Unsure if you need a trust? A few things to consider...
Trusts can be important tools in estate planning. They can serve many of the functions of a will, but they don’t completely eliminate the need for a will. They can be used to manage your assets after your death, protect those assets from your children’s creditors, and provide benefits to your surviving spouse and children for many years. They are not necessary or appropriate for everyone, but in certain circumstances, when tailored for individual needs, they can be a highly effective means of carrying out your estate plan.
Although most trusts are not tax-savings tools, they can still provide very important benefits. We'll address a few of the advantages in this edition of our blog.
Parents often want to protect assets for their children beyond the age of majority (18 in Connecticut; 21 if using the Uniform Transfers to Minors Act). Trustees can manage and invest the assets until the children are experienced enough to manage the assets on their own. In the meantime, the Trustees can provide for the support and education of the children, while protecting the assets from the children’s creditors (like a divorced spouse). The Trust Agreement may give the Trustees the discretion to provide the down payment for a house, purchase an automobile, or provide seed money for starting a business. The Settlor may personalize the terms of the trust to suit the needs of each child. Typically, the Trust Agreement will direct the Trustees to distribute whatever remains of each child’s share to such child in installments. The most frequent plan that we see is the distribution of one-third at age 30, half of what is left at 35, and the rest at age 40, but the Settlor can choose whatever distribution plan seems best for each child.
Second marriages are also a common reason for creating trusts. The Settlor often wants to preserve assets for his or her own children from a first marriage but still wants to provide support for the surviving spouse. A trust can carve out a portion of the trust assets to provide income to the surviving spouse for life, then distribute the remainder to the children, while another portion is held for the children, supporting and distributing to them at set ages as described above. If the income from the first portion will be inadequate for the surviving spouse, it can be enhanced with other benefits described in the trust terms.
Children with special needs are another important reason for establishing trusts. The assets in such a trust may provide benefits above and beyond public and private benefits without impacting eligibility for receiving government assistance. Many parents choose to fund a Special Needs Trust right away to make sure that the Trustees meet the child’s needs as intended.
These are just some of the ways trusts can be individually crafted to suit the specific needs of the Settlor and his or her family. By working with an experienced Trust & Estates attorney, you can create exactly the kind of estate plan that you need, often including a well-crafted, individualized trust.