Articles by  Alice Reiter Feld

ARE YOU A TRUST BUSTER OR A TRUST MUST-ER?

As an estate planning attorney, one of the most common concerns I hear from my clients is the fear that when they die the wealth that they have spent their entire lives accumulating will be "blown" by their children or grandchildren within a matter of months. I call this the "first red car" dilemma--that is, the offspring will spend the money on the first red car they see! Should the parents be concerned about this at all? After all, they'll already be dead. Why should they care how the children or grandchildren spend the money? Isn't this like trying to "rule from the grave"?

My answer to this is a resounding no! In fact, I believe that its your responsibility to leave your estate prudently and cautiously to those you love. This is a unique opportunity to protect your loved ones and express your goals and hopes for them. Quick money, especially a large sum, can be intoxicating. Sometimes, it is spent foolishly, and once spent it cannot be returned. The child may regret their spending spree, but it will be too late. What can we do to protect our loved ones and ensure that their retirement years are provided for?

The answer is simple: Establish a trust. Trusts are not only for the rich and not only for tax planning. This is a middle-class myth.

Many of you know about trusts in the context of Revocable Living Trusts. These are documents that are established during your lifetime that provide your family with protection against the costs and aggravation of probate or guardianship proceedings. The middle class has learned to embrace this tool because they see the obvious benefits. But there is much more to trusts than this and many additional important uses.

A trust is an entity that holds title to assets for the benefit of a person or persons. The grantor (the person who creates the trust) names a trustee to manage the property held by the trust and to do other administrative tasks such as keeping records and filing tax returns. The main job of the trustee, however, is to distribute the trust assets in accordance with the grantor's directions in the trust document. The guidelines established by the grantor allows the grantor to be as strict or liberal as they choose, to give the trustee a great deal or discretion or very little, and generally to be as creative or flexible as they choose in determining how the funds should be distributed.

Some of the most common uses of trusts (but by no means exclusive) are to

• Set an age or ages at which time the beneficiary can inherit or provide for scattered/deferred distribution of income and/or principal;

• Provide specific items on which the money can be spent (such as education, health, housing, business, etc.;

• Provide orderly distribution of assets;

• Provide for a second spouse and protect children from first marriage;

• Provide how the assets should be invested during the term of the trust;

• Provide a trust for a family member with disabilities or "special needs" in order not to interfere with their government benefits;

• Plan estate taxes for estates over $675,000;

• Transfer assets to minors;

• Prepare to qualify for Medicaid;

• Provide for the care of the grantor during his/her lifetime;

• Avoid intangible taxes.

Your choice of trustee is very important. Many people use family members, but this can often create tensions. I recommend either a professional trustee (such as a bank) or a professional trustee and a family member jointly. Many attorneys and accountants can also act as trustee.

The use of trusts in estate planning is not new--far from it. Trust laws and the foundation on which they lie go back centuries. What is new is that this staple of estate planning is no longer reserved for the rich. Trusts can provide solutions to common estate planning situations and concerns. Learn to embrace and not fear this very versatile tool.