Estate Planning

Do I really need a trust?

Maybe you’ve heard the term “trust” at a cocktail party, or maybe your friends have told you that you needed a “trust.” But is that true? Do you really need a trust? The answer is: maybe. What you definitely need if you are a small business owner or a corporate employee, however, is an “estate plan.”

Planning for what happens to your business, assets, and debts when you retire and thereafter can be a stressful topic. From the fear of uncertainty to the difficulty inherent in making decisions for situations where you don't have control, it can be daunting to establish a succession plan or an estate plan on your own.

Some companies offer standard fill-in-the-blank forms, and it might seem like these could be sufficient if you don't have any substantial assets to your name. If, however, you have a business, or real estate, or special situations, then the off-the-shelf forms are likely not what you need. Instead, consider retaining a competent estate planning attorney to assist with these complicated decisions.

Succession and estate planning is more than just dividing monetary assets. Many times it also involves passing down core values (religion, education, hard work, etc.) to those who succeed you in a way that meaningfully preserves your legacy. Without an estate plan, State law will dictate how your assets are allocated, and no consideration will typically be given to your wishes. In cases where you become disabled and unable to handle your own affairs, a court appointee will sign for you in all matters regarding your business and other assets. Sometimes this appointee may be a family member. But where disputes arise between your heirs, a stranger appointed by the government (i.e., the court), not your family, may control how your assets are managed.

An estate plan is not free, and structuring the estate plan of your choice does have an upfront cost. But if you don't want strangers managing your estate, the cost may well be worth it. The right time to create an estate plan is now, when you are in full control over expressing how you want your estate to be handled during your life and beyond. Creating an estate plan can be one of the wisest steps you can take for yourself and the ones you love.

Summarized below are some of the components of an estate plan. Because each component serves a different purpose, and each component comes at a cost, you should have an attorney advise you which components meet your needs.

Trust

This is a document that outlines who manages your assets while you are alive. The term “assets” – sometimes referred to as the “trust corpus” – means any real estate, business interests, stocks, bonds, or other personal property you decide to manage as part of this trust or plan document. The person who places assets into trust – typically you and, if married, your spouse – is known as the “settlor.” The person who manages the trust is known as the “trustee.” The persons for whose benefit the trust is being managed – typically children or other family members – are known as the “beneficiaries.” The trust document specifies the rights and responsibilities of each of these parties, to ensure that your wishes are fulfilled. Once the trust is created, property must be transferred into the trust in order to be covered by the trust.

Special Needs Trust

This is a special type of trust established for children or family members with special needs, such as medical conditions that require extra care. A special needs trust must be carefully drafted so as to not prevent the beneficiary from obtaining public benefits.

Spendthrift Trust

This is a special type of trust established for individuals who have some difficulty with or risk of mismanagement of funds. For example, typically when children finish high school they may need some financial support as they venture out into the world or begin secondary education. At the same time, they may be racking up credit card debt or may be shopping for products and services they don’t absolutely need. As such, giving them money to spend outright may not be a good idea. Instead, putting money into a spendthrift trust that can be used to pay their rent, utilities, school books, etc. is generally a better option, because that money can only be used for the purposes you have earmarked and subject to the constraints you have established.

Certificate of Trust

This is a document you may provide to a bank or other third-party, or may record with the county recorder, as evidence of the existence of a trust instrument. A certificate of trust summarizes only the information that is needed to be known by the public, without disclosing the detailed terms of the trust.

Testamentary Will

This is a document that specifies what you would like to happen after you die to any assets you have not placed into a trust.

Parental Power of Attorney

This is a document where you allow a non-parental family member or trusted third-party to temporarily make parental decisions for your minor children for a short period of time (typically no more than six months) when you are unable or unavailable to make those decisions.

Property Power of Attorney

This is a document where you allow a trusted family member or third-party to temporarily make decisions concerning your real estate, personal property, or business when you are unable or unavailable to make those decisions.

Medical Power of Attorney

This is a document where you allow a trusted family member or third-party to make medical decisions for you when you are unable to make those decisions.

Living Will

Sometimes called “advance health care directives,” a living will is a set of instructions you provide ahead of time to doctors, medical providers, and others concerning your wishes on such serious issues as resuscitation, ventilation, tube feeding, organ donation, cremation, and the like.
 

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