The Top Five Benefits of Trusts
By: Barry E. Haimo, Esq.
March 21, 2022
HAIMO: Hi welcome back to Haimo. I’m glad to see you returned for a crash course on trusts. Here’s the big picture. A trust is an incredibly valuable and versatile tool to accomplish many of your estate and business planning objectives. Basically you create a separate legal entity that owns and administers property for the benefit of certain beneficiaries.
One or more trustees are appointed to administer the trusts. Pursuant to the documents precise instructions they must adhere to those instructions at the risk of being personally liable. That’s why trustees are called fiduciarie- because they’re subject to a higher standard of care in exercising their duties.
Because trusts are separate legal entities, they do not die like people do. In fact they can last up to 360 years in Florida. Since they can own virtually any type of property for a very long time without interruption, trusts ensure a smooth transition of the family and or business assets or wealth to subsequent generations. All the while the creator can still retain a fair amount of control over the property until the time of death.
Trusts can also prove to be extremely valuable if employed in connection with estate and gift tax reduction strategies. Tax rates have been higher than 50% in the past and future rates are far from certain. Failure to plan can result in the United States treasury keeping a large amount of your assets instead of your family.
However, most relevant to everyone, is how helpful they are at avoiding probate and avoiding guardianship-which you know now can be very time consuming, expensive, not private and dangerously unpredictable.
After learning about all of these benefits, coupled with the peace of mind of knowing that your assets will be preserved and protected for generations, I hope you see how valuable they are to mostly everyone. I’m sure it won’t surprise you that there are many types of trusts with each having unique advantages and disadvantages. Some are excellent for simple family planning. Others are useful for estate and gift tax planning. Still others can be used for current and for charitable giving.
Finally, trusts are excellent vehicles to integrate into a asset protection plan-thereby taking advantage of both estate planning and asset protection techniques simultaneously. Given how powerful trusts can be, you have to ensure that they are carefully drafted. Remember small mistakes often have dangerously large consequences.
We strongly advise you to retain the service of an attorney that focuses exclusively on wills and trusts and avoid doing it yourself at all costs. This concludes our brief overview of trusts. I hope you better understand how we can help you thank you for stopping by and stay tuned for more.
Understanding the Benefits of Trusts
1. Avoids Probate – Trusts own property in its name instead of your name. Remember that property can include everything you own. As a result of retitling your property into the name of your trust, there’s no assets to go through probate upon your death. It saves your family an incredible amount of time, grief and money. In my experience, the added time and grief associated with probate far outweighs the financial burden. Also remember that a will does not own property but merely documents your desired written instructions for how your property will be transferred to your beneficiaries — most notably — in probate.
2. Avoids Guardianship – As mentioned above, trusts own property in its name instead of yours. This is extremely important in the event that you become mentally incapacitated. Being mentally incapacitated simply means that you lack the necessary (legal) amount of cognitive awareness of the consequences of what you’re attempting to do via your estate planning documents. It can happen by way of head injury or illness, such as dementia and Alzheimer’s. In such an event, there’s no need to open up a guardianship to handle your financial and personal affairs because you don’t own any property in your name; it’s in the name of the trust.
By creating a trust, you’ve appointed someone you trust to administer your assets on your behalf. You’ve also chosen who you want to inherit your property upon your death and control all aspects of how and when they get it–possibly like a will. However, there’s far more advantages to you and your family to a trust than a will. The consequence of not having a trust upon becoming incapacitated is that guardianship proceedings will commence and a guardian over your property will be appointed by the court. You will have no choice in the matter. Taking advantage of a trust preserves your ability to remain in control of yourself and your property. A will offers no such solution.
3. Strength and Flexibility – As you can see, utilizing a revocable trust is advantageous to a will for many reasons. Another reason is that it is executed and administered during life, whereas a will becomes effective only upon death. Unhappy beneficiaries and unscrupulous family members unfortunately end up contesting wills all of the time. They need only prove that their claims occurred at the time of execution. In the case of a trust, dozens of actions/decisions are taken on the part of the grantor/trustee after execution and before death, each of which solidifies the defense that he or she had the requisite mental capacity at the time of execution. This is an often overlooked advantage.
4. Provides control even after you’ve passed away – A simple will generally: 1) appoints a personal representative or executor to administer your estate once you’ve passed; 2) appoints a guardian over the person and property of minor children in the event that both parents pass away; and 3)provides instructions for who will inherit your estate and in what form of ownership they will receive it. Wills can include a testamentary trust, which takes effect only upon death. However, as discussed in above, that type of trust lacks a stronger defense against claims of undue influence and incapacity. Therefore, it’s better to use a living trust, a/k/a a “revocable trust”.
Like a will, utilizing a revocable trust enables you to control who will inherit your estate and in what form of ownership they will inherit. However, because trusts are private instruments, they allow for more conditions of receipt and more control over the timing, amount and manner of distribution of assets. Additionally, you can instill your legacy of values upon your beneficiaries by conditioning receipt of property upon going to college, marrying within the faith or anything else that is important to you. You can even elongate the duration of trusts up to 360 years in Florida so they last many generations. Wills quite simply do not offer any such solutions.
5. Protection and preservation of assets for generations – Another often overlooked benefit of trusts over simple wills is that beneficiaries inheritance is protected from their creditors, which will include former spouses! If structured properly, the beneficiary’s inheritance will be protected from themselves, if financially irresponsible, or for any other reason that may place the assets at risk once you’re gone and they are in under the control of your beneficiary. The point here is that you have two choices: protect and preserve the hard earned money you intend to give to your family or don’t.
Reach out to Haimo Law today to learn more about the trust process. We can help you start your estate planning today and rest easy knowing your assets are protected.
Originally published 03/09/2020. Updated 03/21/2022.
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