27 Mar What’s a Trust?
What’s a Trust?
By: Barry E. Haimo, Esq.
March 27, 2014
A trust is an incredibly valuable and versatile tool to accomplish many of your estate and business planning objectives. Revocable trusts (and specially drafted irrevocable trusts) are separate legal entities but remain you for income tax purposes until your death. You control them as trustee so they largely represent you in another form of ownership that possesses critical advantages. Basically, you create a separate legal entity that owns and administers property for the benefit of certain beneficiaries. One or more trustees are appointed to administer the trust pursuant to the document’s precise instructions. They must adhere to the instructions at the risk of being held personally liable. That’s why trustees are called fiduciaries, because they are subject to a higher standard of care in exercising their duties. Because they are separate legal entities, they do not “die”. In fact, they can last up to 360 years in Florida. Since they can own virtually any type of property, trusts ensure a smooth transition of family and/or business assets or wealth to subsequent generations while still exercising a fair amount of control over the property far beyond the time of death. Trusts are also employed in connection with estate and gift tax reduction strategies.
Where they are relevant to everyone is how helpful they are in avoiding probate and avoiding guardianship, which can be very time consuming, expensive, not private and dangerously unpredictable. There are many types of trusts, with each having unique advantages and disadvantages. Some are excellent for simple estate planning. Others are useful for estate and gift tax planning. Still others can be used for current and deferred charitable giving.
It is important to mention that trusts provide more flexibility than wills, which is why you will often find specialty provisions in trusts. Specialty provisions can be represented by milestone distributions, such as birthdays, graduations, or other lifetime achievements. Some clients choose to prioritize preserving principal for the beneficiary’s education or current lifestyle. These are merely examples. As long as it is legal and not against public policy, most likely your specialty provisions will be valid and enforceable.
Finally, trusts are excellent vehicles to integrate into an asset protection plan, thereby taking advantage of both estate planning and asset protection techniques planning simultaneously. Given how powerful trusts can be, you have to ensure that they are carefully drafted.