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Plan Well, Retire Well

Saving and investing your money
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Are there advantages to a trust compared to wills and beneficiary designations?


There are lots of different tools you can use for estate planning. (See the last part of my post from March for a list.) So it's not surprising that a lot of us don't know how they work together, or which ones we should use.

Last month, I answered the first part of a reader's question, about whether you need a will if you have named beneficiaries on most of your assets. Today, I'll deal with the last part of their question, about trusts: Are there advantages to a trust?

Most estate planning tools do one thing: transfer an asset to a particular person or entity at your death. That is what beneficiary designations, Payable on Death (POD) designations, Transfer on Death (TOD) designations, and owning property as joint tenants with right of survivorship do. They do nothing until you pass away, and then they have a short but purposeful "life."

Wills also do nothing until you pass away, but they are somewhat multipurpose. In addition to saying who gets your stuff, you also use a will to name an executor and a guardian for your children. The will's "life" is as long as it takes to identify, value, and transfer your assets to your heirs. It could be a few months, or it could be years.

Trusts are different. They can exist during your lifetime and after your death. They are very multipurpose, and they can have anything from a very short "life" to a very long one.

Some of the things a trust can do are:

  • Designate someone to manage the assets in the trust if you are unable to during your lifetime, and after your death.
  • Avoid probate. But this is not unique. So do beneficiary, POD, and TOD designations, as well a joint ownership with right of survivorship.
  • Avoid probate in multiple states where real estate is owned.
  • Provide professional management of the assets.
  • Let one person receive income from the trust during their lifetime, such as a 1st or 2nd spouse, but preserve the assets for someone else, such as children from your first marriage.
  • Control your assets for many years after your death, according to your wishes.
  • Provide financial assistance to a disabled person without jeopardizing the government benefits they receive.
  • Dictate how much of their inheritance your heirs can access at a particular age or time.
  • Preserve assets for later generations.
  • For irrevocable trusts only, typically used by estates large enough to be subject to estate tax, which is $5.49 million for 2017:
  • Protect future appreciation of assets from estate tax.
  • Pass life insurance proceeds to heirs tax free.

Some trusts end shortly after you pass away, once they have distributed all of the assets. Others are intentionally designed to last for generations, controlling and doling out bits of your assets over many years.

So, are there advantages to a trust? Yes. Or at least, probably. They can do many different things, some of which cannot be done by any other estate planning tool. Whether or not that is an advantage to a particular individual or couple depends on their circumstances and preferences.

The more complex your family structure, the more extensive and complex your estate, and the more states in which you own real estate, the more likely a trust will offer advantages to you and your heirs.

According to a recent article on Kiplinger.com, a typical living trust costs from $1000 to $2500. I'm guessing that is a national average; I have heard of trusts that cost much more than that. For a small, simple estate, the benefits may not outweigh the costs.

Some people may have a negative view of trusts, as a result of the living-trust-free-dinner marketing technique. Lori Swanson, Attorney General for the State of Minnesota, issued an alert about this sales approach. She notes several issues with these "trust mills":

  • Trusts sold through these dinners are often created from boilerplate documents, meaning that the salesperson simply fills out a template rather than tailoring the trust to meet your needs.
  • Fees for creating these trusts may be high compared to other, more reputable sources.
  • While the stated topic of these dinners is living trusts, the real goal may be to sell you an annuity or insurance.

Ms. Swanson's recommendation is a good one: "If you want a will, trust, or estate plan, seek out an experienced local attorney. To play it safe, the attorney should be somebody you seek out, not someone who finds you. People who call and write you want to sell you something."



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