One of the first questions people ask when they sit down to do their estate planning, is almost always whether or not they need a trust. The answer depends on many different variables.
Before you can decide if a trust is right for your estate plan, you need to understand what a trust is, and what it can (and cannot) do. A trust is a legal means of managing assets for an individual or a family. The owner, also known as the grantor or settler, legally transfers ownership to the trust, which is managed by a trustee. A trustee can be a person or an institution, and is responsible for managing the trust.
There are some misconceptions about trusts, which can lead to them being unused or misused. WMUR’s recent article, “Money Matters: Five misconceptions about trusts,” provides a look at several of these common misconceptions.
Trusts are used primarily to save on estate taxes. This depends on the type of trust and the size of the estate. A trust may impact estate taxes, but that’s determined by the tax law in effect at the time the grantor dies. The same is true of income taxes.
My estate is too small for a trust. Regardless of the estate size, trusts can be used to manage assets and control their distribution in a private way. This is because they aren’t public like probate court. A trust can contain provisions to manage your assets, if you become incapacitated and are no longer capable of doing so yourself.
Trusts limit your flexibility. This is not necessarily true. This is because a revocable trust can remain under your control as trust creator and be modified as you want in your lifetime.
You must designate a friend or relative as trustee. Perhaps. The trustee must manage and distribute trust assets according to the terms of the trust. However, not everyone is up to the task of being a trustee. Always designate a successor trustee, in case the primary trustee is unable or unwilling to serve.
Creditors can’t get assets that are held by a trust. Not always. There are certain trusts that can protect a grantor from creditors, but they do not all accomplish this. If you are interested in using a trust to protect assets, you need to speak with an estate planning attorney with extensive experience in this area of the law.
Reference: WMUR (September 14, 2017) “Money Matters: Five misconceptions about trusts”