Trusts are a great planning tool and they are available for the regular everyday people now. That’s right, they are tools you can use even if you are not rich and there are reasons trusts can be useful for a client even without a high value in their estate.
First, remember that trusts are contracts. We have all signed a contract before. Usually, we sign a contract to obtain some kind of service these days such as for a car or home purchase, internet or cell phone service. When we sign the contract, the company promises to provide the service in exchange for a monthly payment.
In a trust, someone with property (the trustmaker) asks someone responsible (the trustee) to take care of the property for the benefit of someone else (the beneficiary) usually for a period of years. For example, a father may ask his trusted farmhand to take care of a farm until his young son is old enough to run the farm on his own. In that example, the father is the trustmaker; the farmhand is the trustee, and the son is the beneficiary.
A trust has many advantages:
- Privacy: a trust does not have to be filed with any court and the trustmaker may ask the trustee not to give copies of the trust to the beneficiaries.
- Avoids Probate Court: a trust avoids the expense and frustration of probate court. Georgia’s fees for probate processes are fairly low compared to other states, but the judges you must work with vary from county to county and state to state and may result in you being forced to come to court for multiple hearings, researching, compiling and filing accounts and reports, and paying additional fees you could have avoided with a trust.
- Multi-Generational Protection: Protect your kids from creditors and predator spouses. There are spouses who wait until a child reaches the age when he/she gets their trust distribution and deposits it into their joint account to file for a divorce. In Georgia, a spouse would get half of that inheritance if it were placed in the joint account. In Georgia, you are not permitted to create a trust to protect your assets against your own creditors, but you can protect your kids from their creditors. If you want creditor protection for yourself, you can set up a Domestic Asset Protection Trust in another state.
- Blended Families: Trusts help a lot with blended families or second spouses late in life by allowing us to divide someone’s assets into different pots for different beneficiaries more clearly. And trusts are harder to contest reducing conflict.
- Reduced Conflict: Trusts can be contested by filing a complaint in Superior Court. Filing such a complaint costs over $200 and typically requires an attorney. Filing an objection in probate court requires a notebook and a pencil and sometimes a witness and filing fees are very modest.
- Rule of Grab: When someone dies, family members often forget their manners and attempt to go to the deceased’s home and take personal property before or even on the day of the funeral. With a will, the executor is not permitted to change the locks on the deceased’s home until they are approved as executor for the estate which can take several weeks. But a trustee can change the locks prior to the actual death or right after the actual death of someone if the home has been transferred to the trust without getting permission from any court. Getting stolen property back is very difficult especially if there are not recent pictures or video of the interior of the home to show what was actually there prior to the death. The Trustee’s authority really helps to ensure that the wishes of the deceased are actually completed.
- Seamless Management During Temporary or Permanent Disability: A trustee will have an easier time managing the affairs of the trustmaker if the trustmaker is disabled than will someone appointed under a durable power of attorney. Why? It’s related to liability. Banks have less liability for giving funds to the wrong person under a trust agreement.
- Seamless Property Management: A trust helps with management of properties because a death will not stall work or maintenance on a rental or vacation home.
- Double or Triple Probate: Out-of-state property transferred to a trust in the state where the trustmaker lives relieves the executor from having to file with the probate court in each state where property is owned. If you thought dealing with one probate court would be frustrating enough, try dealing with two or more.
- Custom Child Planning: Trusts are customizable for the kids – bad kids, addicted kids, disabled kids, special needs kids, and good kids who married the wrong guy or gal.
- No Reporting/Accounting: You are not required to make reports to the probate court or any other court unless a lawsuit is filed and you are required by a judge to do so. We actually do recommend regular interim accountings by all trustees for two reasons: (1) it helps you stay organized, and (2) if no one objects to the interim report, then it is deemed accepted and the trustee is protected from disputes from that point backward reducing the ability of beneficiaries to decide late to sue for an accounting going back several years.
Attorneys use trusts to solve various problems and there are many, many kinds of trusts. Trusts may be irrevocable (the trustmaker cannot amend or change the trust with some exceptions) or revocable (the trustmaker can amend or change the trust during his/her lifetime). Most of you have heard of “living trusts” or “living revocable trusts”. A living trust is another way of saying a revocable trust. It’s a bit misleading because all revocable trusts become irrevocable at the end of someone’s lifetime. Don’t worry, the change to irrevocable is really an accounting or bookkeeping task. When a trust becomes irrevocable, it means that we cannot use your social security number for your trust after you die so we need to go to the IRS for a different Trust Identification Number or TIN. Since many living trusts distribute assets upon the death of the trustmaker, the new TIN number is used for only a year or so while the Trustee prepares property to be sold and then distributed to the beneficiaries.
Some are used to reduce the size of someone’s estate like the Irrevocable Life Insurance Trust or ILIT or the Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT). There are Domestic Asset Protection Trusts (DAPT) that allow you to protect your assets from your own creditors but these must be set up in states other than Georgia. There are also Dynasty Trusts in many states allowing a trustmaker to plan for many generations at one time lasting forever or for several hundred years.
I often use irrevocable trusts in eldercare planning to ensure a client maximizes the use and longevity of their savings and insurance tools by adding state and federal benefits to their long-term care planning including the Veteran’s Improved Pension for wartime veterans and their surviving spouses or Georgia Medicaid Benefits. These trusts are called Veterans Asset Protection Trusts or Medicaid Asset Protection Trusts.
Special needs clients need trusts to protect funds and assets they inherit from other family members so that they can have the use of those assets during their lifetime without Medicaid taking the remainder when they die. Instead, we can ensure that the other beneficiaries in the family, who are often the caregivers for a special needs sibling, receive the benefit of family wealth after the special needs sibling has passed away. These are called Third Party Special Needs Trusts. I believe that these Third Party Special Needs Trusts are so important that I include them in every will and every trust I do unless the client absolutely refuses because you and I have no idea what the future for your beneficiaries holds. I have heard stories of accidents with brain injuries rendering otherwise healthy, productive beneficiaries dependent upon care for the rest of their lives and whose inheritances are sucked away by medical bills and creditors before they have a chance to stop it.
In today’s highly litigious world, please take the time to come to a seminar or meet with me to discuss how a trust might benefit your own family before doing what you’ve always done. Some have had bad experiences with trusts. With that understanding, we include a trust protector in our trusts to help resolve issues before a lawsuit is required. If you want to lessen the possibility of conflict and plan so that your family stays together, consider the trust option.