Leaving Assets “in Trust” Protects Your Family
When it comes time to prepare, update or revise your estate planning papers, you should consider whether it is attractive to leave assets “in trust” for your loved ones. First, what does it mean to leave assets “in trust” for loved ones? It means leaving assets subject to the rules of a trust that has certain terms governing its administration. What might those rules be? Those rules would be parameters. For instance, a simple trust for a loved one might state that the loved one is both the trustee and the beneficiary; they are entitled to income or principal from the trust.
If you wanted to ensure that the assets in the trust were NOT included in loved one’s estate for purposes of the federal estate tax, you might indicate that principal is only to be invaded for the loved ones needs related to their health, education, maintenance, and support in their accustomed manner of living. This standard “health, education, maintenance, and support” is ascertainable. As such, the entire trust would NOT be included in the loved one’s estate. Leaving assets to a loved one so they can benefit from it during their life but so it is NOT exposed to federal estate taxes in their estate is basic planning that can mean big savings for your family.
If you wanted to make sure the assets would not defeat eligibility of a loved one from obtaining government benefits (such as in the case of a child with special needs), then you might want the trustee to be independent and the standard for distributions be purely discretionary for the benefit of the loved one but constrain the trustee’s discretion by stating that they shall not distribute except as to supplement any government benefits the loved one may be receiving. The key here is if the trust assets do not replace or supplant the government benefits, but rather just supplement the benefits, then the threat of losing eligibility for government benefits can be avoided. This can be a big plus for your loved ones.
If you want to keep your assets in your bloodline so they are not lost to in-laws in a divorce or another lawsuit, you might ant to leave your assets to your children “in trust” so they, as trustee, can distribute to themselves, as beneficiary, for their needs related to their health, education and maintenance. If there is also a clause stating their right to the income or principal shall not be subject to claims of their creditors, then the trust assets would be protected from most claims including claims of equitable distributions and alimony in the event of a divorce. As you can imagine, doing this saves the families lots of money. After all, 50% of marriages are said to end in divorce. Leaving assets in trust can ensure these assets will not be lost to divorce and thus will be kept in your family.
Mark F. Winn
Attorney at Law, PLLC