Though a bit more complicated than wills, and typically more expensive to set up, trusts can be very useful tools for estate planning. Read on for a basic understanding of trusts, as well as some examples of the types of trusts that can come in handy based on a family’s goals and circumstances.
Asset Planning and Management
By establishing a trust, the grantor (person setting up the trust), can plan for their own needs as they age, and designate assets for distribution to loved ones, charitable organizations and even pets. Although wills can be a helpful way to give assets to beneficiaries, they have some limitations. For example, since wills only become effective upon the death of the testator (person creating the will), they are not a useful way to plan for our own potential declines. Additionally, wills do not allow for the distribution of assets to beneficiaries over time or based on milestones, like age or educational attainment. Attorneys at Chambliss, Bahner & Stophel offer this overview of trusts and how they can be useful:
A trust allows one person, known as the trustee, to manage funds and assets for one or multiple beneficiaries. Trusts can be revocable or irrevocable.Revocable trusts allow the grantor – the person creating and funding the trust – to change it during their lifetime.
With an irrevocable trust, the grantor cannot make modifications. Assets placed in this type of trust no longer belong to the grantor. Such trusts can therefore help someone qualify for government benefits, reduce their taxable estate, and transfer wealth. The value and utility of a trust will depend on your unique circumstances as well as the type of trust you use.
Estate planning experts point out that an overarching advantage of trusts is “having more control over assets than if you gave them to the recipient directly.” Trust agreements, for instance, can specify the age or educational attainment level required before funds are distributed. The flexibility of trusts means they can be tailored to address a variety of values, goals and circumstances. Attorneys offer these examples of types of trusts designed to address specific financial and care needs:
Older people and those with disabilities can also use a type of irrevocable trust known as a Medicaid Asset Protection Trust (MAPT) to qualify for Medicaid…..Since a MAPT is irrevocable, the grantor no longer controls and owns the assets. As they can assign beneficiaries, they can transfer and benefit from their wealth without first exhausting their assets to go on Medicaid.
One type of trust that can be an invaluable estate planning tool for older adults with disabilities is a special needs trust (SNT). This type of trust can preserve the beneficiary’s eligibility for Supplemental Security Income and Medicaid while providing for needs that public benefits do not cover.
Appointing A Trustee
Attorneys remind us that in addition to thinking carefully about the type of trust needed and the assets placed in it, we must also be wise in the selection of the trustee or trustees who will administer it. While many parents are quick to name all children as trustees, doing so is not a requirement, and can sometimes result in delays and confusion related to trust administration. It may make more sense to designate one child as a trustee and other children, friends or relatives as successor trustees, who are able to take the reins in the event the designated trustee cannot complete their duties.
When choosing a trustee, it is important to consider a reliable person who deeply understands the intentions of the trust and can be counted on to administer the trust accordingly. Unless the assets placed in a trust are complex, financial expertise is not necessary for a trustee, but having time and being organized and diligent are. Ultimately, whether a friend, relation or professional is selected, the trustee has a fiduciary obligation to the beneficiaries—and must always exercise reasonable care and skill in managing the assets of the trust. Accordingly, the trust agreement may require a trustee bond, which is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere.
Good To Do: Plan!
Estate planning attorneys help families decide whether a trust, will or combination of tools is best, based both on desired goals and circumstances. Establishing a power of attorney and healthcare proxies are other vital steps in completing a solid estate plan that will ultimately make life easier for ourselves and loved ones. Despite the importance of estate planning, Caring.com finds that “only 34 percent of Americans have an estate plan.” What stops us from getting on with it? Typically, reasons include: procrastination, the belief that assets are insufficient to require a plan, and lack of information about how to make an estate plan. Remember, Colonial Surety is here to help: get your estate planning going today..
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