They constitute a separate legal entity, which can own property, sign contracts, sue or be sued, hire and fire managers or employees, just like a corporation or an LLC can. Yet, they are private, and not registered with the Secretary of State. Depending on your purpose, no one but family even need to know a trust exists. As long as the person who set it up (you) is alive, the IRS and State Department of Revenue “disregard” them - - so you also don’t need to file any tax documents. Even when you do need to file tax records, the terms and conditions of your trust are still very private.
But the Biggest Benefits for Most People? No probate at death, because trusts don’t die. They just change managers. And here’s one that is surprisingly important: your right to gradually, incrementally, give up control, as you train the person that you want to take over managing your affairs for you (e.g., an adult child) during your final years. That simply cannot be done with a mere “Power of Attorney” – those are “clunky” and “jarring.” They provoke anxiety, especially as one gets elderly and infirm. (See below.) The MANY other benefits of trusts are summarized below.
Will I Risk Losing Control, or Give Up Rights Over My Property, by Creating a Trust? No. None. You’re still in charge 100%. You’ll wear three hats. You are the Creator of it (“Settlor” or “Trustor”). You’re the Manager of it (“Trustee”). And it exists solely for your benefit (and perhaps your spouse’s) as long as you live (you're the “Beneficiary”). In a married couple, when one spouse dies, the trust continues to be Solely for the remaining spouse – and no one else - as long as the remaining spouse is alive (i.e., unless you want it to work differently). And it’s completely “revocable,” and can be changed in any way you want, by You, throughout your life. You and your spouse Never Lose Control of your money or assets, by putting them into a trust.
Will Having a Trust Add Costs and New Hassles to Our Lives? No, once it’s set up properly. While either husband or wife is alive, it’s called a “Grantor Trust,” and requires no separate Tax ID number, or additional tax returns. Even your mortgage banker cannot object to your house being owned by your trust. You’ll manage your property “held in your trust” almost exactly like you did before you created a trust. There’s almost no learning curve.
Why Not Just Use a “Power of Attorney”? A Power of Attorney grants someone else the authority to manage your property and affairs for you. But it’s “clunky” in that the power is either yours, or theirs. On, or off. You manage your affairs, until the moment when they do. Estate planning and Elder Law lawyers see frequently that letting go of all control, all at once, is scary – it's a major life shift – and not a proud moment. As a result, most clients wait far too long before they finally let go of control (which causes other problems). With a trust, you invite the next generation of manager to share power with you, as a “Co-Trustee,” and you train them, sharing power or control in whatever way YOU are comfortable with, for as long as you want. Someday – maybe – you resign and let them take over 100%. This “co-trustee” sharing power is less anxiety provoking. You gradually turn over the reins, as you train and guide the next generation, while your mind is still clear and strong. It leads to better outcomes. And a “power of attorney” is not always enforceable. The law does not force financial institutions to honor them. Occasionally, they refuse to. But they can’t refuse a “co-trustee.” He’s a legal owner of the property. A trust is more certain to get cooperation from banks, etc., with fewer hassles.
“Continuity of Management” – another Major Benefit of Trusts. This rarely gets discussed. Since a trust doesn’t die, and doesn’t go through probate, but merely changes managers (“trustees”), there are huge benefits to be gained from the resulting continuity of property management, and/or investment management. Few things necessarily have to change when you die. Or even when the second spouse dies. Some do. But the aspects of management that Don’t have to change can yield significant benefits to your family. That is simply not possible using a Will, or a Power of Attorney.
Are Trusts More Private? A trust is extremely private, both while you’re alive, and after you’re gone. In contrast, probating a will after your death is extremely public. It’s done in court, and everything that anyone says, files, or argues is a public record. (A trust does not get probated.) If you have any circumstances in your family that you’d prefer not be wide-open publicly - then use a trust. Not a will.
The “Swiss Army Knife of Estate Planning.” One reason trusts are so powerful is that they are extremely flexible, if your lawyer really knows trust law and trust design. Trusts can be drafted (and later managed) to achieve a wide variety of different, beneficial purposes. Which “goals” or “purposes” should you want from your trust? It all depends on your family members, their ages, lifestyles, the dynamics between them, your goals, your fears, and your unique collection of assets. And no one has just one purpose. You’ll want to achieve multiple different goals, with one trust. I can custom-design a trust for precisely the goals and purposes that fit your family.
Creditor Protected Trusts. Even the most mature, responsible, adult kids (beneficiaries) should not receive any significant inheritance outright, free of trust, when it's so easy for you to protect their inheritance from their creditors. That includes the risk of a nasty divorce. (Sometimes thought of as a “Parental-guided Prenup.”) You can ensure, in advance, that your heir will not lose his inheritance to “future ex-spouses.” Plus, life is risky, and our society becomes more litigious all the time. Protect their inheritance from failed businesses, bad investments, car wrecks and other types of "negligence" suits, and crazy jury verdicts. Depending what happens later in their life, these "creditor protections" could prove utterly invaluable to your children or grandchildren. They can only be done with a trust.
