People think trusts are all about probate avoidance. Sure, a living trust allows the grantor to avoid probate. That may or may not be a big deal, depending on the jurisdiction. Certainly, if the grantor owns real estate in multiple jurisdictions, a trust is the way for them to go to avoid multiple ancillary probates.
Whether a will or a trust is used as the primary estate planning vehicle, thought should be given as to how the assets should be left to beneficiaries. A trust is like a tube of toothpaste. The tube can provide many protections which are not available once the toothpaste is squeezed out of the tube.
- Trusts can be drafted to be excluded from the beneficiary’s taxable estate. This can be great for a beneficiary who will have an estate which would be taxable, either by the state or federal government, when including the assets to be inherited. Of course, the beneficiary could even be the trustee of such a trust, as long as an “ascertainable standard” is utilized, such as health, education, maintenance, and support.
- Trusts can be drafted to keep the assets free of claims from the beneficiary’s creditors. A fully discretionary trust is free from almost all creditors in most states. The beneficiary would not be the trustee of such a trust.
- Trusts can be drafted to allow the assets to be available for the beneficiary’s “special needs,” yet allow the beneficiary to qualify for Medicaid. If a beneficiary has disabilities and may need Medicaid of SSI in the future, a special needs trust should be considered.
- Trusts enable someone other than the beneficiary to manage the funds for the beneficiary’s benefit, if appropriate. This is particularly useful if the beneficiary has not attained sufficient maturity or discretion, even if they have attained the legal age of majority.
There are many good reasons to use trusts. Probate avoidance is but one. Continuing trusts are appropriate in a wide array of circumstances. A good estate planning attorney informs their client of the potential benefit of leaving the assets in trust for the beneficiary.
Your client will thank you for educating them. Upon learning of the protections available with trusts, many clients who initially express a desire for outright distributions to their children or other beneficiaries opt for distributions in trust.
Remember, once the toothpaste is out of the tube, it may be difficult or impossible to get it back in the tube, i.e., to get those protections in another manner.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- The Role of the Estate Planning Attorney - April 6, 2021
- Pandemic Relief for Employers - March 30, 2021
- Using Disclaimers to Achieve Client Goals: Double Disclaimers - March 23, 2021