ESTATE PLANNING: Trusts (Part II)
As Americans, we probably do not properly appreciate the fact our legal system allows for the use of the many different types of trusts clever estate planning attorneys have developed over the years.
In our firm’s international practice, we work with Europeans and South Americans, whose legal codes essentially disallow (or disregard) the concept of a trust. It is sometimes hard to explain to such clients the many advantages of a trust because it just sounds too good to be true.
Q: So, you’re saying I can put my assets into a trust and no creditors will be able to touch them?
A: That’s right. The trust has to be set up in a particular way, but you certainly protect your assets from creditors through the use of a trust.
Q: Can I still control and have access to my assets even though even though they belong to a trust?
A: The simple answer is “yes.” The full answer will be part of the upcoming article on asset protection trusts.
Q: When I die, my estate does not have to go through the probate court if my assets are in a trust?
A: That’s correct. Your beneficiaries do not have to wait for a court order, and your estate will not be depleted by court costs and legal fees.
Q: I don’t want a money grab when I die. With a trust, can I control precisely who gets what, when and how?
A: This is one of the major advantages of a trust. Having a will is certainly better than nothing, but a will certainly cannot give you the kind of control a trust can.
Q: What about in-laws? I want to protect my heirs from their spouses and their spouse’s family.
A: There are some situations, such as with homestead properties, where the use of a trust is the only way to accomplish this goal. [ Read more about homestead rights and trusts here]
Q: Can I make sure my loved one with special needs is taken care of?
A: Yes. In fact, there is something called a “Special Needs Trust” that is designed specifically for this purpose.
Q: I am concerned about losing my medicaid benefits. Can I use a trust to avoid that?
A: Yes. There is a particular kind of trust commonly used to protect medicaid and other government benefits.
Alright, so you can see there are many advantages to incorporating a trust in your estate planning. But, what is a trust?
I tell clients they can think of a trust like a company. That is not a great analogy, but it does at least help to think of the trust as an entity that is separate from you personally.
Your trust may be your alter-ego, but it is not you. And, that is the key feature that makes the trust so useful.
Since the trust is not you, then the assets that belong to the trust are just like assets that belong to a different person. [ Caveat: The trust must be set up in a specific way for this to work. ] So, the trust can be used for asset protection. That is, even though you may personally be subject to collection by a creditor, your trust is not.
More on Asset Protection
The same is true for avoiding probate. Even though you will die, your trust will not. In that sense, it is like a company. The trust will live on, and the trustee will continue to carry out the instructions you leave in the trust agreement. For that reason, there is no reason to subject your estate to the court system for probate. Everything that you put in place with your trust simply carries on after your death.
As mentioned, there are some ways in which a trust is not like a company. In reality, most of those differences come down in favor of the trust. In other words, in most ways, a trust is actually better than a company. Here is an article that compares and contrasts the features of a trust to those of an LLC.
Trust vs. LLC
The next article in this series describes what it means to “put assets into a trust” and exactly how to do so.
Later articles in this series will explore a few of the most common types of trusts used for estate planning, such as a living trust, as well as common strategies, such as a Pour-Over Will & Trust combination.
“Your trust may be your alter-ego, but it is not you.” – J. Harrington