This blog shares an excerpt from the presentation that will be the second workshop of our free in-house “Estate Planning Workshop Series.” If interested in learning more to protect what matters, please RSVP 630.377.3241. We suggest attending all three workshops to get a comprehensive familiarity.
Part 1 ~ Tuesday, January 15, 2013: Celebrity Estates – Learning from the Good, Bad and Ugly
Part 2 ~Tuesday, January 22, 2013: Trust University – All the Trust Questions You Were Afraid to Ask
Part 3 ~ Tuesday, January 29, 2013: Digital Assets – An Estate Plan for Your Online Identity
A trust is an agreement that you have with yourself that sets out the instructions for how your money will be managed both during your lifetime and after your passing. In many cases, individuals will benefit from having a trust, but not everyone needs to have one.
The two primary reasons for creating a Trust are:
1- To provide a means for continuity of ownership and management of your assets during lifetime, disability and death
2- To avoid probate
Generally there are three individuals involved in a particular trust, some of whom may handle multiple roles:
The Grantor is the individual who creates the trust. The role of the Grantor does not change at any time after the trust is created. Therefore, if you create the trust, then you are always called the Grantor of the trust.
The Trustee is the individual who agrees to manage the assets of the trust according to the instructions in the trust document. The role of the Trustee may change at various times during the existence of a trust. Typically, if you are creating the trust, you will also act as the Trustee of the trust, at least initially. Spouses, or other individuals, can act as Co-Trustees if desired to mimic joint tenancy ownership.
The Beneficiary of the trust will receive the benefit of the trust assets (income, or principal, or both) while the trust exists and while it owns some assets. If you have created a trust for your own benefit, you will be the Grantor as well as the Beneficiary, although the Beneficiary role will likely change at some point while the trust exists.
Estate Planning Goals:
- When planning our estate many of us have a version of the following in mind:
- Ensure that your money is available to each spouse during each of your lifetimes
- Ensure that the surviving spouse is taken care of financially after the first spouse dies
- Ensure that the children are provided for after both parents pass away
- Ensure that estate taxes are minimized
- Maximize creditor protection
A Will and Revocable Trust will often be created to work together like puzzle pieces. Assets are funded into the Revocable Trust during the Grantor’s lifetime and at death. Then for tax and marital purposes, a Family Trust and a Marital Trust could be created. Later, a College Trust and one or more Descendant Trusts can be created depending on the needs of the Beneficiaries. Below are some simple references of how each trust would be useful.
Revocable Living Trust
- Created during your lifetime
- You can change the Trust at any time
- You can act as your own Trustee
- You can name back-up Trustees
- You can identify your Beneficiaries
- You can create any instructions for the Trust
- Usually created when total assets in the Revocable Trust exceed the Federal Estate Tax Exemption ($5,120,000 in 2012)
- Intended to protect assets for the Surviving Spouse
- Surviving Spouse can have limited or unlimited access to the assets, as you prefer
- Surviving Spouse is the only beneficiary
- Intended to defer estate taxes since assets will only be estate taxed at the Survivor’s death
- Intended to keep assets together for the children until the youngest one reaches the age of 25
- Gives each of the children an equal opportunity to get through college without an “inheritance penalty”
- After the youngest child graduates, the College Trust will be distributed to the Descendant Trusts
- One Descendant Trust is created for each Beneficiary
- Sets out the instructions for distribution to each Beneficiary
- Instructions may vary among Beneficiaries (special needs, spend thrift, free spirit, etc.)
- Distribution Methods – “Stepping Stones” or “Gentle Handcuffs” or “Strong Handcuffs”
To learn more about revocable and irrevocable trusts and how you might benefit from having one of them in your plan, please join us on January 22nd for the Trust University workshop.