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Dow Jones. Opinion Read the Latest. In one instance, Radigan says, a family that set up a substantial trust worried that those assets could be subject to a divorce proceeding if the beneficiary received a mandatory distribution at a set age. So the trust was drafted in such a way that the trustee could hold back a distribution if it was in the best interest of the beneficiary.
Such flexibility protects against dark scenarios, and it also safeguards against creditors or litigation. A beneficiary who works as a doctor and faces the risk of malpractice litigation, for example, will be better protected by keeping assets in trust. In that case, the beneficiary may still receive funds to live on, but does not get large principal payouts at the originally stated dates. A similar situation can arise with closely held businesses. Timothy Speiss, vice president of EisnerAmper Wealth Planning in New York, cites a senior family member wanting to bequeath an operating business to a son and daughter.
He created a separate trust for each share. They're locked in," Speiss says. Subsequently, the son, who is also a corporate officer of the family firm, develops a gambling habit, leaving the company at financial risk in a way the trust agreement never considered. An increasingly popular way to safeguard a trust is to set up what's called a trust protector. This person isn't a trustee but has an oversight role, and typically has the authority to replace the trustee if he or she makes bad decisions or becomes negligent.
Not all states have defined rules about trust protectors, but trust-friendly states, such as Delaware and South Dakota, do. Also be careful to pick a disinterested party, such as a trusted attorney, rather than a family member. Communication between the generations also cuts down on trust implosions. Consider a vacation home that's going into trust; the beneficiaries live in different places, so those who live closer are likely to use the place more, while those who live far away might never go there.
Should there be a buyout mechanism in case one of the siblings wants to sell later? Gooen has a family in that situation now. And if a trust runs into problems, you may still be able to fix it without going to court. The simplest method is through "decanting," where you basically pour a trust's contents into a new one with more favorable provisions. By decanting, the family avoids petitioning the court for a new trustee, a lengthy process in which the court could say no and even install its own choice of trustee.
So if your state doesn't allow decanting but that's the right option, try to move your trust to a state like Delaware that does. The point: If you and the family trusts are flexible, it's likely you will manage life without anyone or anything shattering. A Will on the other hand must be provided both to all of your named beneficiaries and your heirs at law. Unless you have reason to suspect that family members will be unhappy, an attack on a Trust is unlikely.
If any of these are concerns present, consult an attorney on ways to plan for and prevent these disagreements. If you become incapacitated, then a Living Trust can protect your family from undergoing a conservatorship. A Trust gives the family one less problem to face when someone becomes sick. If the Trust is set up as an individual Trust, then the Successor Trustee can take over and manage the assets.
If the Trust is owned by a married couple, then the second spouse will step in as the acting Trustee. It is also prudent to have a Durable Power of Attorney for Finances in addition to a Living Trust to grant the new acting Trustee the power to manage any property and finances outside of the Trust. While a Living Trust is often the best and most comprehensive ways to protect your family and assets, it does have some additional complexities. Most of the advantages of a Living Trust significantly outweigh any disadvantages, but you should still be aware of them when analyzing your Estate Planning options.
One of the disadvantages of a Trust is the additional paperwork. In order to make a Living Trust effective, you need to make sure that the ownership of all the property in the Trust is legally transferred to you as the Trustee. If an asset has a title real estate, stocks, mutual funds , you need to change the title to show that the property is now owned by the Trust.
To do this you need to prepare and sign a new deed to transfer ownership to you as trustee of the Trust. In the end, a little bit of additional paperwork and record keeping is worth much more than the time and money that will be lost in Probate, not to mention the stress that your family will have to go through to access your assets after you pass.
Any income you receive from property that you are holding in the Trust will simply be reported on your personal tax returns. However, if you transfer property in or out of the Trust, you need to keep accurate written records. Just give us a call at to schedule your complimentary consultation.
Over that past decade, Chris has helped 1,s of Michigan families and businesses secure their futures in all matters of Wills, Trusts, and Estate Planning. If you have any questions, Chris would be happy to answer them for you — just call at It is not affiliated with any government, agency, or other regulatory body.
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