Trusts and 10 Quick Tips About Them

These blog articles have one goal, education through communication. The conversational tone of these articles is meant to further that goal. With that in mind, lets dig into…

The Trust.

The Trust is one of the five pillars of estate planning. In Super Easy Ways to Understand Basic Estate Planning Terms, we commented that a trust allows for some pretty cool and specific distributions which can be used to help impart your values and beliefs unto your beneficiaries. This is so true, but the problem with a trust is that it is one of the five pillars that is most heard of or reference, but least understood aspects of estate planning.

    For our conversation, the term trust will refer to a revocable living trust, a revocable trust, life trust, family trust, grantor trust, or AB trust. This is because they all are essentially describing the same item.  That is where a living person creates an “entity” that has separate legal existence from the person that created it, and this “entity” holds property for the benefit of beneficiaries.

The Grantors generally maintain full control over the trust property while they are alive, with the ability to revoke, amend, or modify the provisions of the trust. One of the provisions in the trust is to appoint a trustee or trustees of the trust to manage and operate trust. In most trusts, the husband and wife are the primary, or first, trustees in charge of managing and operating the trust property. The Grantor can be the primary trustee because a trust exists the moment it is signed, and that existence is separate from the Grantor.

    In addition to the immediate existence and existence separate from the Grantors, trusts come with many benefits and very few downfalls.

   

    Personal and real property can be transferred into and out of trust with relative ease. Transfer requires retitling the asset.

The need for going through the probate process is eliminated (see The Absolute Beginner's Guide to Answering: Will Or Trust for more on probate). Probate is not required because the trust is the owner of the assets. Since the trust has a separate existence from the Grantors, the trust “stays alive” even if a Trustee or Grantor passes away, and the trust property continues to be governed according to terms of trust. On a side note, this is a great way to ensure all of your assets don’t end up in the hands of your minor children when they reach 21. By eliminating probate, you eliminate the expenses tied to probate, the delay of receiving property through the probate process (especially helpful for the surviving spouse), and you increase the level of privacy by avoiding the public nature of probate.

For a surviving spouse or other beneficiary, they can have immediate and continuous access to cash flow from the estate. This is because a will, or having no estate plan at all, requires a court order stating which person or people are entitled to receive the estate’s assets. Death, or naming a new trustee, doesn’t change how trust or its assets are handled, because the property is continuously governed by the terms of the trust.

A trust reduces the chance of someone contesting your estate plan after your passing. A trust takes away the need for the document which is usually challenged, the last will and testament. This a a great aspect, because if someone challenges your plan, whether it be a will or a trust based plan, the trustee must defend your plan in court. The trustee uses the assets of the trust to pay for the defense. The result is often a smaller estate to pass on to your loved one.

After mentioning a number of great benefits of a trust, I have to bring up a major downfall associated with a trust. This downfall is not a side effect of the trust itself, but more of the implementation of the trust. A trust with no property transferred into it is almost useless. Because the trust has a separate existence from the Grantor, any of the Grantor’s property not actually transferred into the trust, is not owned or controlled by the trust. If you work with Jeppesen Law, PLLC, we ensure that your trust begins and stays properly funded throughout its existence. We do this by either funding the trust ourselves or assisting you in funding the trust.

Call the office to set up an appointment to create your own trust or to have us review your current trust to ensure it is adequate and fully funded. (208) 477-1785.

Super Easy Ways to Understand Basic Estate Planning Terms

Welcome Back!

In Estate Plan?! I Ain't Rich! we covered the idea that estate planning is for everyone, not just the very wealthy. Once you come to grips with the idea that you need to take control of your own plan, you are faced with another road block.

Estate Planning Terms! What are these words? Is this a new language? It looks like English, but doesn’t read like English. What does it mean? (And these were just the first thoughts I had when I opened my first Wills, Estates, and Trusts textbook.)

With anything in life, to play the game effectively, you must understand the terms. I’ve found that a basic understanding puts people at ease and an attempt at advanced understanding puts people to sleep (except for your friendly family advisor who geeks out on this). So, what you need to know to fake until you make it; probate, last will and testament, trust, power of attorney, and health care directive.

Probate. This is an often misunderstood proceeding. Generally, this a court proceeding where one person is asking the court to determine how someone else’s property should be distributed after the second person passes away. The goal of probate is to get an order from court allow for distribution of the property. This is either done according to a will or the state’s law of intestate succession. That is you die without a will or trust and the state attempts to guess at how you would distribute your property. Often, it guess incorrectly and family rivalries and old bitterness arises.  

Last will and testament. This is a document prepared by you which distributes your property according to your wishes, allows you to select someone to represent your estate before the probate court (this person is usually called a Personal Representative), and allows you to nominate the guardians for your minor children. One drawback is that this document is not controlling until you pass away. But it is an invaluable document to have. Instead of the court guessing what it should do, a will allows you to tell the court exactly what you would like to happen with your children and property. Don’t like people making decisions for you? Me neither.

Power of Attorney.  A document where one person gives power to act (called an Attorney in fact) on behalf of another, when that person cannot act for themselves. Generally, this requires a doctor’s determination of incapacity. The use of this document hopes to avoid Guardianship court proceeding. A power of attorney can be active as soon as it is signed, or it can spring into action with a physician’s determination of incapacity. There are legitimate reasons for either option.

Trust. - A document which contains all of your assets and provisions for distribution of your assets. Trusts are controlling and active as soon as you sign it, unlike the will which only takes effect after you pass away. A trust allows you to manage property while you are alive and also allows for distributions while you are alive as well when you pass away. Trusts allow for some pretty cool and specific distributions which can be used to help impart your values and beliefs unto your beneficiaries.

An additional benefit of a trust is probate avoidance. If all of your property “held” in trust, there is no need for probate. This provides access to assets immediately after someone passes away.  Probate often requires a waiting period to allow the probate court to issue an order appointing someone as personal representative before assets are available for use (this is a law that many people unintentionally break).

Health Care Directive. Also called a Living Will or Advanced Directive. I like to refer to it as a health care directive because the terms living will and will are easily misused but have very different responsibilities. This document nominates someone to act on your behalf for healthcare purposes and allows you to make your own end of life decisions (ie life support, nutrition and hydration). With a health care directive you get to decide how your care is handled. The person appointed by you is guided by what you put in the health care directive. Your “agent” works with the doctors and helps to interpret your wishes.

           Wow! Even the basics can get heavy. But there you have it, a basic understanding of the pillars of estate planning and the court process associated with it.