What Trust is Right for You?

November 12, 2014 Suzana Popovic-Montag Estate & Trust, Estate Planning 0 Comments

Trusts can be useful tools for investors and have many benefits now and into the future. As recently outlined in a Wall Street Journal article, however, it can be tricky to decide what kind of trust to set up.

How much discretion do you want your trustees to have? Will you require the trust’s beneficiaries to fulfill any conditions in order to receive their share of the trust? Will there be any alternate trustees or beneficiaries in the case that conditions are not fulfilled? These are important questions to consider when setting up a trust, especially one you wish to continue on after your passing.

Estate planning professionals generally look at the tax and legal benefits of trusts when advising clients on how to set up trusts. The taxation of trusts depends upon what kind of trust is set up. A glimpse into different taxation of trusts can be found here, here and here. Often, it is in the client’s best interest to reduce taxes on their wealth upon death.

That being said, the Purposeful Planning Institute (“PPI”) attempts to direct the focus away from maximizing tax free transfers of  wealth to heirs and puts it on the transfer of value, along with money. According to the New York Times, PPI therefore suggests providing a better service to your clients by helping them to create more personalized, descriptive trusts. For example, some of PPI’s tips include writing a trust out in the first person and giving the trust a name that captures what it was designed for.

Providing that a trust could only be used in specified manners (i.e. a HEMS trust which allows distributions for health, education, maintenance and support) may accomplish  more of the trustee’s wishes than one that is purely discretionary.

There has been some criticism of this approach, however. One criticism is that some of these documents may not be iron-clad in the event of any legal issues that arise.

However, there is some merit to the notion of looking beyond the tax consequences of a trust, and approaching the creation of a trust in a personalized manner. Some considerations that can be useful at the time of trust creation include when (whether it be a specified date or the attainment of a specific age) the income and/or capital is to be distributed and whether one or more of your beneficiaries has needs requiring either more aid from the trust or aid from the trust for a longer period of time.

Working with estate planning professionals, including lawyers, accountants and financial advisors, can help individuals create a trust that best suits their needs.

Thank you for reading,

Suzana Popovic-Montag

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