Charles N. Doberneck

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A Few Good Reasons For Using Trusts

Posted on June 25, 2014 at 9:30 AM

Trusts have been an important tool in estate planners' toolbox for a long time.  And they have gotten the attention of the general public in recent decades for their ability to avoid probate (although creating a trust is not the only way to avoid probate, and avoiding "probate" in Indiana is not the big deal it might be in other states due to the availability in Indiana of unsupervised administration).  So, sure---trusts can avoid probate, but there are many other good reasons to consider creating a trust, either under a will (a "testamentary trust") or during lifetime (generally a revocable living trust).


Those reasons include:


1.  Management of property for the surviving spouse or child (especially a minor child or child who has special needs or may not be competent to manage property on his or her own).  This is particularly important if sizable amounts are involved (of course, what is "sizable" is relative from person to person).  The Trustee who might provide such management could be either a trusted and competent relative or a financial institution that provides professional investment and trust administration services.  A trust can continue for the life of a beneficiary or until the beneficiary reaches a certain age.  The person creating a trust can tailor the terms of the trust to do almost anything he or she might want to do.  The Trustee can be given discretion to pay money for the beneficiary's support, education, health, or other purposes, or the Trustee can be directed to make annual distributions in a designated amount or percentage of assets or lump sum distributions at particular ages or life events prior to the age established for final distribution.


2.  Concerns about the remarriage of the surviving spouse and providing for one's own children.  In the typical marriage, each spouse will leave everything outright to the surviving spouse.  In that situation, what is left to the surviving spouse immediately becomes his or her own property and can be left to a new spouse, and completely leaving out the children of the first, deceased, spouse.  Leaving all or part of one's estate in trust for the surviving spouse, with provisions for payments of income and principal to the surviving spouse, with the remainder to one's surviving children, can address that concern.


3.  Provide protection to beneficiaries from creditors.  Property left to a beneficiary outright can become immediately available to claims of creditors or judgments.  Property in a trust created by one person for the benefit of another person is generally not subject to claims of creditors or judgments unless and until property is distributed to the beneficiary.


4.  Eliminating or reducing federal estate taxes on taxable estates over $5,340,000 in 2014 (Don't forget that life insurance, retirement accounts, and property in trusts or other "non probate" assets are all counted).  For married couples whose combined property exceeds $5,340,000, the key is for each spouse to have enough assets in his or her individual name and to set up either a testamentary trust or a living trust to hold some portion (or all) of the assets that are to pass for the benefit of the surviving spouse.




Categories: Trusts, Minors, Marriage And Divorce Issues