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Five Reasons for a Trust

May 21, 2019

You might think that the doubling of the amount exempt from federal estate and gift tax ($11.4 million per person in 2019) would reduce the need for estate planning, given that so few families will now need to worry about this tax. But you would be mistaken in that thought, because controlling estate taxes was never the primary object of a sound estate plan. Family financial protection has always been the real goal, and tax efficiency simply supports that goal.

Just as the need is undiminished, so is the demand for estate planning counsel. Perhaps the premier venue for idea exchange in this area is the Heckerling Institute on Estate Planning, held each January in Orlando. This year an attend-ance record was set, as more than 3,400 lawyers, accountants, life insurance agents, and financial advisors gathered for a full week of lectures from experts in the field.

Here are five examples (names fictitious, of course) of non-tax objectives that may be addressed through thoughtful estate planning. For each, a trust plays a crucial role in the solution.

Wayward child
Tony has had trouble “finding himself.” He dropped out of college, has never had a stable relationship, and has been working at a series of menial jobs. He had some drug problems as a student, but the rehab stay seems to have done him some good. Still, Tony has never been good at managing money.

Providing Tony’s inheritance in trust, instead of outright, will protect that money for Tony’s life. A trust turns what could have been a windfall into a long-term financial resource. The assets will also be shielded in the event Tony marries and subsequently divorces. The trustee may be provided with discretion in making trust distributions, and standards of support may be identified. There will be resources if Tony requires another round of rehab.

Special needs child
Alice is near the high-functioning end of the autism scale. Her education has gone well, and she’s hopeful about getting a job. Still, Alice is not likely to achieve financial independence. She’s likely to need government benefits, such as Medicaid and Supplemental Security Income all of her life.

A special needs trust could improve Alice’s financial life without impairing her access to need-tested benefits. A variety of restrictions apply to these trusts, but they can make a real difference in the quality of life for a special needs person.

Successful child
Dorothy’s successful ob-gyn practice is a source of great pride for the family—she was the first child to go to college, and the first to become a doctor. But even the most successful doctors have to be concerned about the threat of malpractice lawsuits.

An inheritance in a discretionary trust for Dorothy, and perhaps for her children, will protect those assets from any future claims that might be made against her. The trustee should be an independent third party.

Blended family
Sam and Janet had two kids when Janet was diagnosed with the breast cancer that ultimately took her life. A few years later Sam remarried, and he and Liz have had two children together.

This sort of “blended” family structure has become increasingly common. Balancing the financial needs of multiple generations can be quite challenging. One approach to securing an inheritance for both a surviving spouse and children is the Qualified Terminable Interest Trust, known as a QTIP trust. The spouse will receive all the trust income, paid at least annually, for life. When the spouse dies, the remaining trust assets are divided among younger beneficiaries, as specified in the trust document.

Financial privacy
The Smiths are local celebrities. What started as a local dairy store has blossomed into a small chain of popular grocery stores, named for the grandfather-founder, Jim Smith. The Smiths have become big supporters of the local arts community.

It’s no surprise, given their prominence, that members of the Smith family are often approached for making dona-tions of one sort or another. They have a convenient response in this situation—“Our trustee handles those inquiries.” The family wealth is managed in a collection of trusts, which allows them to deflect uncomfortable questions. What’s more, the trusts keep all the details of the family wealth structure private, out of the public eye.

May we tell you more?
Have these brief examples stimulated your thinking? Could a trust-based wealth management plan be beneficial for you and your family? We have just skimmed the surface of the possibilities. Perhaps the most important aspect of trust planning is that there are no cookie-cutter solutions; every trust plan is crafted for its specific creator and beneficiaries.

Trust administration is our business. We will be pleased to put our expertise at your service. Please call upon us at your earliest convenience.

© 2019 M.A. Co. All rights reserved.

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Securities and insurance products are offered by Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC. Advisory services are offered by Cetera Investment Advisers LLC. Neither firm is affiliated with Centier Bank where investment services are offered. Advisory services may only be offered by Investment Adviser Representatives.

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