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Financial Planning for Owners : Wills Trusts and Probate
An Introduction to Trusts

Trusts are estate-planning tools that can supplement a will. A trust is a legal document whereby a property owner transfers legal ownership to a fiduciary who may manage the asset for the benefit of the beneficiaries. The grantor of the property may act as the fiduciary or he may hire a professional company or institution to manage the property.

Why Do I Need Them?
  • Trusts can provide professional management.
  • Perhaps the beneficiary is not interested or able to handle this asset as well as professional.
  • They can save time and money by avoiding probate or, in some types of trusts, estate taxes.
  • They can make your life simpler by hiring institutions to do the management of property.
Trust Types

Living Trusts: A living trust simply means it was created during your lifetime and may be changed as long as you are living. It has many distinct advantages.
  • It can help you avoid probate saving time and money.
  • By avoiding probate (a public process whereby the will is in the public record) you can avoid publicity
  • By expressing your wishes and avoiding the time consuming probate process you can get assets to heirs much sooner
  • Living trusts may be revocable or they can be irrevocable.
Testamentary Trusts: A testamentary trust simply means it is a trust established by your will. The testamentary trust allows you complete control over your assets since you may change any provision as needed. The advantages of the testamentary trust are:
  • It is completely flexible and you have total control
  •  It is an expression of your wishes to heirs should something unexpected happen
  •  Provides some direction regarding estate planning but may subject assets to estate taxes. More planning needs to be done, but it’s a start
  • Irrevocable Trusts: These trusts have potential estate tax savings but because they are irrevocable but they do have drawbacks, especially if you like to control assets during your lifetime. They do provide some advantages
  •  By giving up all control of an asset you can effectively keep it out of an estate and avoid the taxation.
  •  They explicitly designate heirs and simplify the process of tax planning and probate
  • It is useful for people who know what they want to do with an asset and do not think they will ever need it back.
Bypass Trust: Assets can be placed in a bypass trust. Income can be paid to the surviving spouse, however the asset is not in the estate and avoids estate taxation. High growth assets will escape the estate tax and upon the death of the surviving spouse, property passes directly to the heirs.

Pour Over Wills: Assets are accumulated over a lifetime. Often, trusts are set up and inclusion of new assets can be forgotten. A pour over will can keep the trust current and the assets not originally included can avoid probate by using this technique. Of course, you must remember to include them in the pour over will.

Charitable Trusts: If you have a favorite charity and are inclined to give the IRS provides tax favored ways to help you gift for the greater good. If you have high value assets that you no longer need and you want to reduce their capital gains and estate taxes then these are for you.
  • Charitable Remainder Trusts: Property is placed in the trust with a named charity. The grantor receives generous tax breaks based on the value of the property. The charity pays the earned income of the property for the lifetime of a named beneficiary. Upon the death of the beneficiary, the trust is dissolved and the charity receives the property.
  • Charitable lead Trusts: Property is placed in the trust with a named charity. The grantor receives generous tax breaks based on the value of the property. The income from the property goes to the charity. When the trust term is over the arrangement ends and a named beneficiary gets the property. Effectively, the property is out of the estate for a period of time and may avoid estate taxes.

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