Mention a trust, and the first thing most people think of is a spoiled kid living off an inherited fortune without having worked a single day in life. As a result, most people don't know very much about trusts, and they assume there's little need to have even a basic understanding of this useful estate-planning tool. In many situations, though, trusts can be the best way to achieve your financial goals, especially if they involve making sure that you and your loved ones are taken care of when you're unavailable to do so yourself.
This was the subject of a recent article by the Motley Fool titled "5 Things You Didn't Know — but Should! — About Trusts."
Here are a few takeaways from the article:
You don't have to be rich to benefit from a trust. The common perception of trusts is that they are for the rich and there are Wall Street advisors managing their money. Of course, the costs of Wall Street trustees can limit their use to just people of substantial means. But a wise and trustworthy trustee from Main Street or Honeysuckle Lane may work just as well for your specific needs.
You can ask a family member to be your trustee for no compensation and to guard your assets according to the trust's terms. By protecting even a modest sum of money, a trust can make sure that your directions for your money will be followed in the future.
Trusts can last a super long time. Once upon a time,trusts had limited lifespans. A very complex legal rule says that a trust must have all of its interests vest within 21 years of the death of the last surviving person when the trust was created, so that—at least in the past—trusts couldn't last more than about 75 years or so. However, more recently dynasty trusts have made many states strike the longstanding rule or allow a much longer maximum period.
Wyoming, for example, set a 1,000-year maximum term on trusts, and Nevada’s max is 365 years. There are also some states, like South Dakota, that just let trusts go on perpetually.
Trusts let you keep your business private, even after you die. This has to be one of the best benefits of trusts: there's no requirement for your beneficiaries or the government to make their terms public—even after you pass away. A will, on the other hand, becomes a public document once it’s filed in probate court.
A will’s terms are accessible to anyone who wants to look at them, and not everyone is comfortable with that! A trust allows you to make your express instructions clear while still keeping outsiders away during one of the most difficult periods for your family.
As you can see, trusts can be very complex, but used correctly, they are a terrific solution to your estate planning challenges. Contact an experienced estate planning attorney to talk about trusts and whether they might fit into your estate planning strategy.
Reference: Motley Fool (November 17, 2014) "5 Things You Didn't Know — but Should! — About Trusts"