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Now that the estate tax and gift provisions have been made “permanent” at least for the time being, many wonder whether trusts are necessary for families with total assets under $10 million.  The answer is maybe.  Leaving everything by Will to the surviving spouse and then to children may be exactly what is needed for some to quickly and efficiently transfer assets upon death.  For others, however, there are still some very important reasons to have a trust with assets under $10 million.  What follows are five reasons that a trust may still be helpful.  There are certainly other reasons that a trust makes sense, but these are our top five.

  1. Children and Young Adults.  A trust is important for parents with children to keep the assets out of the Probate Court and to allow the children to be treated the same as though their parents were alive.  If assets are left by Will to minor children, they remain in under the Probate Court’s jurisdiction.  A guardian to must report to the Probate Court every year requesting distributions.  Further, the child is given the assets outright at age 18, when most children are not yet ready to receive an outright distribution. The use of a trust allows the guardian to work with the trustee (the guardian and the trustee may be the same person) to properly care for children without the time and expense of court proceedings.  Further, children require different amounts of support.  By transferring assets by Will, the assets are distributed in equal shares upon the death of both parents.  By transferring them in trust, the assets may remain as one pot until the youngest child attains age 24 or any other age determined by the parents.  This allows the trustee to use the funds however necessary, for health, support, maintenance, and education of a child, possibly giving one child more than another. One child may receive less for education due to scholarships and another may require more for health care, the trustee has the flexibility to care for the children according to need, rather than keeping everything even.  Once all children have attained the age of 24, the trustee can then split the assets into equal shares and distribute the assets to the beneficiaries. The trustee may also make partial distributions to each of the beneficiaries, ensuring there is still some money left if the beneficiary mishandles their initial distribution.
  2. Privacy.  Assets transferred to trust prior to death do not pass through probate.  Assets that pass through probate are public record.  A funded trust provides privacy in that all of a grantor’s assets are not on display by a search of the public records. Further, it keeps private the distribution of assets, whether to family, friends, or charity, the public can not search the total money in a trust or where it is distributed.
  3. Second Marriages. The use of a trust allows a grantor to care for a surviving spouse and upon the death of the surviving spouse any remaining funds will be used for the benefit of children from a first marriage.  The grantor could also provide for both the surviving spouse and children from the first marriage at the same time, without worrying that one beneficiary received less then was truly needed.
  4. Protection from Beneficiaries’ Creditors and SpousesAssets remaining in trust upon the death of the grantor may be protected from the beneficiaries’ creditors.  When the grantor of a trust dies, the trust becomes irrevocable, which means it cannot be changed. A trust may be structured such that income and principal are distributed to beneficiaries, however, if there are creditor issues, the trust will not be counted as the beneficiary’s resource. Therefore, beneficiaries with at-risk jobs such as doctors or businessmen who have a high probability of getting sued and beneficiary’s with significant credit problems or a history of substance abuse issues allow the beneficiary to still receive an inheritance, but it will be better protected then if it were distributed outright. By placing the assets in trust for the beneficiary, a creditor may not reach those assets. Further, the trustee may use the assets for the benefit of the beneficiary. Further, in assets remain in trust for the benefit of the beneficiary, the beneficiary’s spouse cannot claim half of the trust in the case of divorce. For children who will not sign a prenuptial agreement, this is one way to protect the family’s assets from a child’s spouse.
  5. Property in Other States and CountiesIf a decedent owns property in other states and counties and it’s titled in their own name, it must pass through probate in the county where it is located.  Without a trust, an Ohio resident with a winter home in Florida, would be required to file an Ohio estate in the county where they lived as well as what is called an ancillary estate in the county where they lived in Florida.  By transferring the property to trust before death, the necessity of an ancillary estate is removed and the trustee may simply manage the property. This not only reduces the cost of the estate administration, but it may provide a quicker administration as proceedings in two or more courts are not required.
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