Trusts and Estate Planning – Determining if a Trust is Right for You

Document Sample
Trusts and Estate Planning – Determining if a Trust is Right for You Powered By Docstoc
					TRUSTS AND
ESTATE PLANNING




Determining if a Trust is Right for You
                                Geoffrey Garrett
                        Estate Planning Attorney
     Your Last Will and Testament is the cornerstone of your estate
     plan; however, for most people, an estate plan does not stop
     there. Various other estate planning tools are typically used in
     order to create a comprehensive estate plan that covers all the
     various facets of estate planning.

     More and more people are choosing to include a trust as one of those

     additional components. While only a lengthy consultation with your estate
     planning attorney can help you make the final decision, answering some

     basic questions may help you decide if a trust is right for you and if so,
     which one works for your estate plan.

TRUST BASICS

     Decades ago, trusts were used primarily by wealthy families who were

     trying to keep the family fortune in the family. Today, trusts have evolved to
     the point where even the average individual can benefit from a trust.

     Whether a trust is intended to guard the family fortune, or simply provide
     for the family pet, all trusts operate on the same concept and require the

     same four elements. At its simplest, a trust is a legal entity wherein you give
     fiduciary control over assets to a person or institution for the benefit of a

     third party. To create a trust, you need a trustor (the person who creates the

     trust), a trustee (the person who manages the trust assets and administers
     the trust), trust assets to fund the trust, and beneficiaries.




      Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   2
WHEN DO YOU WANT THE TRUST TO BECOME EFFECTIVE?

      Trusts that are created within your Last Will and Testament are referred to as

      testamentary trusts and do not become effective until your death. Trusts

      made outside of your Will are intervivos, or living trusts and become
      effective when properly signed and funded.

                                                               Typically, a testamentary trust

                                                               is used when you have small

                                                               children whom you wish to
                                                               provide for in the event of

                                                               your death but to whom you
                                                               cannot leave assets directly.
                                                               Other common reasons to

      choose a testamentary trust are when you are creating a pet trust or a
      charitable trust.

      One important consideration when deciding between testamentary and
      living trusts is property ownership. Property used to fund a testamentary

      trust will remain yours until death whereas property used to fund a living
      trust may or may not remain yours depending on whether you make that

      trust revocable or irrevocable. Keep in mind that all assets owned by you at

      the time of death are subject to estate taxation. Therefore, if you own
      considerable assets, an irrevocable living trust may be a better choice.




      Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   3
DO YOU WANT THE ABILITY TO MAKE CHANGES TO YOUR TRUST?

      Another important consideration is whether you want to create a revocable

      or irrevocable trust. Testamentary trusts are always revocable up to the

      point of death because they are part of your Will which can always be
      revoked. A living trust, on the other hand, can be either.

      The primary advantage to an irrevocable living trust is that assets used to

      fund the trust are transferred out of your name and, therefore, are no

      longer subject to taxation. This can be a significant benefit for a taxpayer
      with high value assets or assets that will likely appreciate considerably over

      the years.

      Do not, however, overlook the primary
                                                                                ●    ●    ●
      disadvantage – an irrevocable trust is exactly
                                                                   The primary advantage to
      that –irrevocable. If, for example, you create a             an irrevocable living trust
      trust and name all four of your children as                  is that assets used to fund
      beneficiaries and then have a falling out with
                                                                    the trust are transferred
                                                                      out of your name and,
      one down the road, you cannot remove the
                                                                    therefore, are no longer
      beneficiary from the trust. Likewise, if your                    subject to taxation.
      trust terms dictate that distributions are to                             ●    ●    ●
      begin when the beneficiaries reach the age of

      21, but your 21 year old beneficiary develops a drug or alcohol problem,
      you cannot change the terms of distribution.




      Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   4
WHOM SHOULD YOU CHOOSE AS TRUSTEE?

      This is one of the biggest decisions you will make if you create a trust. Your

      trustee has both a tremendous amount of power and a considerable

      amount of responsibility. Even a simple trust requires detailed record-
      keeping, ongoing correspondence with beneficiaries, and yearly tax

      preparation because a trust is a separate legal entity.

      The more complex your trust, the more experienced your trustee needs to

      be. While many grantors initially consider appointing a family member as
      trustee, most ultimately choose a professional for the position. Even if a

      family member has the experience and education required for the position,
      it is often better to appoint someone who will not be emotionally involved
      in trust decisions.

      This is particularly true if your prospective trustee is also a beneficiary under
      the terms of the trust. A trustee must always act in the best interest of all

      beneficiaries which can be difficult to do when the trustee is a beneficiary
      or when the beneficiaries are his or her family members. Furthermore, it can

      create discord or outright hostility on the part of family members if one
      sibling, or family member, is appointed to the position instead of other

      potential candidates.




      Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   5
HOW MUCH DISCRETION SHOULD YOU GIVE YOUR TRUSTEE?

      This can be a very difficult decision to make. On the one hand, if you are

      too detailed in the creation of your trust terms, you can inadvertently tie

      your trustee’s hands if an unusual circumstance comes up. On the other
      hand, giving a trustee too much discretion can result in outcomes that you

      did not expect or authorize. It can also lead to a squandering of trust assets
      by the beneficiaries in a worst case scenario. This is precisely why your

      choice of trustee is so important. Most experts agree that a trustee should
      have a certain amount of discretion to deal with unexpected events;

      however, this means that your trustee must be competent and trustworthy.

WHEN DOES THE AVERAGE PERSON NEED A TRUST?

      Complex trusts such as dynasty trusts, grantor retained annuity trusts
      (GRATs), and generation skipping trusts have historically been aimed at
      taxpayers who have valuable estate assets to protect. There are, however, a

      variety of circumstances that the average person faces that could warrant
      the creation of a trust, including:

          Providing for a pet – a pet trust can be created to ensure that your
             family pet is well cared for after your death.

          Supporting a special needs child – children with special needs

             frequently need assistance from federal or state programs such a

             Medicaid or SSI. In order to ensure they will qualify for those



      Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   6
        programs while still holding on to your resources, you may want to

        create a special needs trust.

    Protecting a beneficiary from himself – if you have a child or

        grandchild who is too young to know how to handle money, or is
        simply irresponsible with money, a spendthrift trust can protect the

        assets you leave to him from creditors while still providing financial
        support.

Once you understand the basics of a trust, and answer some of the above
questions, you should be ready to consult with your estate planning

attorney to determine if the addition of a trust would benefit your estate
plan.

Living Trust Network ---Types of Trusts

American Bar Association -- Trusts




Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You   7
Recommended Book
                                       Co-Authored by Attorneys:
                                       Geoffrey H. Garrett and Stanley R. Byrd
                                       with Robert Armstrong and Sanford M. Fisch

                                         Co-Authored by Attorneys:
                                       An estimated $41 trillion in inheritance will change hands in the next
                                          years – H. 75% of families have Byrd
                                       45Geoffreyyet Garrett and Stanley R.failed to plan. The world becomes
                                         with Robert Armstrong and especially Fisch
                                       more complicated by the day, Sanford M.in the area of tax and estate
                                       planning. With the ever-changing and confusing tax laws, it is difficult
                                         An estimated what type in inheritance will appropriate in your
                                       for you to know$41 trillion of planning is mostchange handsfor the next
                                         45 years goal 75% of families have provide families with more
                                       family. The– yet of our new book is tofailed to plan. The world becomes
                                         more complicated by the day, especially in to area of tax over an
                                       readily available information and equip themthetake controland estate
                                         planning. With misunderstood. The best part is tax the book is
                                       area that is often the ever-changing and confusingthat laws, it is difficult
                                         for you a know what type follow question and answer format
                                       written into practical, easy to of planning is most appropriate for your
                                         family. The goal of our new
                                       instead of technical legalese. book is to provide families with more
                                         readily available information and equip them to take control over an
                                         area that is often misunderstood. The best part is that the book is
                                         written in a practical, easy to follow question and answer format
                                         instead of technical legalese.

About Geoffrey Garrett



                                                  Byrd Garrett PLLC
                                                  2150 N. 107th St., #501
                                                  Seattle, WA 98133-9009
                                                  Phone: (206) 363-0123
                                                  www.byrdgarrett.com




Geoffrey H. Garrett purchased assets of the law practice of Stanley R. Byrd in 2008. For more than twenty-seven years previously, he
pursued two challenging careers simultaneously, as an attorney in an active sole practice and a senior pilot for a major airline, where
he achieved the rank of B-747 captain in the international operation. He was honored as his airline’s 2005 Captain of the Year in
Seattle. He has been a frequent speaker on the subject of reorganizing troubled airlines, has written significant papers about airline
code sharing and fleet restructuring in bankruptcy, and is the co-author with Stanley R. Byrd of Estate Planning Basics in Washington.

Mr. Garrett advises in matters of estate planning and probate, trust administration, guardianship and planning for special needs,
elder law and asset protection. He assists owners of small businesses with respect to entity formation, administration and
compliance, purchase and sale of businesses and succession planning.
              Byrd Garrett PLLC| Trusts and Estate Planning: Determining If a Trust is Right For You            8

				
DOCUMENT INFO
Description: More and more people are choosing to include a trust as one of those additional components. While only a lengthy consultation with your estate planning attorney can help you make the final decision, answering some basic questions may help you decide if a trust is right for you and if so, which one works for your estate plan.