When you consider your family’s financial planning needs, you may be surprised to learn that a trust may be the best option. A trust is a versatile family planning instrument. It can give you flexibility and control over your family finances. It can help you protect assets and ensure that assets are managed responsibly.
What are some scenarios where a trust is beneficial?
Here are seven scenarios where a trust may be appropriate:
Example 1: Senior who wants protection and simple asset transfers
Louise is 80 years old. She has $200,000 in assets that she wishes to leave to her children. Social security provides the rest of her income. Louise needs funds to live in an assisted living center.
A trust may be appropriate for Louise for several reasons. Having a trust can shield Louise’s assets from personal legal liability. If Louise were to be at fault in a car accident, the funds in the trust may be off-limits from individuals who may want to make a claim against her assets.
The trust also provides for asset management and private distribution of the estate to her heirs upon her passing. Louise can place her assets in trust for her benefit with the remainder paid to her heirs. The trust can pay for her assisted living needs as well as pay for the other day-to-day expenses necessary to meet her needs. Having a trust provides the easiest asset management for Louise, the most financial security and the easiest transfer of the funds to her heirs in the future.
Example 2: Child with physical or mental impairments
Caden was born with significant physical impairments. He is going to need assistance for his care throughout his life. Over the years, Caden’s parents have saved $50,000 to help Caden with his living expenses.
Although Caden may qualify for disability payments from his state, if he has $50,000 in assets in his own name, he loses his eligibility. Caden’s parents may create a trust for the $50,000. The trust can pay for Caden’s expenses above and beyond what he receives in disability payments. Having a special needs trust ensures that Caden can access all available resources in order to meet his needs.
Example 3: Planning for children for an unknown future
Jack and Cheryl are the proud parents of three children ages 12, 8, and 3. Jack and Cheryl are preparing their estate planning package including their savings of $25,000. If Jack and Cheryl were to both pass away unexpectedly, their children are too young to manage the savings.
Creating a testamentary trust as part of the estate planning package can help these parents know that their savings are going to be managed properly in the future for the benefit of their children. The children are the beneficiary of the trust, and the managers of the trust must operate with the directive that they must use the trust assets for the children’s benefit.
The parents can specify whether the funds are for education, for daily living expenses or for another purpose. In this case, the trust can go into place in the event that the parents pass away while the children are minors.
Example 4: Leaving assets to charity
Jamie is 75 years old. Jamie is retired and has no children. He has $300,000 that he wants to leave to charity at his death, but he needs monthly income now. Jamie can use a charitable trust in order to receive a steady income stream from the funds now while committing to donate the funds to the charity upon his death.
To create a charitable trust, Jamie can place the assets in a trust. The trust can pay him income directly throughout his life. When Jamie passes away, the funds can go immediately to the charity. Using a trust, Jamie can meet his goals of preserving his income as well as leaving funds to the charity of his choice.
Example 5: Adult child who needs guidance
Charlie is 25 years old. He has a history of substance abuse. Although he graduated from high school, he has difficulty holding down a job. Charlie lacks direction. His parents have resources, but they fear that Charlie can’t manage a windfall of money.
Placing funds in a trust for Charlie can protect Charlie’s assets for the long-term. Charlie’s parents can structure the trust to provide for substance-abuse treatment. They can also set standards for trust distribution so that the assets last throughout Charlie’s life.
Rather than risking mismanagement and quickly depleting the assets, Charlie’s parents can have the peace of mind to know that the funds are going to be available for their child now and in the future.
Example 6: Maintaining privacy for asset distribution
The Rodriguez family is known in town for being a wealthy family. They own several businesses in town, and they make charitable contributions regularly. Because of their known financial success, community groups often ask for donations. The family often doesn’t know how to respond to the requests. They have limited time to respond to requests, and they want to ensure that they donate to organizations that they believe have the most impact in the community.
A trust can be the answer for the Rodriguez family. By placing assets in a trust for charitable purposes, they can tell people that their trustees handle donation requests. Family representatives can structure the trust in order to maintain as much control or as little control as they want as they decide where to donate the funds. With a trust, the family can keep their financial matters private as well as respond with an acceptable answer when others ask for contributions.
Example 7: Unique family situations
Katia married and had two children. Her husband died. Eventually, Katia remarried and had another child. Her third child is 12 years younger than her other two children. Katia wants to make sure that her spouse and minor child are protected. She also wants to ensure that her older children eventually receive a share of her savings in the event of her passing.
A trust may be the right answer for Katia. She can create a trust that provides income to her spouse for life as well as provides for her youngest child while the child is a minor. However, with a trust, she can ensure that her older children eventually receive a share of her assets. A trust can help Katia manage the complexity of her family situation to ensure that all family members have their needs met in the future.
Do I need a trust?
If you have assets that you want to manage for others, a trust may be right for you. Even if you’re the primary beneficiary of the trust, you may still benefit from the legal protections, privacy and convenience that may accompany a trust.
To know if a trust is right for you, consult one of Wilson Ratledge’s experienced estate planning attorneys. We can help you examine your entire situation in order to determine whether you and your loved ones can benefit from a trust. An estate plan can address all of your family needs and goals.