Court Bonds

Wealth Transfer: OutRight Or In Trust?



As Baby Boomers transfer trillions to younger generations, there are many decisions to be made, not just about what estate planning tools to use (wills or trusts) but about fundamentals, like whether to make an outright gift, or a gift in trust. Read on for examples of gifts made in trust that might ultimately be helpful to intended recipients.


Handing Off $84 Trillion

In what’s been termed the “largest wealth transfer in history,” Baby Boomers who’ve had the good fortune of accumulating more assets than they need in their lifetimes are in the act of handing off a total of $84 trillion to younger generations, prompting advisers to remind us that in addition to thoughtful estate planning, plenty of solid, proactive conversation is needed too: 


Such a vast transfer of wealth requires rich, intergenerational conversations to align value and values. Open, thoughtful and vulnerable conversation is necessary for families to unpack the rights and responsibilities that come with inheriting massive resources.Parents (or grandparents) might discuss how they acquired their assets, how their assets are structured, plus their wishes and fears related to what happens to those assets after they’re gone. Family conversations can revolve around when to best transfer financial wealth, either during the older generations’ lifetime or upon their demise. These discussion topics are dynamic, but dynamic doesn’t have to mean difficult. In fact, talking about wealth transfer is a great opportunity to strengthen family ties, ensuring a strong family legacy extends from one generation to the next.These family conversations also provide an opportunity to blend traditional perspectives with fresh perspectives.


A Fundamental Question

Ultimately, to ensure assets go to intended beneficiaries when we die, wills and trusts are both viable estate planning tools, with the key difference that assets left in wills first pass through the public process of probate: “Probate is the court-monitored process of transferring your assets to your loved ones. If you have a will, your assets will be administered through the probate process. Generally, if you have a trust, your assets will be transferred to your loved ones without probate.”  Regardless of whether a will or trust anchors an estate plan, experts advise giving careful consideration to an often overlooked question: is your intention to gift assets “outright” (no strings attached); or, only upon the satisfaction of specific terms and conditions that align with your intentions? Indeed, there are a variety of circumstances which may make “holding your beneficiary’s inheritance in a separate trust for their benefit,” a good choice, as these three examples of terms and conditions for inheritance illustrate:



  • As a specified sum or percentage of the trust share when the beneficiary has reached certain ages (for example, one-third of the trust at age 30, one-half of the remaining trust at 35, and the remainder at 40)….If the beneficiary makes bad choices with their inheritance in the beginning, they have time to learn from those experiences….




  • As a specified sum or percentage upon reaching certain milestones (for example, one-third of the trust upon earning a postsecondary degree, trade school certificate, or honorable discharge from the military; one-half of the remaining trust upon successfully acquiring and maintaining employment for five years; and the remaining amount in the trust upon retirement). 




  • For specific events or purchases (for example, an amount equal to the average cost of a wedding…,the average cost of a three-bedroom home…, or 50 percent of the start-up capital necessary to form a business…



Establishing a discretionary trust which allows the designated trustee to allocate funds in the best interest of the beneficiary can also be an effective approach. In the event funds are to be allocated to a loved one with special needs, who may rely on public benefits, a special needs trust can prove invaluable.


Understanding The Trustee Role and Trustee Bonds

Whenever any type of trust is established, a trustee must be named to administer the assets in it, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.”  Because of the importance of the role, trustee bonds are often required. Essentially, a trustee bond 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 trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.


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