The Essence of Trusts
Diana thought that she had learned her lesson when her husband, Benny, died without any kind of estate planning documents. The lengthy probate was made doubly difficult because they had a business together as well as a son with disabilities. With no estate documents – not even a Last Will and Testament – Diana had to struggle every step of the way to ensure her own control of the business and make sure she had money to take care of her son’s medical needs. When she finally succeeded, the first thing that she did was create her own Last Will and Testament, making sure to clearly define beneficiaries, and appoint a personal representative and a guardian for her son and her son’s assets – her sister Jane served in both roles.
She didn’t go to a lawyer, though, because she wanted to make sure she got it taken care of immediately and thought that doing it herself was the fastest way. It probably didn’t help that Diana was extremely busy taking care of both the business and her son, making it difficult to get away for a legal appointment; not to mention the idea of paying for a lawyer after going through her recent financial struggles was unappealing. Her reasons are perfectly understandable, but she would come to hugely regret them.
Why? Because creating a simple Last Will and Testament was all the estate planning that Diana did, and when she passed away it led to a number of problems. First off, Diana had a large estate. Jane ended up losing a large chunk of the money intended to help her care for her nephew due to estate taxes. Diana’s estate was also held up in probate for a long time, and things were made even more difficult when her brother, John, challenged the Will. He thought he should have inherited more and also been named personal representative. He ended up losing his battle, but did succeed in prolonging the estate administration and wasting estate assets. Ultimately, when Jane did finally receive the assets , she proved to be singularly bad at managing them and made multiple poor financial decisions. Within a decade, money that should have lasted a lifetime was gone, and Diana’s adult son had to go into a government-run home. It was an outcome that neither Diana nor Benny would have wanted.
Perhaps the worst part of the entire story is that literally all of these problems could have been avoided if Diana had gone to an experienced estate attorney, because she almost certainly would have been told about trusts.
Why Trusts Are One of the Best Ways to Protect Your Estate
While trusts aren’t right for everyone, many find them to be extremely valuable. One of the biggest reasons is because of how versatile they are. When you have assets held in a trust, a Trustee is appointed to oversee them. However, the Trustee can be your spouse – or even you – so you’ll be able to remain in control of your assets for as long as you’re of sound mind. And when that time comes, you’ll have already appointed successors who have a fiduciary duty to administer the trust pursuant to your specifications, always acting in the best interest of the beneficiaries. That means fewer worries about the Trustee burning through your assets because of incompetence or mismanagement. If the Trustee attempts to use it for something that isn’t deemed to be in the beneficiaries’ best interests, they may become personally liable for breach of fiduciary duty. Moreover, because a trust is a separate legal entity, it bypasses probate and guardianship. This means that your family will likely experience a swifter and smoother transition, which is otherwise often time-consuming, expensive, unpredictable, not private and, most importantly, emotionally devastating. Best of all, this is something that can continue to help your family for generations. Trusts have a framework in place to appoint Trustees as needed over time, and Florida law enables them to last for up to 360 years!
In addition to bypassing probate and guardianship and enjoying centralized management of the assets in trust, trusts are extremely helpful in protecting your family’s assets. Irrevocable trusts are used for asset protection planning during life. Transfers to irrevocable trusts are characterized as gifts for tax purposes. Since the assets are removed from your direct control, they are generally safe from creditors. Alternatively, revocable trusts, or living trusts, are created during life. Transfers to these trusts don’t count as a taxable event. While they do not provide an asset protection benefit during life, they are the most common vehicles to avoid probate and guardianship and always complement a pour-over Last Will and Testament.
Another benefit of trusts is that they strengthen the argument against incapacity and undue influence, which are the usual suspects for Will contests. This is because revocable trusts are created during life and every decision you make as trustee supports the existence of mental capacity and lack of undue influence. With more control, trusts represent wonderful ways to prevent your wishes from being challenged after you die, as is often the case when someone only leaves a simple Will.
Finally, Florida trusts not only help you to bypass probate and guardianship, but they are also protected from beneficiaries and their creditors as soon as they become irrevocable. All in all, trusts are very handy instruments that should be considered in most individuals’ estate plans, and you owe it to yourself and your loved ones to learn more about them.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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