Number 1 Reason For Living Trusts: Protect Property for Beneficiaries
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Ed Note: Older adults have planned many aspects of retirement, but failed to create an estate plan. Explore how living trusts protect property.
By Michael P. Pancheri, Esq.
If you’ve ever thought about a living trust, it’s probably because you hate the idea of going through probate. Living trusts have been heavily marketed on that basis over the past several years and, yes, living trusts certainly do avoid probate. But, there’s a whole lot more to living trusts than just that. To set the record straight, here are the top 6 reasons why you should have a living trust.
Reason #1: Protect Property for Certain Beneficiaries. This is seldom mentioned as a reason for a living trust, but it’s probably one of the most important reasons. When most of us think about a estate plan, we think about giving our property to our husband or wife, our children, and other loved ones after we die. However, sometimes our intended beneficiaries just aren’t able to handle an inheritance. Minor children are the usual suspects here. Many states don’t even allow minor children to own property because they’re just too young.
Instead, the state appoints a guardian to hold the property until they reach majority age (usually age 18). Even then, parents cringe at the thought of an 18-year old getting any amount of money. The first thing they might do is quit school, buy an expensive car, and head to Cancun. But, minor children aren’t the only ones who squander money. Most experts agree that no one under the age of 25 should be given an inheritance outright because they need time to finish school and start a career. Of course, there are many people over the age of 25 that shouldn’t have money either. Some are spendthrifts at heart, others are in not-so-good marriages, still others are going through bankruptcy. Then there are those who are just too frail and incapacitated to manage property on their own. Giving any amount of property to any of these people is never a good idea.
That’s when a trust becomes a vital part of your estate planning. A trust allows you to have your cake and eat it too. Let’s take a look at a typical example and see how it works. Let’s say that you have a 20-year old son who is a junior in college. If you and your wife both die, you want your son to get all your property, including the equity in your home, your life insurance, retirement plans, etc. If you reduce all your property to cash, it could easily amount to $500,000 or more. But, having your executor write a check to your son for $500,000 is probably not a good idea. Instead, it would be far better to create a trust for your son with someone else, say a friend, family relative, attorney, or your local bank, as trustee. The trustee would hold the money and invest it for your son’s benefit until he reached a more mature age, say age 25. In the meantime, your trustee would use the money to pay for your son’s schooling, his general living expenses, and any other expenses you might specify in the trust instrument - including a down payment on a home or a new business. When your son reaches the specified age, the trust would end and your son would be given a check for the full value of the trust at that time.
Revocable living trusts have been used to protect property for hundreds of years, and it is probably one of the most important reasons for a revocable living trust today. If you have any beneficiaries who are in this position, then a revocable living is a necessary component of your overall estate planning.
Link to the series:
Number 2 Reason For Living Trusts: Reduce or Eliminate Estate Taxes
Number 3 Reason For Living Trusts: Managing Property upon Incapacity
Number 4 Reason For Living Trusts: Avoid Probate
Number 5 Reason For Living Trusts: Avoiding a Will Contest
Number 6 Reason For Living Trusts: Secure Your Privacy
Attorney Michael P. Pancheri is the founder and CEO of the Living Trust Network. You may contact him by email at info@livingtrustnetwork.com. You may also contact him at the Living Trust Network's web site at http://www.livingtrustnetwork.com
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