I met with my longtime client Stan to review his planning. Stan is a widower and his daughter, Anna, is his only child and sole beneficiary. His assets are well below the estate tax threshold. He has retirement savings, personal property, and a house. During our meeting, he said what he has said every time we’ve met over the last ten years, “When I die, I just want it to be really simple for my daughter.” To achieve this objective, I helped him set up a revocable living trust years ago so that, just like all his beneficiary designated retirement accounts, his house, and all his other property will go to Anna without the need for probate court proceedings. As is true for many clients, going with a trust plan is actually less expensive for Stan than a will plan with probate costs would be.
When many folks think of trusts, they think of the super-wealthy squirreling away millions or trust-fund babies strutting around the globe and yet this is but a sliver of the story. Most people who put trusts in place are like Stan, they don’t have unending material wealth, but want to make sure that things are not more difficult than necessary for the family in times of grief and crisis.
Estate Planning Basics: What is a Trust?
A trust is a legal arrangement made by an individual to assist with asset management and distribution. The person who creates a trust is referred to as the settlor, grantor, or trustor. The property placed in the trust is managed and distributed to the beneficiaries by the trustee according to the rules set out by the settlor. The operations of the trust occur without the need for publication, approval of heirs, or probate court intervention that are required for a will. This carries the advantage of minimizing the possibility of messy legal battles concerning inheritance while also guaranteeing the privacy of family financial affairs (court records are public, after all).
Different Trust Types: Revocable Trust vs. Irrevocable Trust
In Stan’s revocable living trust (the most common trust type), he occupies all 3 roles – settlor, trustee, and beneficiary. When Stan dies, Anna becomes the beneficiary. If Stan is no longer able to serve as trustee, he has named who will serve in his place. Because it is a revocable living trust, Stan has the power to add and remove assets at any time and can revoke or amend the trust if circumstances warrant. These advantages notwithstanding, a revocable trust offers no protection against estate taxes or creditors—this can only be achieved by an irrevocable trust.
When asset protection, estate tax management, or benefits qualification for long-term care may be important, an irrevocable living trust might be the right choice. Because the trust is irrevocable and assets cannot be removed and given back to the settlor, the settlor can better insulate assets from negative treatment. With a wide variety of options, irrevocable trusts can be designed for the purpose of charitable giving or to provide an ongoing legacy for future generations of family.
Beyond Trusts: The Importance of a Durable Power of Attorney
Some assets, like retirement accounts, are not good candidates for living trust ownership. Because these assets are not managed by the trustee in the event of a settlor’s disability, a durable financial power of attorney is required to give a trusted person the ability to manage these assets if necessary. This means that a Durable Financial Power of Attorney is a critical part of every estate plan. Durable financial power of attorney is not an alternative to a trust but rather a supplement. It is another important layer of protection you can (and should) use to protect your life’s work.
An experienced estate planning attorney is your best resource for learning more about trusts, durable powers of attorney, and any other legal matters related to planning for the future.
Should you have questions about any of these subjects, do not hesitate to reach out to the Estate Planning Law Group of Georgia either by calling 770-822-2723 or using the contact form on our website.
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