by Dave Kutcher
Last week we discussed a very specific planning tool (funeral trusts) for those who are on the cusp of qualifying for Medicaid and who are simultaneously looking for a way to be sure there will be funds available for final expenses such as funeral and burial costs.
Today we want to step back and address trusts in a much more general sense and consider why one might use any number of various trusts that are out there.
In general, any estate plan, whether for a large or small estate has two important tools to consider: a Last Will and Testament and Trusts. Most people understand what a Last Will and Testament is about, its structure and its purpose. Adding a trust to the mix, however, is far more involved and can create a sense of complexity that may seem hard for many people to understand.
Let’s consider some of the top reasons folks might want to use a trust as part of their estate planning.
1. Avoiding probate court
2. Providing for family members who may have special needs
3. Asset protection from creditors
4. Reducing or minimizing Estate taxes
5. Maintaining control over your assets both while alive and following your death
Avoiding Probate Court
Anytime we can avoid having our assets passing through probate court following our death, the better off we are. There are costs associated with probate that include both legal fees as well as court costs. Additionally, assets that must pass through probate may be delayed in reaching their intended target and, in some cases, those assets will be awarded other than as you intended. There are many ways for assets to pass outside of probate; as an example, jointly held property avoids probate as does property where you directly name a beneficiary such as a life insurance policy. In keeping with our topic today, assets held in trust avoid probate as well.
Special Needs Planning
If you have children with special needs, a trust can help provide for those special needs beyond your death, providing financial assistance for the long term when you are no longer here to care for that child.
Protection from Creditors
Depending upon the type of trust you have, the assets you have placed in trust can avoid being subject to creditors and ensure they are used for their intended purpose of providing for loved ones.
Estate Taxes
Transferring assets to a trust can reduce or eliminate Estate taxes. In essence, certain trusts allow you to move assets out of your estate by irrevocably transferring them to a trust, thereby reducing your overall estate value and reducing or minimizing the estate that might otherwise be subject to taxes, both on a federal and state level. While there are a number of different types of trusts, good trust work always considers tax planning as part of the big picture.
Maintaining Control
Trusts afford a greater level of control than does your Last Will and Testament. You will be able to structure your trust to follow through beyond your death in spelling out how and when your assets will be distributed and to whom they will be distributed. As an example, if you have young children, you don’t necessarily want all your assets passing to them in one big lump sum. You can dictate how to distribute these assets over time, in some cases marked by milestones such as reaching a certain age, staggering your transfer of those assets to help assure the funds or assets are not squandered in short order by someone too young to appreciate the merits of long-term financial planning.
While the aforementioned list of reasons to consider a trust is not all inclusive, the point here is that there may be benefits for you and your loved ones of having a trust(s) that goes beyond what a Last Will and Testament can provide. We don’t recommend “do it yourself” planning when it comes to trusts as you may do more harm than good if a trust is not properly drafted. If you care enough about making sure your estate is transferred to whom you wish, in the manner you wish and you desire to avoid unnecessary taxation, then you should seek out the help of an attorney who has experience in estate planning.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement and estate planning decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement; 10928 Eagle River Road; Eagle River, AK 99577; (907) 795-7452.
