You do not have to be a Kardashian to benefit from a trust. Now, you might not want to be a Kardashian, and you probably shouldn’t. That is not the point. The point is that you do not have to be very wealthy to reap actual benefits from a trust.
The type of trust we will focus on is the revocable living trust. There are a myriad of trusts which can address issues that many of us face, but for the sake of brevity, I will stick with the revocable living trust for this post.
A revocable living trust is a written instrument, created during your lifetime, that determines how your property and assets are transferred and handled at the time of your death. It may be revoked (hence the name) at any point by the creator of the trust (also known as the trustor or settlor). This sounds a bit like a will, although there are some key differences. Now, the assets you transfer into the trust will be given to the beneficiaries of the trust by the trustee at the time of your death. You select who you want to be the beneficiaries, who the trustee is, and how the assets are transferred. There is a great deal of flexibility in how and when the assets can be transferred to the beneficiaries, it does not have to be outright, there can be conditions that have to be met, etc. As long as it is legal, the sky’s the limit in the structure of the transfer.
What does this have to do with you, the hardworking, honest citizen who makes their living without a lot of family drama?
Let’s consider Bob and Wendy, a middle class couple. Bob works as an insurance adjuster, and Wendy is a substitute teacher at the local high school. They own a house, with a mortgage, save what they can in their 401K and IRA, have a 1M dollar life insurance policy, and raise 3 delightful young kids. They also recently bought a boat which allows them to go on family outings on the river to fish and relax. Bob and Wendy are responsible with their money, make sacrifices for their children, and are generally the opposite of Kardashians.
Why would they want or need a trust? They do not have significant wealth, a child who has developmental disabilities, or some other obvious reason for a trust. Well, there are a few reasons they would want one.
Avoiding Probate and Speed of Administration: one advantage to having a trust is that if the assets are put in the trust prior to the death of the trustor, then probate is avoided. You do not have to go through the 6-12 month process of probate the estate. The trustee will simply distribute (or hold onto) the assets according to the terms of the trust. This can happen almost immediately. No delay.
Control over distribution of assets to kids: another benefit, is that you can have more control over the distribution of assets. With a will, the assets are distributed outright to anyone who has achieved majority (is not a minor). This means that you could potentially give a large chunk of change to an 18 year old. I do not know what most kids are like when they are 18, but I would have bought a brand new Chevy Silverado, with a bass boat to haul behind it, and that would be just the beginning. I was a pretty responsible kid too. The trust allows you to put in place age restrictions for receiving assets, conditions that need to be met, etc. You can parent from the grave as it were!
Life Insurance: dovetailing off the previous point, you can make the trust a beneficiary of a life insurance policy. That way, the proceeds of the life insurance policy can be distributed according to your wishes in the trust.
Privacy: unlike some people, many of us value our privacy. We do not want our business broadcast out for the world to see. Probate makes all documents filed public record, including the will. A trust does not have to be filed, and preserves the privacy of the trustor.
Avoidance of Conservatorship in case of incapacity: what happens if you are incapacitated? Well, often a guardianship and conservatorship case has to be opened to appoint someone to care for you and your money. If a trust is funded, and you are incapacitated, then who ever is the trustee (spouse, child, friend, professional) can manage your money and assets, no need to appoint a conservator and pay the legal fees for that.
All the above list reasons make a compelling case for Bob and Wendy to go ahead and get a trust set up, even if they are not reality TV stars. Regardless of the situation, this great estate planning tool can help everyone.
Eifert Law Firm
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