This article originally appeared as a column for the Cleveland Jewish News.
When you think about estate planning, you probably think about a will. You may think about powers of attorney in the event you should become incapacitated and can no longer make health care or financial decisions on your own. You may even think about a living will. What you may not think of – but perhaps should – is a family or similar type of trust for your estate.
In simple terms, your estate is everything you own, from the antique desk, to your home, to your investment accounts. A trust can help preserve that estate in the manner that you choose.
Generally speaking, there are two primary types of trusts you might consider, a “revocable” trust and an “irrevocable” trust. A revocable trust is, well, revocable. Its provisions can be changed or revoked at any time during your life. The property within the trust remains yours, as does any income earned on it. Only after your death does the property transfer to the trust beneficiaries. An irrevocable trust, on the other hand, cannot be changed or dissolved once it has been created. Assets become the property of the trust, and are no longer “yours.”
In either scenario, it essentially works like this: You set up the trust and you transfer assets into the trust. When set up properly – sometimes with the addition of an additional limited liability corporation or similar entity – you retain control of the assets. You will, then, name a trustee who will take over in the event you die or become incapacitated. This person will step in to manage the trust assets in line with the specifications you spelled out in the trust. Note that even though this person could face litigation and a whole lot of other mishegas if he or she fails to follow the provisions of the trust, it is still important to name someone that is responsible and capable and, above all, someone who you trust with such an appointment.
Why create a family trust?
One very important and useful reason to set up a family trust is to avoid probate. When an estate goes before the probate court, the process is lengthy, paperwork intensive, and can be very costly to your heirs in terms of things like appraisals, attorney’s fees, executor’s fees, and the like.
Further, a trust can make the necessary funds available to your future caretakers for your benefit when you are no longer able to handle your own affairs. Plenty of individuals attempt to solve this problem by simply naming their children as joint owners of accounts and real property. But issues can arise since they become joint owners of the property and your assets become accessible not only to this “co-owner” but also to his or her creditors – not a good idea if your child does not handle money well!
A trust also provides you with the opportunity to very specifically spell out how your assets are to be used, and when they will be distributed. For example, you might leave real property to be used for a particular charitable purpose. Or, you might indicate that your teenage grandchild cannot access his funds until he is of an age at which you believe he will use them for college expenses instead of a shiny new car.
A trust might also help you defer or reduce estate taxes payable by your heirs.
If you are marrying or remarrying, a trust could work in conjunction with a premarital agreement, or perhaps even in place of one, to help segregate your assets in the event you subsequently divorce.
And, the aging and elderly will frequently establish trusts – specifically irrevocable trusts – in order to qualify for certain programs and to protect their assets from recoupment by programs such as Medicare and Medicaid.
Where to start?
If you believe that a trust may be right for you and your family, you should speak with an experienced attorney, financial planner, and accountant. When they are established correctly, trusts can be a very useful part of your estate plan and can save you and your heirs a good bit of time, money and hassle down the road.
*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.