Trusts: The Ultimate in Estate Planning Flexibility

People looking to plan for their family’s future often ask whether a “simple will” is sufficient, or if one or more trusts might be more beneficial. The answer is that wills and trusts have very different forms, restrictions, and purposes. While a will alone is far better than having no estate plan at all, trusts can offer extraordinary flexibility and other benefits that a typical will cannot.

A trust is like a container for assets. Think of it as a storage locker, with a trustee as the gatekeeper. The owner of the locker places property inside. The trust document is an instruction manual that tells the gatekeeper who is supposed to receive the contents of the locker, in what proportions, at what times and under what conditions. That locker, the instruction manual, and the gatekeeper continue to exist and perform their functions after the death of the person who placed their property in the locker.

There are several varieties of trust that are designed to accomplish different goals. The most common and most basic form of a trust for estate planning purposes is the revocable living trust. This type of trust allows a person or married couple to place assets in trust and remove them at any time during their lives. Upon death, their chosen trustee manages and distributes the trust assets according to the instructions in the trust document. This has several important advantages. First, the trust assets may pass without probate or any other court proceeding, avoiding expense and inconvenience. Second, conditions can be placed on distributions; for example, instead of receiving their inheritance upon reaching age 18, a trust can specify that beneficiaries receive a portion at age 18 and the remainder at some more advanced age. Gifts may be conditioned upon the beneficiaries attaining certain educational or other achievements, as well. Many estate planning goals, even relatively complex ones, can be addressed through revocable living trusts. They are ideal for families with young children or grandchildren or where significant assets would have to go through probate in the absence of a trust.

Other forms of trusts are generally used for special purposes. These include so-called “QTIP” trusts (for Qualified Terminable Interest in Property) that are used to provide income for a surviving spouse while ensuring that most assets are preserved and passed to children or grandchildren. QTIP trusts are ideal for situations in which a person who already has children remarries and wishes to make certain that the children receive their inheritance. Other special trusts include marital trusts, generation-skipping trusts, and irrevocable life insurance trusts that are designed to minimize estate taxes for very large estates. While the federal estate tax currently does not kick in until assets exceed $11.7 million for an individual or $23.4 million for a couple, those exemption amounts may change substantially with future legislation and make tax planning relevant for many more people.

Trusts can also be powerful tools for maintaining eligibility for certain government benefits. “Asset protection” and Medicaid trusts are irrevocable trusts that are intended to hold and pass assets to beneficiaries while preserving the grantors’ eligibility for Medicaid. Similarly, special needs trusts are designed to provide for the enhanced welfare of special-needs beneficiaries without rendering those beneficiaries ineligible for care provided through Medicaid. Whereas a traditional inheritance–through a will, for example–is very likely to render a special needs children ineligible for Medicaid, a properly designed special needs trust will not.

At Westbrook Law PLLC, we have experience assisting clients with estate planning running the entire spectrum from the truly simple will all the way through complex tax and asset-protection trust planning for multimillion-dollar estates. Contact us for a free consultation to discuss your options.