Why Have a Trust?
Maintaining the financial care of the Trustor, the person who is making and funding the trust, is the first purpose in having a Trust. The document can clarify how the assets are to be used during the Trustor’s lifetime. My clients generally clarify how the assets should be used if their medical care becomes so costly that the Trust will deplete its assets. The Trust document specifies how the Trustee may or may not invest and place desired restrictions on the investment strategy of the assets. Basically, it is a document that allows the Trustor to control his assets at all times during his life, even if he cannot actively participate in these decisions at any given time.
Avoiding conservatorship used to be an additional benefit to having a Trust. With the ongoing medical advancements and lifespan of the population increasing, this purpose is becoming more of a primary reason to hold a person’s assets in a Trust. Conservatorship proceedings in court can be costly and occur when there is great duress and emotional trauma. They can also be very contentious. A person can maintain control over his assets by stating in a Trust who will be his financial surrogates, Successor Trustees, if he cannot control his assets himself. The transition of serving between the Original Trustee and the Successor Trustee should be seamless and without court involvement.
Transferring property upon death is a third purpose in establishing a Trust. Generally speaking, if a Trust is funded properly with all of the assets owned by the Trustor, the Trust distributions after the death of the Trustor are without court supervision. The Probate Courts can become actively involved if there is a dispute or concern by the survivors. But, generally, the transfers upon death are clarified with specificity. An attorney should always be consulted by the Successor Trustee to ensure the proper handling of these distributions.
Tax planning is the last major reason for having a Trust as a vehicle for owning property. The federal tax laws change regularly and the general population does not necessarily keep track of legislation and the practical effects of these laws. State laws must be incorporated as well as federal legislation. Trusts can be drafted properly today with provisions that give Trustees the ability to make tax elections based upon the laws in effect years in the future. This can be a great gift to those who will be affected by tax implications of inadequate planning.
Trusts truly are a wonderful vehicle to hold your assets. They are best drawn up by lawyers who will listen to your desires and ask probing questions about your family situation and history, and then implement these into your plan. Run fast and far away from cookie cutter Trusts drawn up by non-lawyers and off the shelf stationary forms. These can be quite detrimental because of conflicting provisions and use of phrases that have legal effect but are not understood by the non-lawyer drafter. Lawyers are regulated and generally have malpractice insurance so that you are protected. Docs in a box have neither.
