There are significant “non-tax” estate planning concerns that can be addressed through the implementation of a properly drafted trust. A trust can provide a measure of protection so that the assets you have accumulated over a lifetime are not dissipated by a creditor or divorcing in-law.
Some examples of when trusts are advisable:
- An outright distribution to a beneficiary may be subject to immediate attachment by the beneficiary’s creditors. In terms of potential creditors, the divorcing spouse of a beneficiary is a significant consideration. In lieu of outright distributions, trusts can be established for married beneficiaries to avoid a costly dispute or unintended result.
- There is no bright-line rule that determines the age when a beneficiary will be sufficiently mature so as to be able to manage, invest and protect an inheritance. In any instance where an adult beneficiary has demonstrated an inability to manage money or is impaired because of a dependency problem, a trust is recommended.
- Trusts for children that do not mandate distributions can facilitate significant estate tax savings. If properly drafted and subject to the limits of the applicable “Generation Skipping Transfer Tax” exemption amount, the assets in such a trust will be available to the child-beneficiary, but not subject to estate tax in the child’s estate.
Trusts can also be used to transfer family businesses to the next generation of owners and avoid probate in multiple jurisdictions. In any instance where a beneficiary has a physical, mental or developmental disability and is receiving Supplemental Security Income (“SSI”) or any other benefit that is “means-tested” (i.e., subject to asset and income limitations), a trust has to be considered.
An estate plan is not a boilerplate Will or trust. An effective estate plan reflects specific goals, responds to specific concerns and involves the implementation of the necessary documents suited to help meet those objectives. The consequences of failing to consider the “non-tax” benefits of trusts can be significant. Regardless of a beneficiary’s age or ability to manage and invest an inheritance, due consideration should be given to these “non-tax” benefits.