenneth L. Eshleman, CFP®

When you hear the word ‘trust’ – parents providing income for their children via a trust might come to mind.

Trusts can have far-reaching benefits beyond that arena, for families and individuals with many different goals.

What is a Trust?

Each of us need a legal document that can help control what happens to our assets when we pass away. There are two ways to accomplish this:  with a will or with a trust.

A will allows you to direct who will get your assets, but you no longer have control once your estate assets are transferred.

A trust can also be used to direct who will get your assets.  But it goes much further.

 How Is A Trust Different From A Will?

A will can direct assets but cannot control once those assets are distributed. In contrast, a trust can provide control over how the beneficiary accesses those assets.

Why is that control important?  Let’s say you’re a parent of a 21-year-old son.  You and your spouse pass away unexpectedly in an accident, leaving your son a significant sum of money. With a will, your son, at age 21, would be free to decide how to spend and manage that money. While there are certainly exceptions, few people at this age have the maturity or knowledge to make smart long-term decisions.

With a trust, you can specify a schedule of when and how your heir(s) would receive funds. You can appoint an independent trustee to manage the money on their behalf. Furthermore, you can specify how the funds may be spent. For example, you could set conditions that money would not be released until your son completes college or you could permit some of the funds to be spent on purchasing a home. You can outline these types of details as you think best.

 How Can a Trust Help Me?

Beyond increased control over how your assets are distributed and protected after you’re gone, a trust can provide many other potential benefits.

Protection. Setting up a trust can help you protect children, family members with special needs, or even pets. You can set up and fund a trust for the care of the individual. You can name a trustee who looks out for their care according to the rules you establish. You can use a trust to ensure wise choices are made for potential needs for maintenance and support of healthcare and education.

Tax Savings. Some trusts can help you minimize or lower your estate or gift taxes, either now, for you, or later for your heirs.

Shelter Assets. Some trusts can help you protect personal assets from being divided up or available to creditors if you’re a business owner. They can also help protect multi-generational family assets from being split in future divorces or other family changes.

Pass On Values And Ethics. Trusts can be set up for philanthropic efforts either during life or after you pass away that specify how nonprofit organizations can use your legacy. You can also set up a family trust to pay college expenses for children and grandchildren, for example.

 Examples Of How Trusts Are Used

Trusts are highly flexible tools, so there are many applications. A few common examples:

Special Needs Trusts. If you have a child or loved one with special needs, you know how important it is to plan for their care after you’re gone. Trusts are ideal for that purpose. A trust can provide for all the financial, personal, and health care needs of an individual and often its distribution provisions are coordinated with governmental benefits for which the individual may qualify. You can also appoint an independent trustee to make prudent financial decisions on your loved one’s behalf after you’re gone.

Living Trust. With longevity on the rise, many people worry about how their care and finances will be handled once they cannot make decisions for themselves. A living trust can help set this process up in advance and help hasten the transfer of assets to family members through avoidance of probate.

Philanthropic Trust. You want to support your favorite charities, but once you’re gone, how do you know a cash gift would be spent wisely on the type of programs you prefer? You can control more of that with a trust, where you can specify for what purpose the money will be allocated and over how many years. This can ensure that your gift goes to your preferred charitable programs instead of more general programs or even administration costs.

GRAT. These trusts are a very specific vehicle to pass on wealth while reducing the impact of gift and estate taxes. They are useful during periods of low interest rates, such as the current interest rate environment. Read more in our detailed GRAT blog.

These are just four simple examples. There are many types of trusts to accomplish many different kinds of goals. As you may guess, these require working closely with your attorney and financial advisor to make sure things are done the way you prefer to set up a trust. Then, once these are set up either during life or after death, the trust must be managed correctly so you don’t lose any of the intended benefits.

What Are The Downsides Of A Trust?

The benefits of trusts do come with some costs, of course. There will be legal and professional fees involved to create the trust, plus there may be annual costs to maintain the trust properly and file trust tax returns. So you need to weigh the benefits and these realities to see if a trust makes sense for you. Consulting with an experienced financial planning firm such as Domani Wealth will help guide you toward the best solutions for your individual scenario, considering your assets, financial goals, and tax consequences.

In many instances, the benefits far outweigh the costs, so talk to your financial advisor to see if there is a trust that can help you achieve your goals. Here at Domani Wealth, we help clients with general estate planning strategies, and that includes initial research to see if there is a benefit from setting up a trust.  For clients that wish to proceed, we work closely with their legal professional to help make sure the trust does what it was designed to do. Working with Domani Wealth, you’ll receive personalized financial advice, carefully crafted and proactively communicated to meet your needs. Our 25+ years in business, depth of services, and experienced team members mean you benefit from trustworthy guidance.

Interested in finding out if a trust can help you achieve your goals? Contact us at 855-855-5545 or email info@domaniwealth.com to start a conversation!

 

 

Important Disclosure

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Domani. A copy of Domani’s current written disclosure brochure discussing our advisory services and fees continues to remain available upon request.

PLEASE SEE ADDITIONAL IMPORTANT DISCLOSURE INFORMATION

 

loss of a loved oneshould I sell my house?

Send this to a friend