For many people, trusts do more than pass assets, they give peace of mind.  If you have a minor child, a trust can be used to assure that his or her physical, financial and educational needs are taken care of all the way into adulthood.  Trusts can also be used to minimize, or in some circumstances, eliminate estate taxes.  They can also be used to enhance the standard of living for a disabled individual, without jeopardizing public benefits.  Also, trusts are probably the best way to pass your assets to your spouse, children and grandchildren free from the worries of creditor claims and divorce.  The following are some examples of how a trust can safely enhance the lives of those you love.

Revocable Living Trusts

A Living Trust is a trust that you or you and your spouse create while you are alive.  You are the creator of the trust, or grantor, you are frequently the trustee of the trust, so you maintain control over the assets of the trust, and you are the primary beneficiary of the trust.  Thus you can use the assets or income of the trust while you are alive.

A key aspect of a Living Trust is that it is “revocable.”  This means you can terminate or change the trust any time you desire.  You can also add or remove property from the trust at any time.  This can be a very handy tool to have at your disposal.  For instance, most Living Trusts say that all trust assets will be used for the makers of the trust while either is alive then pass to children equally.  However, if you have a falling out with a child, you can change the terms or the property of the trust to reduce or eliminate that child’s inheritance.

There can be many benefits to a living trust depending on your situation.  The most universal benefit is that, if planned correctly, you can avoid probate and its costs and hassles.  Also, if you desire privacy, a Living Trust can be quite valuable.  While probate is a public process, administration of a Living Trust is generally a private matter.

Where a Living Trust is especially useful is if you have real property in multiple states.  Placing property into a Living Trust can eliminate the need for a probate in two or more states.  This strategy generally reduces cost and hassle.

Let us help determine if a Living Trust is right for you.

Children’s Trusts

In this situation, the assets of a person’s estate are placed in trust and used to support a child or children while they are minors.  Upon a child reaching age 18, trust assets may be distributed to such child, however, it is often prudent to retain assets in the trust until the child reaches a more mature age such as 25 or 30 or even older.  The trust assets can be used to fund a college education or assist in buying a house as well as continue to be used for support of the children.

Safe Harbor Trusts

For years and years estate planners have used trusts as a way to help people minimize or even eliminate estate taxes, protect assets and provide for a spouse.  However, today with the federal estate tax exemption limit at $5.25 million per person and $10.5 million per couple, very few individuals have to worry about paying the federal government taxes when they die.  Even in the State of Washington the current estate tax exemption limit is $2 million per person and $4 million per couple.  Though these numbers are significantly lower than the federal exemptions, many households still will not have an estate tax burden if they live in Washington State.  The standard “Shelter” trust concept to address tax issues is just not applicable to that many people anymore.

Given the reduced estate tax burden, the most common estate planning method for many hard working, middle class families is to simply leave all assets to the surviving spouse outright.  When that surviving spouse dies, any remaining assets generally pass to children (or grandchildren) in equal shares.  If children or grandchildren are to receive an inheritance, it is often held in trust until they reach adulthood.  Unfortunately, this form of estate planning, while effective for many younger and middle- aged couples, is not the most effective way to plan for those approaching retirement.

There are new challenges facing people today.  Thanks to modern medicine a significant number of people will live many years in retirement.  Of those people living longer, many will unfortunately go through their retirement years with debilitating chronic care conditions.  These conditions will make many dependent on the assistance of others to accomplish such basic tasks as bathing, walking, eating, dressing or getting out of bed.

Statistics from the Alzheimer’s Association show that one in eight people who turn 65 will face a dementia related disability; for individuals over 85, that number increases to one out of every two people.  For a nation whose fastest growing segment of the population is the 85 plus crowd, this is not good news.

Families who face long term chronic care issues will see monthly expenses outpace their income.  This means the assets people have worked for, saved and invested wisely will be eaten away month after month.  The people most at risk are those with estates between $500,000 and $1,000,000 (including your home).  Clearly, baby boomers require a new method of estate planning.

This is where the Safe Harbor trust can provide tremendous value.  Like the trusts used by the wealthy to minimize estate tax, these trusts are used to protect roughly half (possibly more if planning is done early enough) of a married couple’s assets.  One of the purposes of this type of planning is if, in the future, a spouse needs access to a nursing home or needs care at home, one can reach out to the Medicaid program for some assistance with the prohibitively high cost.  Medicaid is only available to those with less than $2,000 in assets.  Traditional estate planning calls for one spouse’s share of assets to pass to the surviving spouse.  However, such a scenario leaves the surviving spouse with all of the assets.  Those assets must then be spent down to $2,000 before one is able to access Medicaid.  The better option is to direct a spouse’s half of the community assets into the Safe Harbor Trust (also known as a Special Needs Trust).  The assets in the Safe Harbor trust are not counted as a resource owned by the surviving spouse.  As a result, if the surviving spouse must look to Medicaid generally at least half of the estate is protected.   The law permits this planning opportunity but it is up to you to incorporate it in your estate plan.

Credit Shelter Trusts

A CST is used as part of a will and places assets in a trust for the benefit of a surviving spouse while keeping those assets outside of the surviving spouse’s estate.  The most desirable outcome will have the trust funded to the maximum amount that can pass free of estate tax.  To achieve this outcome, the will includes a fixed formula for funding the trust.

Disclaimer Trusts

This trust is used as part of a will and functions the same as a CST.  However, it can provide more flexibility than a CST.  The main reason for this added flexibility is, unlike the CST, there is no fixed formula for funding the trust.  Upon the death of the first spouse, assets are “disclaimed” by the surviving spouse and placed into the trust which will operate for the benefit of the surviving spouse while excluding those assets from the surviving spouse’s estate.  The surviving spouse only “disclaims” assets into the trust if the estate upon the death of the first spouse will create a tax burden on the surviving spouse.  Additionally, the surviving spouse can choose which assets are the best assets to place in the trust and which are best to pass directly into his/her estate.

Gun Trusts

If you own NFA firearms or accessories or would like to acquire such items it is worthwhile to consider forming a Gun Trust.  We can assist you with these forms of trusts and allow you to, among other things, amend your trust, add or change beneficiaries and trustees, provide for co-trustees, provide detailed firearms definitions and guidance and avoid probate.  If you like a gun trust can be used to hold all firearms, not just NFA items.

Pet Trusts

What would happen if you were no longer around to care for your pets?  A pet trust allows for life-long care for your pets in the event you die.  We can also set up such a trust in the event of your incapacity.  A pet trust will become a part of your overall estate plan giving guidance to those who will care for your pets.

Hugg and Associates LinkedIn