Trust Me!

Written by Chris Uhl
The information contained herein is only to inform the public and does not create an attorney client relationship with the reader. You should always consult an attorney when seeking legal advice.

These infamous all enticing words, Trust me. Is that how the first trust was formed? What is a trust? Do I need a trust? Where can I buy a trust? Is it something I can see and feel? Are trusts are only for millionaires, or are they for me too? How does a will differ from a trust?

A trust is nothing more than a legal fiction. Now that sounds like legal mumbo jumbo and it is! There are many aspects of your life governed by legal fictions. This is where the court invents some law and then calls it law. The court uses the word penumbra to explain its decision. For example, a Corporation is a legal fiction. You are told it exists as a separate entity or person. Can you see it or touch it? But yet it has all the legal rights of a separate person. A trust is somewhat like a corporation in this aspect. It is a separate legal entity with all the rights of a person that never dies. Trusts for the most part are all similar except there are many different types of trusts modeled to the specific need of the individual. Pour over trust, charitable trust, revocable trust, and irrevocable trust, are just to name a few.

A will tells your family and the world how you want your property divided after you are gone. It is a one-time directive from you. A will is probated in probate court with court and attorney’s fees, which may be considerable. A trust is not probated in probate court, thereby eliminating those court and attorney’s fees. A trust lives on forever, unless you give it an ending date or time, with you giving directions to your family and loved ones from the grave. If you like that kind of control than a trust is more important for you than a will. A will cannot help you reduce your tax burden. A trust will reduce your tax burden. Make no mistake about it; death is about estate taxes and large estate tax bills. Your assets could be entirely wiped out by the taxman. All your life’s hard work given to the government with nothing left for your family. Granted you are not here to worry about the taxes but your poor family must.

A revocable trust is the most common type trust, which is recommended for most individuals. This is not a permanent trust because you may revoke it and take your assets back. A grantor places the assets in trust held by the trustee for the benefit of the beneficiary. A grantor is the person with the assets to be placed in the trust. A trustee is the person whose job it is to properly manage the trust or trust assets. A beneficiary is the person whose job it is to spend the assets of the trust. In most cases all three positions in the trust are all the same person, you.

There are many benefits to a revocable trust. One benefit is that you may hide your assets under the name of the trust because all trust assets must be in the trust name. Of course the trust name would be different than your own. Another benefit is that it requires you to divide your marital property in order to take full advantage of your one time marital deduction of $600,000 each or $1.2 million combined. This is one of the major estate tax blunders that most people are unaware of until its too late. Another benefit is that all your assets will be titled to the same entity and at a later date you will not incur the cost of re-titling all your property, which can be a considerable sum. This type of trust is for everyone.

An irrevocable trust is where the grantor can never revoke the trust or the trustee’s powers for the benefit of the beneficiary. The grantor cannot change their mind on the asset placement once it is complete. The trustee, grantor and beneficiary can not all be the same person as in the above trust. Irrevocable trusts are usually the trusts of multi- millionaires because they are trying to keep all the money from being taken by the United States government in estate taxes. These are most of the foundation trusts you hear about. Only if you are very well off and can do without a large chunk of your assets would you be interested in an irrevocable trust. There are major federal tax benefits to this type of trust. The exception is that once you turn over your assets to this trust, it is no longer your money and you have no control over the trustee.

An attorney who practices in the field of wills, estates and trusts can prepare a trust for you. Trusts are very word specific documents with required language that affords you the proper tax breaks. You do not need to have an asset portfolio to have a trust prepared for you. I would recommend that even those with a modest amount of assets have a trust drawn for them.

Medicare planning is also important in considering trusts. Medicare now has a longer look back period in order to take your assets. Unless you are Donald Trump, if you get sick you cannot afford the astronomical costs of medical care. Most long-term care is provided by Medicare, which requires the government to take all your assets and spend them first. A very important factor to consider in your planning.

This is a complicated field with much for the individual to consider when planning for your families’ future.

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