An attorney who specializes in estate planning or a trust officer can review these reasons with you and help you determine the most appropriate estate plan elements for your circumstances.
When all is said and done, the main reason to have an estate plan is to remain in control when you’re not there to make the decisions. All other reasons, non-tax and tax alike, are really subcategories of control.
Without a will or trusts in your estate plan, for example, your assets will be distributed according to the laws of the state where you are living at the time of your death. Unfortunately, for most of us, the “state law” option does not accomplish what we want to happen. In many states, for instance, if you die without a will, your assets are automatically divided among your surviving spouse and children, rather than going entirely to your spouse, as you might have intended.
Taking the time to create a complete estate plan with a will and trusts can ensure that your assets are distributed after your death according toyourwishes.
You may only need a will to stay in control. Or you may want to add trusts to accomplish your asset distribution goals.You also can give immediate control to others by naming them as joint owner(s) onsuch assets as real estate and bank accounts; by designating a Transfer at Death beneficiary for investment accounts; and by naming specific people as beneficiaries of life insurance policies, retirement accounts,and other similarassets.
An estate plan can also protect your privacy. If you only have a will, then your estate will likely go through a settlement process in your state’s probate court where information about the assets, transactions, and names of the beneficiaries will be available to the public. Because trusts are not part of the probate process, having them in your estate plan keeps this information private.
Trusts also may be written so each beneficiary doesn’t know what any other beneficiaries receive. That could be important if you’re worried that some family members could feel that you are favoring one child over another. Or you may not want others to know what charities you intend to support. For anyone with these types of concerns, an estate plan with the appropriate trusts in place is the only way to achieve the desired privacy.
With an estate plan you also can make arrangements for the uninterrupted management of your assets if you become disabled or incapacitated.
The basic documents to do this are a durable power of attorney, an advance health care directive (such as a “living will” or health care proxy), and a health care power of attorney, which direct the people you choose to act on your behalf. You might also establish a revocable trust to hold the assets these people may need to follow your direction—such as cash, stocks, bonds, mutual funds, real estate and other investments.
With a trust created and funded and the appropriate documents in place:
Establishing a revocable trust and funding it during your lifetime can ensure that your assets will be used for your benefit and managed according to your wishes if you become disabled or incapacitated. It also greatly reduces, and often eliminates, the need to have a court-appointed guardian in such a situation.
If you have an ownership interest in a family or closely-held business, you’ll want to be sure that your personal estate plan is in sync with the succession plan for the business.
Let’s say that you are a business owner who wants one of your children to take your place when you retire or die. Having a will that simply states “I give my ownership interest in the family business to my son” can be a recipe for disaster, leading to great business and family disruption. Instead, by aligning your personal estate planning objectives with a formal business succession plan, you can help make future transitions for the business much smoother and more productive.
While you can certainly protect your assets against creditors while you are alive with a “self-settled asset protection trust,” you may be equally concerned about protecting the assets you pass on from the creditors of your heirs.
For example, let’s say one of your children owns a business where there is a considerable personal liability risk if an accidentoccurs. If the child receives an outright inheritance, then those assets are accessible to the child’s creditors. However, if you place that inheritance in a trust for the benefit of the child, the trust provisions can specify that none of the assets can be given to creditors.
While this type of trust is allowed in quite a few states (New Hampshire trust law allows them, with exceptions for alimony and child support), other states allow creditors to reach the assets more easily, regardless of the trust terms. Check with your estate planner or trust officer to understand how your state’s trust law applies.
If you have a child who is receiving extra assistance from the state or federal government to help defray the cost of caring for a disability such as autism or Down syndrome, you certainly don’t want to do anything to jeopardize those payments. By establishing a “special needs trust” or “supplemental needs trust”in your estate plan, you can still earmark assets used for the child’s benefit without jeopardizing his or herpublic assistance.
Again, it’s important to check with your estate planning advisor to understand how your state’s laws affect the amount of additional assistance your child can receive.
It’s also important to decide if the sibling, relative, friend, or guardian you’ve named as trustee to oversee distribution of trust assets to the child is the best person to manage the trust’s administrative aspects too, including investment management and filing tax returns.
In some states, including New Hampshire, separate individual or corporate “administrative” trustees can be named to handle these administrative matters. But they have no authority over discretionary distributions from the trust to the beneficiary. That is still the responsibility of the primary trustee.
For obvious reasons, it’s usually not a good idea to give an inheritance outright to someone who is struggling with alcoholism, substance abuse, or a gambling addiction, or to a spend thrift who can’t manage money wisely.
A well-designed estate plan that arranges for the inherited assets to remain in a trust, overseen by a competent trustee, can achieve the goal of leaving assets for a reckless heir, without the risk that those assets will be wasted.
If you’ve remarried after a divorce or the death of a spouse and have children from a previous marriage, plus additional step-children, you want to be sure that your state’s trust laws don’t derail your plans for distributing assets after your death.
For example, most states have laws that prevent someone from disinheriting his or her spouse. So without an adequate estate plan, your second spouse could receive some of your estate assets even if your intent was for all of your inheritance to go to your children.
You might also be concerned about the trustworthiness of a child’s spouse. Or you may want your money to stay within the family. A properly designed estate plan can ensure that your assets go directly to your grandchildren rather than to your child’s spouse when your child dies.
Don't forget that you can also plan to provide for a beloved pet when you create your estate plan. Some states even allow you to create a trust to cover the cost of care for any animals that survive you. That may be welcome news to pet owners who want to know that their pets will be provided for after their death, rather than having to rely on the generosity of others to do so.
Bottom line: No matter how much you try to plan for the contingencies that inevitably arise in your life, it’s is impossible to plan for every possibility. For this reason, the trust laws in some states allow you to appoint a “trust protector” or “trust advisor” for your trust, in addition to a trustee.
A trust protector or advisor can be given a wide variety of powers, including the power to increase or decrease any beneficiary’s interest in the trust, the power to remove a trustee and appoint a new one, and the discretion to change the governing law or principal place of administration of the trust. Having someone in this role can be extremely valuable if the trust is designed to benefit more than one generation, is a special needs trust, or is an asset protection trust.
For example, suppose you want to provide for your grandchildren after your death, some of whom may not have been born yet. If one of those future grandchildren is born with a disability, a trust protector can be given the authority to revise the terms of your trust to ensure that the assets in the trust that are to be used for that grandchild do not cause the child to be ineligible for public assistance.
That's where the help of a knowledgeable estate planning attorney or your trust officer at Cambridge Trust may prove invaluable. He or she can assist you with examining all of the reasons why you need a plan, and develop solutions for each reason, including the option of setting up a trust in another state where the laws are more favorable for your needs. Your trust officer can also help you identify your unique estate planning needs and issues not addressed above.
It’s clear from the 10 reasons outlined above that a well-designed estate plan needs to address many aspects of the asset transfer process, far beyond its tax implications. And one of the key challenges as you consider these many aspects comes in trying to balance what you want to achieve from your plan with what you can actually do under current estate planning and trust laws in your state.
This article is for informational purposes only and should not be construed as investment or legal advice.