Trusts: Probate Plot Twist
Our firm recently began working with wills and trusts. I feel like it makes a lot of sense. So many clients would ask us about amending their will and trusts. Sometimes, an aspect of the case would make me want to discuss a trust but at the end of the day I’d have to send the client to someone else. Then the client would need to build faith in that new attorney and so he or she could try and fit the client’s needs.
That’s not the case anymore. I’m happy to say that any time it seems like someone needs to address a will or a trust, I can help them out.
With that newfound opportunity comes some hurdles. Though many people know the basics of wills and advanced directives, the idea of a trust is a nebulous one. I’m often asked to explain what a trust is like. I haven’t really been able to come up with a great answer. I think that’s because a trust can be almost anything you want it to be. A trust is the legal version of a plot twist.
Typically when someone dies, even if they have a will, the case goes through a legal process called probate. During probate the Court determines how to divide assets. With a trust, your family and friends can avoid probate all together. One of the best ways to do this is will an irrevocable trust.
With an irrevocable trust, the assets in it are no longer yours. Most of the time you’ll need a beneficiary’s consent to make changes to the trust. With the loss of control comes certain tax benefits. The appreciated assets in the trust aren’t subject to estate taxes.
But, a trust doesn’t just simplify the situation when you pass on. It can help you day to day. A revocable trust allows you to retain control of all the assets in the trust. That means you’re free to revoke or change the terms of the trust.
Within those trusts you can use different types of clauses to quite a few things. Want to set guidelines for when your children can receive money from the trust? Go ahead. Want to provide that if your family wants to keep an interest in your money has to buy Chipotle burritos and launch the burritos from a potato cannon in the dessert ? That’s kind of strange, but you can do that.
Besides those two types, there are a number of more detailed and complex trusts. For instance:
A bypass trust allows you to write a will providing an amount to the trust up to but not exceeding the estate-tax exemption. That means you can pass the rest of your estate to your spouse tax-free, Shawshank Redemption style. Once placed in a bypass trust, money is free of estate tax. It’s free of the estate tax even if it grows.
Or an irrevocable life insurance trust can remove your life insurance from your taxable estate. It even may provide your heirs with cash for a any number of reasons. It can help pay estate costs. By surrendering ownership rights you can remove the policy from your estate. That also means you can’t longer borrow against it or change beneficiaries. The earnings from the policy can be used to pay estate costs after you die and provide your beneficiaries with tax-free income.
After you wake up from your thrill induced nap, consider how helpful this could be. With any of these trusts, you can add specific terms that guide everything from your home, family and businesses. Sure it might mean you give up some control and you have to sit down to have a few serious conversations. When it comes down to it, a trust lets you give in to win.