IRA Management Trusts. One of the best examples of "leveraging" your wealth, to maximum long-term, positive impact on the lives of your loved ones, is achieved by leaving your beneficiary a portion of your 401K or IRA or Roth. But leave it in a special trust where it can grow and compound, tax deferred, (and last) as long as possible. Give your trustee guidance that will allow him to stretch it out, and multiply the initial amount, perhaps many times over, using it all for the beneficiary's best interests, literally over decades. This trust is also the only legal way to protect it from their creditors, including divorces. Instead, if you just leave the IRA to them, outside of any trust, then it is vulnerable to all their creditors. And worse: studies show that about 85% of the time, they withdraw the money, pay the taxes, and spend it, within 1 - 4 years of inheriting it, which destroys leverage and massive future potential. A huge "Opportunity Cost."
Special Needs Trusts [a.k.a. Supplemental Needs Trusts]. If you have any child, grandchild, or heir with autism, Downs Syndrome, or any disability, then you absolutely must be very careful "how" you leave them money or property. Even heirs with addictions or poor health, who may someday be eligible for public (governmental) assistance of some type (e.g., Medicaid, Kan Care) would benefit tremendously by receiving their inheritance (regardless how small) in a particular kind of trust that keeps it separate from all their other assets, for purposes of their "eligibility" for public aid. Without doing this, it's like you made a gift at death to the government. With this, you achieve "leverage" and magnify your gift, and its benefit in their life.
Incentive Trusts. You may not want to give "with strings attached." But putting healthy incentives in place, with your gift, can often be very wise, compassionate, and have long term benefits on your heirs' lives. Some children and grandchildren need that extra bit of guidance, and that incentive to behave, or to try hard. It need not be drafted as overly controlling, or meddling. Trusts can build in very healthy incentives, to help mold and guide your heir's future behavior and even their healthy character development. There are a thousand shades or variations here, and many can be quite beneficial, indeed. They may even thank you and appreciate you for having cared enough to build in good incentives. It's one more way to show how deeply you cared about their long term development and happiness.
Charitable Trusts. These are fascinating. They can net you savings on income taxes during life. And do great good for a beloved charity, during life, and for many years after your death. And perhaps arrange to have your heirs involved multiple times per year, helping them practice and internalize values like philanthropy, civic involvement, and to grow in character, and self-esteem, from “their” charitable giving over many years. See me, to discuss how you can leave more than just a financial impact on the lives of your loved ones.
Taxes – Plan for a "Step Up" in Tax Cost Basis – Create efficiency in Capital Gains taxes. For most families today, "Death Taxes" are not a problem. But other taxes are, such as income taxes, and capital gains taxes. Those are a problem. They will affect how much of your wealth your heirs get, at your death, versus how much the government gets. A very significant amount of money can be saved, or lost, to taxes - depending whether you plan right, or wrong. The amounts lost, or saved, are far, far larger than the cost to plan well, while you still can.
Business Succession Planning. If you own all or part of a small business, then you Must be concerned about how it will be managed after your death, including possibly an early or unexpected death. It not only needs to be managed well in the days and weeks after you pass, but you want control to be vested as quickly as possible in the family or business partners that you trust to run it best. This can only be done through advance planning. It can turn a disaster into a manageable crisis with good long-term outcomes. Your Estate Plan, and your Business Succession Plan, must work hand in hand. In some families, they are so intertwined, it is all one plan. If a small business is among your assets, you must take this type of planning seriously.
Upstream Planning, and Trusts Built for Those Soon to Inherit. You can never protect your own money from your creditors, as easily as we could protect an inheritance left to you by someone else. If you may inherit significant money or property from a parent, etc., then don't wait. Call. We may still be able to create protections from your creditors.
Pet you love dearly? Use a "Pet Trust." Give possession of the animal, and money to maintain it very well, to a trusted friend or family. Cover all Vet bills. Give incentives for treating it super well, and keeping it alive as long as possible. Leave the remainder, at pet’s death, to that caretaker, your other heirs, to a charity, or some of each.
Family [Ancestor’s] Cemetery or Grave? Maintain or protect it over decades, or even hundreds of years? It does not take much money! Use a “Cemetery Maintenance Trust.” Takes very little initial funding, to grow over time with investment gains, paying for annual, or periodic, maintenance, refurbishing, maintenance, or even replacement of components. Who knows what the future holds? There could even be a legal challenge, where a real estate developer, or city, wants to remove the cemetery. Your trustee will have the power, and funds, to fight back and preserve the cemetery, with a minimally funded Cemetery Trust.
TRUSTS CAN DO EVEN MORE THAN THIS. (But this page of my site is too long, already!) Know this: Trusts are Powerful and Flexible. I can custom draft one that meets your needs. Call me.