Why Should You Have a Trust?

Trusts aren't just for the wealthy or for complicated estates. They can be helpful for "average" folks like you! 

What do trusts do? How can trusts be used?

A trust is an agreement between two parties: a settlor and a trustee. The settlor creates the trust and sets up the distribution of the assets. The trustee agrees to 1) accept and manage assets delivered by the settlor, 2) administer those assets according to the settlor’s wishes in the trust and 3) distribute the trust assets only for the benefit of the people identified in the trust.

The trustee is a fiduciary. As a fiduciary, the trustee must act with reasonable care in administering the trust and in selecting trust investments; avoid any conflict of interest or self-dealing in holding, purchasing and selling trust assets; and diligently avoid breaching any of the trustee’s many duties to the settlor and the trust beneficiaries.

The trustee owes a duty of obedience to follow the trust terms, a duty of prudence and reasonableness in making investment and administrative decisions, a duty of objectivity in not giving preference to any beneficiary over equally situated beneficiaries, and a duty of transparency in providing trust information and accountings as prescribed in the trust agreement.

Trusts can be established for a number of reasons. Among them:

• Protect beneficiaries from poor judgment and waste;
• Avoid court-supervised probate of trust assets and keep them private;
• Protect trust assets from the beneficiaries’ creditors;
• Protect premarital assets from division between divorcing spouses;
• Set aside funds to support the settlor when incapacitated;
• Manage unique assets e.g. vacation homes, pets, recreational vehicles, etc;
• Manage closely held business assets for planned business succession;
• Hold life insurance policies and collect the tax-free proceeds to care for beneficiaries, fund closely held stock redemptions or purchases, and provide liquidity to the estate;
• Provide structured income to a surviving spouse that protects trust assets for descendants if the spouse remarries; and
• Reduce income taxes or shelter assets from estate and transfer taxes.

How to Structure a Trust

Trusts are structured to achieve your specific goals, providing tools for the trustee to balance those goals with prevailing investment and economic factors. The first step is to determine whether you’ll fund a trust now, make periodic gifts over time to the trust or wait to fund it at your death.

The most common choice is a revocable trust, sometimes called a living trust, as part of your estate plan. There’s a good reason that living trusts are easy to amend: as your children grow into adulthood, you often rethink your assumptions in light of actual life events. Our estate planning attorneys recommend revisiting your estate plans at least every five years to keep them up to date.

Want to Start a Trust? Contact an Estate Planning Attorney in Ann Arbor to Help You!

Regardless of your stage in life, consult an estate planning attorney in Ann Arbor to create your estate plan with a will and a trust.

If your estate is likely to be greater than $1 million, includes real estate in more than one state, or includes a family business, a trust is essential and you may name a trust company as the successor trustee.

Resource: Kiplinger