In my practice, I counsel clients about the various documents that comprise an estate plan such as Wills, Powers of Attorney, Health Care Proxies, and Trusts. Many people are under the impression that there is no longer any reason to use a Trust since the recent change in the federal estate tax law means that only estates in excess of $5.25 million will owe federal estate tax. Putting aside the fact that if you live in Massachusetts your estate may be liable for estate tax to the Commonwealth if it is valued at more than $1 million, there are a multitude of non-tax reasons to use a Trust as part of an estate plan. Here are five of those reasons.
1. You want to avoid probate. Probate is the court process of transferring assets from a deceased person to the beneficiaries of his estate and giving the Personal Representative (formerly called executor) of the estate the authority to pay debts and taxes and distribute the estate assets. The probate process can be costly and lengthy. Further, probate is a public process, meaning that anyone can read the court file, including the deceased’s Will, the Inventory of probate assets, and the Personal Representative’s accounting of all of the estate revenue and disbursements. Assets titled in the name of a Trust avoid probate and the related delay, expense, and lack of privacy.
2. You have young children. Most parents shudder at the thought of their 18-year old son or daughter being given more than $1,000 to spend as the child sees fit. Yet if these same parents die without having created a Trust to manage funds for the benefit of their children, those children will have unfettered access to their parents’ assets, including the house, life insurance, and retirement funds at age 18. Creating a Trust is an excellent way to ensure that assets are wisely managed for the benefit of children until they reach an age at which the parents believe they will have sufficient experience and maturity to manage their inheritance. While a child’s inheritance is held in Trust, the Trustee will have discretion to use the Trust funds for the child’s benefit, including paying for the child’s education, helping the child to buy a house or start a business, or for any other reason the Donor/parent may specify.
3. One or more of your beneficiaries needs assistance managing money. Even if your intended beneficiaries are all adults, there may be good reasons for restricting their access to funds. These reasons could include a shaky marriage, substance abuse, tax problems, poor money management skills, a risky business, creditor problems, an over-generous nature, or a history of bad judgment in relationships. By creating a Trust that identifies the purposes for which a beneficiary’s share may be used, you can ensure that your beneficiary has a safety net. The Trust money could be used to pay for housing, health insurance, car insurance, or medical care that a beneficiary is unable to afford. By stipulating that funds are to be held in trust, you can prevent the money from being spent foolishly or from being subject to the claims of your beneficiary’s creditors.
4. You have a child with disabilities. Families who have a child with special needs must have a plan in place to ensure the child’s needs will be met when the parents are no longer around to do so. In addition, many people with special needs are eligible for public benefits that provide medical care or income for food and shelter. Qualification for those benefits can be adversely affected if the person receives an inheritance outright rather than in trust. It is not necessary to disinherit a special needs child to protect her eligibility for public benefits. A Trust can maintain a child’s eligibility for benefits after the parents’ deaths. Such a “Special Needs” or “Supplemental Needs” Trust can also provide long-term management of the child’s inheritance and additional resources to meet the child’s needs that are not addressed by the public benefits she may be eligible to receive. These types of Trusts provide an important safety net for a child with disabilities so that the child is not dependent on the goodwill or good fortune of siblings or other family members.
5. You want to ensure that your assets are properly managed for your benefit if you become incapacitated. An effective estate plan includes planning for how you will be cared for and how decisions will be made in the event you become incapacitated. By creating and funding a Revocable Living Trust of which you are the beneficiary during your lifetime, you provide a mechanism for your assets to be managed and used for your benefit during any period of incapacity that occurs during your lifetime by a Trustee that you choose. This type of planning may avoid the need for a guardianship or conservatorship proceeding in the Probate Court while protecting your privacy.
Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.