Friday, June 7, 2013

Why establish a trust?

Trusts are tools or mechanisms for addressing specific concerns.    Common reasons for establishing trusts include the following:
If you want to give money to someone but restrict how the money is spent, a trust can do that.  For instance, you can establish a trust for the benefit of a grandchild to fund education only.
If you are the parent of young children, you are going to want to build into your estate plan a trust to hold assets that you are bequeathing to those children in the event you die.  Children under the age of 18 cannot legally be in charge of their own money.  So, if you simply left assets outright to minor children, then either the asset would be required to be held in a bank account, or a statutory conservatorship would have to be established.  Holding money in a bank account means that there is no potential for any significant appreciation (and at today’s low interest rates, no potential for any significant income) and use of that money for the care and support of the minor would not be permitted without court approval.  Setting up a statutory conservatorship is relatively expensive and cumbersome compared to a trust administration.
Even if your child is over the age of 18, it may not be advisable to give a young adult unfettered access to the kind of assets that a 30/40/50 year old parent has accumulated over the parent’s lifetime.  Think of what you might have done if you suddenly had $200,000/500,000/1,000,000 at age 18.   The money being held in the trust will be invested and disbursed by the trustee.  So, if a trust mechanism is used, the assets are there to be used for the care and support of the young adult but your child has to get the trustee’s agreement on how the money is to be spent.  For instance, the trustee can agree that a car is a reasonable way to spend the money but not by purchasing a sports car.  Then, as your child matures, the trust restrictions can gradually be removed until at some age, the trust is gone and your child in charge of his/her own money.  The education that is provided to the child by this process can include how to invest the kind of money involved as well as how to spend it. 
If you have children by a previous relationship, you may have a desire to make sure your current spouse/ significant other has access to assets during his/her lifetime but also want to control where the assets do after the spouse/significant other’s death.  A trust is a way to accomplish both desires.
If you have a disabled relative, you may want to explore setting up a Supplemental Need Trust or Special Needs Trust.  These kinds of trusts allow the disabled person to qualify for needs based governmental benefits, while allowing the trust money to be used for things that the government will not pay for.  These extras can be important items like medical care or devices that the government will not pay for or enrichment , vacations and entertainment.
If you have a person to whom you want to leave money but you are concerned that they do not handle money well, or that they may be in a relationship that makes them vulnerable to pressure to use that money for someone else’s benefit or they have creditors who might claim the money, a trust can be used to protect that person.
If you have estate or gift tax issues, disclaimer trusts, marital/family trusts, irrevocable insurance trusts,  charitable remainder trusts, or charitable lead trusts can help you minimize or avoid estate or gift taxes.
If you have further questions, we would be happy to answer your questions.  You can visit our website for more information:

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