To Trust or Not to Trust… That is the Question?
A.T. “Al” Benelli, CFP, FIC
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Late last month I received a newsletter from my old friend and colleague, Sam Swansen. For those of who don’t know Sam he’s an attorney, an author and an expert on matters of estate transfers. His co-authored book, Generations… Planning Your Legacy is widely considered to be a priceless resource for answering questions regarding proper estate planning. My autographed copy remains a centerpiece on my office bookshelf.
Anyway, Sam’s newsletter recalled the estate of famed comedian Groucho Marx, who hosted a 1950’s era game-show called “You Bet Your Life”. Little did Groucho realize how prophetic that name would be as his family and female companion battled over his estate. Although he was a perfect candidate to have his affairs directed by a trust, he never established one. Likely the only ones satisfied with the final outcome were the lawyers who collected their battle fees.
So just what is a trust and why would anyone want one? Well, for starters, a trust is a legal entity, like a person or a corporation, that can transfer wealth outside of the probate process and in some cases can minimize exposure to taxation. The spouse of a decedent may, for instance, use a trust to direct assets away from the tax man and toward family, friends and/or a charity.
According to Sam’s newsletter, a trust can have many uses, such as preserving wealth for future generations; controlling how an inheritance is to be used or distributed once a donor dies; protecting wealth for minor children; sheltering money from divorcing spouses or in-laws, creditors and/or irresponsible heirs.
Are trusts for everyone? No! Clearly there are certain situations that lend themselves to the powers of a trust, but these situations need to be identified. Beyond that, trusts can be created to be as simple or as complex as the situation dictates. Also, careful consideration needs to be given to the funding of the trusts. Many times I’ve seen a really creative trust that was never funded. An unfunded trust is virtually useless. It’s like buying the best refrigerator on the market and then putting nothing in it… keeping nothing fresh for months to come!
With the recent declines in the stock market, gifting depreciated securities to a trust now under the current exclusion may turn out to be an incredibly wise decision when and if the market recovers. And as Congress goes about changing the death tax laws and the exclusions that apply to it, a trust may be able to take the best of all scenarios and put it to work for you and your family. At the very least, the trust may be modified to keep up with the expected, yet undefined changes in our tax laws now and into the un-foreseeable future.
Like any significant financial and legal planning activity, you should put a qualified team together… including a financial planner, a tax expert and a qualified estate lawyer… like my buddy Sam. If you want to learn more I’m sure he wouldn’t mind if I unveiled… www.samswansen.com. Catchy name, huh? Regardless of who you use, the process of learning more about trusts is a great learning experience. It’s much better than hoping things will work out your way.
For additional articles about finance for Baby Boomers, visit the Financial Center at www.boomer-living.com.
Al Benelli is a Certified Financial Planner® practitioner with Long Financial Group of Plymouth Meeting, PA.
