Trusts for Family Wealth Preservation
In summary, a living trust has many advantages when it comes to preserving assets. While they can eliminate or reduce estate or “death” taxes and assist in avoiding probate or the need for a conservatorship, they may not be ideal for everyone. Instituting a living trust requires thoughtful, detailed work for the couple or individual, and maintaining it must be considered as well. New “pour-over wills” must be prepared for the grantors, and many of the assets need to have their titles changed to properly reflect the trust as the new owner. Life insurance policies need to have their beneficiary changed to the trust as well. After the death of the first spouse, the survivor will have additional responsibilities at a very emotionally trying time. The survivor, with the help of an attorney and/or CPA, will be required to ascertain the fair market value of all assets maintained and included in the trust and then divide the trust into Trust A and Trust B. Depending on the number and type of assets, this can be a substantial duty. The survivor is also required to keep records for tax purposes and file an income tax return for Trust B. While Trust A continues as a revocable trust over which the surviving spouse is in complete control, Trust B becomes irrevocable. Because of that, the survivor cannot change Trust B’s provisions nor its beneficiaries. If an emergency or ill health arises and the surviving spouse needs to take any of the funds held in Trust B, he or she may need to legally justify withdrawing them, possibly at a time of limited or reduced capacity.
After considering both the benefits and drawbacks of establishing a living trust, the couple or individual can make an informed decision. A living trust is an excellent way to avoid probate and estate taxes, but it involves more effort than filling out forms on the internet or simply signing a document. The advice of a qualified estate planning attorney can help determine if a living trust is right for you.