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Estate Planning

Trusts for Estate Planning

A legacy for your loved ones

A common reason many people save and invest throughout their lifetimes is to leave a financial legacy or resource to family members, friends and/or charitable organizations. Although providing monetary support to heirs is an important goal for many people, few take the essential steps to plan for the transfer of their assets upon their death.

Preparing for transfer of your wealth in a manner that meets your intentions and preserves the value of your legacy is called estate planning. Estate planning is not only for the wealthy.

If you own assets such as personal property (furniture, jewelry, clothes, automobiles), investments (cash, savings, securities), real estate, employee benefits (group insurance, retirement or profit sharing plans) or the proceeds of a lawsuit, then you have an estate. Without proper planning, the value of your estate could be reduced by legal expenses, taxes, other costs and your plans as to who would benefit from your estate could be changed by Courts that have no knowledge of you or your plans.

To ensure that the individuals you want to inherit your estate do so, some advance planning is needed. Do you want the IRS to be your single largest beneficiary? If not, there are many tools you can use to create an estate plan for your own financial situation and ensure that your hard-earned assets go to those you choose. One of the most common tools found in many estate plans is a trust.

There are several frequently used methods to help ensure that you can effectively pass along a legacy of a lifetime to your heirs. Those include; 1) beneficiary designations, 2) special account registrations and 3) a Last Will and Testament. However, there are a number of situations where the previously referenced methods may not meet specific needs of the individual passing along assets to their heirs. In these situations a Trust may be required to ensure that assets are passed on in a way:

  • To avoid misunderstanding,
  • provide for special circumstances or needs
  • minimize probate and other expenses, and
  • in the case of large estates maximize Federal Estate Tax Exemptions.

Beneficiary Designations

Retirement plans and insurance contracts, as examples, allow the (beneficial) owner of the plan or contract to name beneficiaries. At the time of the owner's death the assets in the plan/contracts pass to the beneficiaries outside of the probate process. Generally, distributions from these plans are taxable to the beneficiary and the value of these plans would be included in the calculation of the value of the estate for Federal Estate Taxes.

Special Account Registrations

The most common of these registrations is Transfer on Death (TOD). Similar in nature to a beneficiary designation, this allows a holder of financial assets to designate beneficiaries when no other provision is available. Like a beneficiary designation, TOD registrations keep these assets out of the probate process. There are different tax issues that need to be considered and the value of these accounts is included in in the calculation of the value of the estate for Federal Estate Taxes.

What is a trust and why is it important?

A Trust is a legal entity where a Grantor/Trustor gives or identifies monies or other property as the corpus of the Trust, a Trustee or Trustees who are responsible to oversee the terms of the Trust and the Beneficiary or Beneficiaries of the Trust who would benefit from income or the corpus of the Trust under circumstances specified in the Trust.

A Trust can be separate from a Will or be incorporated into a Will depending on specific circumstances. Anybody considering establishing a Trust or multiple Trusts should consult an experienced attorney and the attorney and financial planner should work closely together to ensure that the goals of the client's financial plan are expertly put in place.

Trusts involve upfront costs and often have ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing a trust strategy.