This article addresses the common misconception that your estate is well in hand once they draft a Will, and that Trusts are only necessary for the exceedingly wealthy. This is simply not true. The Trust is a valuable estate planning tool for all, regardless of their financial status.
A little-known, but important, benefit of a Trust is that it allows your estate to bypass the probate court. Many believe that executing a Will avoids probate, but this is unfortunately not the case. A Will must be submitted to, and administered through, the probate court, which makes the contents of the Will, and the estate administration process, public record. A Trust, on the other hand, is not administered through the probate court. This ensures your (and your beneficiaries’) privacy is retained. Additionally, by executing a Trust and bypassing probate court, the Settlor ensures that legal, inventory, and filing fees associated with administering probate will not reduce the assets left for your loved ones.
One of the other main perks of executing a Trust is that it provides flexibility during the life of the person who established the Trust (called the “Settlor”). While a Will only takes effect once you have passed away, a Trust is effective as soon as it is created. Once created, the Trust becomes a vessel for the distribution of your estate upon death in accordance with your wishes. Throughout your lifetime, you can transfer almost any asset you own into the Trust by titling that asset in the name of the Trust. Alternatively, you can instead list the Trust as your beneficiary for most assets, such as bank accounts and investment accounts, and that asset will be automatically transferred to the Trust upon your death. Further, you do not need to give up any of your rights to any of your property even if you do transfer it to the Trust during life; you still retain control over all Trust property during your lifetime. If you later decide that you want to sell an asset you previously transferred to the Trust or gift the asset directly to someone, you can do this too. Conveniently, you can change the Trust as much as you want if you decide any part of it no longer represents your wishes. Nothing in the Trust is set in stone until you, the Trust Settlor, pass away.
Another benefit of establishing a Trust is the level of control the Settlor retains over disposition of assets upon death, in comparison to a Will. When a person dies with only a Will in place, the distributions directed by the Will go directly to the beneficiaries (provided they are at least 18 years old). This might not be best idea for those beneficiaries who are young, disabled, have substance abuse issues, or are just bad with money. With a Trust, a Settlor can plan for all these issues by including protections and conditions in the Trust document.
Further, if a beneficiary is a minor at the time of the Settlor’s death, that beneficiary’s share can be retained by the Trust until that minor reaches a certain age. The Settlor can even direct that, while the beneficiary is a minor, distributions will be made to the legal guardian of the minor beneficiary to help with things like the child’s tuition or medical expenses. The Settlor can also decide when and how the distributions to this young beneficiary will be made. For example, the Settlor can direct that the beneficiary will receive 25% of their share of the Trust assets at 21, 50% of their share at the age of 25, and the remaining 25% of their share at 30. This ensures the young beneficiary does not come into a large amount of money all at once only to spend it all on an impractical new car, for example, rather than on the house or education they might have chosen had received the money at a more mature age.
Also, if one of your beneficiaries is disabled, a Trust can ensure that gifts for the benefit of a special needs child or grandchild, for example, are used for their benefit but are not going to end up disqualifying them from any means-tested benefit they may depend on.
Finally, perhaps you are justifiably concerned that a loved one with substance abuse issues or a gambling problem may use the funds you leave them to feed their habit. A Trust can handle this issue as well. The Settlor can order that Trust distributions to this beneficiary are only provided for the health, education, maintenance, and support of the beneficiary. To ensure these distributions are not being used to purchase addictive substances, the Trustee may even make payments directly to the respective individual, business, or institution on behalf of that beneficiary, such as their landlord, college, or cell phone provider.
A Trust is a handy tool that can benefit most people. There are many more benefits to establishing a Trust, such as tax and Medicaid planning. If you have any questions or would just like to learn more, I invite you to contact the office of Cooper & Riesterer, PLC at (810) 227-3103 or learn more about us on the web at www.crlaw.biz. We recently merged with the Nawrocki Center for Elder Law, Special Needs & Disability Planning, and collectively have more than 50 years in Estate Planning and Probate Law experience. Whatever your gifting and planning needs are, our team is here to help you create the perfect estate plan to accomplish them.
Eric E. Maul, Reflections – Ogemaw County Herald | Oscoda County Herald | Arenac County Independent, Spring 2022