Do you think that a trust is only for the wealthy or super rich? If that is your take on a trust, then you may want to consider things a little further. Yes, a trust is normally associated with wealthier people but depending on your circumstances a trust may be beneficial for your situation. If you have large life insurance policies on you and your spouse if you have one and a young adult or older teenager, then you could consider a trust for your heir or heirs. In this situation, you are not worth a lot while living but upon your death, you leave a substantial sum of money. Enter a trust.
So yes, a high net worth individual use trusts to put an added layer of protection in for their heirs. But as I just outlined someone with a large life insurance death benefit may need to do the same. So estate planning has its place in all wealth situations depending on how you view them. And most people do indeed worry about how their heirs will spend the inheritance that is left to them. If this is you, then consider a trust as they are not just for the ultra-rich.
Trusts can be complex in nature or ultra-conservative depending on what you want to accomplish. But at a minimum, your trust will have the following components. The person who creates the trust is the grantor. They are the ones who determine who gets what and how. The grantor can set all kinds of restrictions up depending on what the situation is and what it is they want to accomplish with the trust. Then there is the beneficiary, and that is the person who the trust is set up for in the first place. There may be a single beneficiary, or there could be multiple beneficiaries as established by the grantor. Then there is the trustee, and they are the person who is tasked with the trusts operations and distribution to any beneficiaries. In some instances, a beneficiary is the trustee and in other instances, it may be a third party who is not part of the trust other than managing the trust for the grantor for the benefit of the beneficiaries.
So why would you use an independent trustee? As an added layer of protection between the assets of the trust and the beneficiary. They are responsible for the trust’s assets and how they will be distributed. They are the ones who ensure that the grantor’s wishes are followed through with after they have passed. Grantors can establish all sorts of rules that must be followed for the trustee. Some examples are to allow for withdrawals at certain ages, when someone gets married or has children or graduates college. A grantor can set up just about any clause for the trustee to interact with the beneficiary.
In some instances, the trustee does have a significant influence on how a trust is used. Many grantors will set ascertainable standards that are to be followed. In those instances, a trustee will make disbursements based on a trustee’s need for health, education, maintenance, and support. This in done in many instances based on the discretion of the trustee. And yes the trustee can be challenged in a court of law if they disagree with the trustee’s decisions.
In the case where the beneficiary if the trustee, a grantor can use protective clauses to aid in protecting the assets of the trust. There are certain clauses that will protect the beneficiary from external creditors if they are in need of such protection. The assets while in the trust are protected from creditors as long as the assets remain in the trust. There are exceptions to this such as alimony, child support or taxes owed. In these instances, the trust will not protect the assets from those specific types of creditors. And this asset protection will only apply to assets that are still in the trust. Once an asset is taken out of the trust, the asset is subject to any creditor’s position that they may legally have on the beneficiary.
As you can see a trust does not have to be complex or complicated in its creation. They are as creative as the grantor wants to be when creating them or they can be very simple. You can have two, three or more people involved in the trust. Not all trusts are created for the wealthy, and some are created to protect the young or people who may not be able to manage their own day to day activities.
As the laws are different in each state, check with an attorney or financial planner in the state in which you live to see what does and does not need to be done for establishing a trust. As always, if you have any questions or need additional information feel free to contact me.
