Trusts and How They Can Protect Your Family

Trusts and How They Can Protect Your Family

A common misconception about trusts and trust planning is that this is for the extremely wealthy segment of our population, but this could not be further from the truth.  A trust is a right in property, real or personal, held by one party for the benefit of another. The trustee holds the legal title or interest in the trust property while beneficiaries have the beneficial interest in the trust.  Using these instruments can assist a variety of individuals and families, regardless of wealth, and can be used to preserve wealth, avoid inheritance taxes, avoid the unnecessary expense of probate and in some circumstances to protect one’s assets from creditors. 

There are many types of trusts available , but on a broad scale they can be broken down into two categories, inter vivos trusts and testamentary trusts.   

Living Trusts

Inter vivos, or living, trust agreements often serve as companion pieces to wills where an individual directs that some or all of a portion of their estate pour into an inter vivos trust agreement. On the death of the settlor, or creator of the trust, the trust is already in existence and easily administered.  This process can save probate costs and preserve the settlor’s privacy with respect to financial matters until the time for a trust accounting, or other court proceeding.

An inter vivos trust can also be funded during the settlor’s lifetime and used as an insurance policy of sorts in the event that the settlor becomes either temporarily or permanently incapacitated due to a physical or mental disability.  In these trying times, this is a practical consideration that takes into mind the ongoing COVID-19 pandemic.  These trusts, also known as standby trusts, have been utilized more frequently in order to manage the settlor’s affairs during his or her period of incapacity, and enables the settlor’s loved ones an easy mechanism by which to protect the settlor and handle his or her business affairs.

In such a trust, the settlor should provide for the use of the trust property for his or her benefit during the settlor’s lifetime.  While the intent is likely to allow such a trust to come into full operation upon the settlor’s death, providing for administration of the trust for his or her benefit while alive allows the trust to act as a receptacle for assets that can be used for the settlor’s benefit while incapacitated. The lifetime provisions should therefore direct the application of principal and income to or for the benefit of the settlor, the settlor’s spouse, and the settlor’s issue and also provide a mechanism for the settlor to make principal withdrawals.

Probate avoidance is another benefit of a revocable living trust.  With proper planning, the assets held in such a trust will pass through that trust and not through the settlor’s will at the time of his or her death, thereby avoiding probate fees; there is also a lesser chance that the trust itself will be able to be found in the public domain. 

Circumstances also exist whereby the settlor wishes to create an irrevocable trust in order to protect his or her assets from creditors, whether in the civil realm or at times in divorce settings.

Testamentary Trusts

Testamentary trusts are typically created under the terms of one’s Last Will and Testament, and provide a multitude of benefits.  These include protecting the assets for a minor or incapacitated beneficiary, protecting assets for children from a prior marriage, reducing taxes against the estate, offering protection and financial stability to the settlor’s surviving spouse and, once again, protecting assets from creditors

In conjunction with creating a will, a power of attorney or other related documents, creating a trust provides you and your loved ones with the protection you need.  Our estate department at Musi, Merkins, Daubenberger & Clark is ready, willing and able to assist you in all your estate planning needs. 

Call us today at 610-891-8806 to schedule an in-person or virtual appointment.