By: Martin M. Shenkman, CPA, MBA, JD
Trusts Aren’t Only Appropriate for The Wealthy
Money Matters Radio – Estate Planning Checklist
Introduction/Overview: While trusts certainly can provide considerable benefits for the wealthy, they can be even more important for people and families of more average means. The key is to make sure that a trust is the best way to achieve your goal (many times there are less costly alternatives) and that you plan the creation and operation of your trust efficiently. Here are some of the reasons many Americans can benefit from trusts and some tips to keep your trust affordable:
Consider the following items?
√ Minor children. If you have a minor child, the safest way to leave money or other assets is in a trust so that a responsible person can, as trustee, invest and distribute the money.
√ Disabled Heir. If you have an heir who is receiving governmental aid they might need the assistance of a trustee to help manage their assets and protect them. Importantly, if money is given or bequeathed directly to the disabled person (donee or beneficiary) they might then become disqualified from receiving governmental aid. In these cases a special trust, called a “Special Needs Trust” or “SNT” for short, is commonly used. This type of trust can protect the money, manage and control the money, and prevent the loss of governmental aid. This type of trust will distribute money for special costs or needs over and above what governmental programs provide.
√ Probate. Way too much is written about avoiding probate. In the vast majority of cases probate is not the big deal most books and articles in the media make it to be. Sure there are war stories, but those aren’t the norm. That being said, if you have a condo in a state other than where you live, it might be simpler and cheaper to avoid a second probate proceeding in that state (called “ancillary probate”) by having a trust own the property. Be sure to discuss with your estate attorney whether this will work, the cost of the trust compared to probate, and whether there will be any negative tax consequences.
√ Divorce Protection. The vast majority of Americans never have and never will face an estate tax. But there is a potentially much more sinister risk likely to decimate the inheritance they leave their heirs, divorce. Although it’s common belief that 50% of marriages end in divorce, the reality is a tad more complicated and not quite as dismal. But whatever the rate you look at, it’s pretty high. For some categories of first marriages 50% is the rate. For second and later marriages the rate is even higher. If you want to protect the life savings you bequeath to a child or other heir, a trust is clearly the safest approach. So even if you’re not a Rockefeller and the cost of a well crafted trust is a bit pricey, it may be vary worthwhile.
√ Business or Malpractice Risk. It’s no secret that we live in a very litigious society. Radio and print adds extol the virtues of incorporating your business to protect your home, bank account and other personal asset from business suits. The risks those ads use as marketing scare tactics are real! (Although, those ads are generally wrong in recommending corporations. You should use a limited liability company and not a corporation in most instances, but alas that is a different question.) But why go to the lengths and costs of setting up an entity to protect your personal assets and not do the same for your heirs? The right technique for your heirs is to leave their inheritance in a trust that is structured to make it difficult for business or malpractice claimants to get at the assets.
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