Why do I need a Trust?

The Law Office of Wendy S. Marcus

Four Reasons Why You Should Have a Revocable Living Trust

If you’ve ever thought about a living trust, it’s probably because you hate the idea of going through probate and living trusts certainly do avoid probate. But, there’s a whole lot more to living trusts than just that.

Reason #1: Protecting Property for Certain Beneficiaries

This is probably one of the most important reasons. When most of us think about estate planning, we think about giving our property to our husband or wife, our children, and other loved ones after we die. However, sometimes our intended beneficiaries just aren’t able to handle an inheritance. Minor children are the usual suspects here. Instead, the state appoints a guardian to hold the property until they reach majority age (usually age 18). Even then, parents cringe at the thought of an 18-year old getting any amount of money in a lump sum. The first thing a young adult might do is quit school, buy an expensive car, and head to Cancun.

But, minor children aren’t the only ones who might squander money. Most experts agree that no one under the age of 35 should be given an inheritance outright, because they need time to finish school and start a career. Of course, there are many people over the age of 35 that shouldn’t have money either.

Some are spendthrifts at heart, others are in not-so-good marriages, and still others are going through bankruptcy. Then there are those who are just too frail and incapacitated to manage property on their own. Giving any amount of property to any of these people is never a good idea. That’s when a trust becomes a vital part of your estate planning. A trust allows you to give your hard-earned money and property to those you care about while protecting it for them at the same time.

Let’s take a look at a typical example and see how it works. Let’s say that you have a 20-year old son who is a junior in college. If you and your wife both die, you'd probably want your son to get all your property, including the equity in your home, your life insurance, retirement plans, etc.

If you reduce all your property to cash, it could easily amount to a good sum of money. For illustration purposes, let's assume its $800,000. Having your executor write a check to your son for $800,000 is probably not a good idea.

Instead, it would be far better to create a trust for your son with someone else, say a friend, family relative, attorney, or your local bank, as trustee. The trustee would hold the money and invest it for your son’s benefit until he reached a more mature age, say age 35.

In the meantime, your trustee would use the money to pay for your son’s schooling, his general living expenses, and any other expenses you might specify in the trust instrument - including a down payment on a home or a new business. When your son reaches the age specified in your trust instrument, the trust would end and your son would be given a check for the full value of the trust at that time.

Revocable living trusts have been used to protect property in this manner for hundreds of years, and it is probably one of the most important reasons for a revocable living trust today. If you have any beneficiaries who are not quite able to handle large sums of money, then a revocable living trust is a necessary component of your overall estate planning.

Reason #2: Avoiding Probate

Probate is a judicial process where the court determines how an estate is handled after a person dies. Property in your revocable living trust will not go through probate when you die. That’s because the trust instrument spells out who gets the property. Avoiding probate will save time and money for your heirs.

Reason #3: Privacy

Most of us naturally dislike the concept of probate because it is a public process. Theoretically, anyone can go into probate court when a person dies and look at the estate file. You can read the will, you can find out who the relatives and beneficiaries are, you can look at the claims of creditors and the list of assets, and you can find the phone numbers and addresses of estate beneficiaries.

Unscrupulous sales people often go through estate files to locate grieving heirs to prey on. Disgruntled heirs, even friends and neighbors, often like to poke their noses into an estate file to see what’s there. With the web, they don't even have to get themselves down to the probate court to take a look.

Revocable living trusts can prevent all of that. Revocable living trusts are private; they don’t get filed with the probate court, and no one gets to look at them unless the grantor or the trustee allows it.

Reason #4: Retirement Assets

It is possible through a trust to “stretch” the tax benefits and growth in retirement accounts for younger beneficiaries. For example, a if person dies before taking the required minimum distributions (RMD) have been taken out of a retirement asset, when that person dies, their beneficiary can use their own age to set the RMD. Therefore, a child who inherits a retirement asset at age 30 and no RMDs have been taken, that retirement account is now set to require RMDs when the CHILD turns 70.5. This is a complex area, we can discuss it more when we meet.

If you would like to learn more about I can help with your estate planning, please contact my office.

Voice: 505-662-7071

Fax: 505-412-4303

wendy@wendymarcus.com

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