Establish Trusts to Create Peace of Mind

July 26, 2019

I recently had an older client with a significant net worth who spent most of his life in good health, but experienced a severe mental decline in his final years. Unfortunately, he never set up a trust to protect his assets, so it became challenging to look out for his best interests using only a power of attorney, especially in light of the fact that his adult children could not agree among themselves how his funds should be spent.

His story is not unusual. According to the Alzheimer’s Association, Alzheimer’s disease is the sixth leading cause of death in the United States, affecting more seniors than breast cancer and prostate cancer combined. Nearly six million Americans are currently living with Alzheimer’s or dementia, and that number is expected to rise in the future.

The reality is that Americans are living longer than ever, and many seniors have strong bodies that outlive their minds. It’s important to take care of the financial side of your life now, so you can focus on your healthcare needs later.

The Benefits of a Trust
One strategic way to protect your assets and to ensure that your wishes are carried out is to establish a trust, which is a legal arrangement wherein property and assets are held, managed and invested by a third party for the benefit of one or more people. A trust offers a much higher level of protection during life than a power of attorney and makes sure that your assets are invested strategically, planning for future income and growth. A trust also appoints a designated individual who can manage your money, invest it wisely and oversee the outflow.

One of the benefits of a trust is that it can potentially “lock up” your financial assets, so creditors cannot access the money. A trust can also minimize estate taxes and help your loved ones avoid the costly and cumbersome probate court process, seamlessly transferring your assets to your heirs upon your passing.

Trust planning can also protect your family relationships, minimizing fights over money. It is extremely difficult to break a trust in Georgia, so this approach works well to ensure that your wishes will be honored and that your assets will be managed and allocated in accordance with your values. Creating a trust is generally considered to be a “best practice” if you and your spouse have at least $500,000 in combined financial assets.

Types of Trusts
Trusts can accomplish a wide range of goals, so the type of trust you set up will depend on what you are trying to achieve.

Living trusts become effective once they have been created, while testamentary trusts take effect upon your death. The main type of living trust is also known as a revocable trust, which allows you to retain ownership and control of the property in the trust and make changes to the terms, including designating trustees and beneficiaries. Upon death, a revocable trust will automatically become an irrevocable trust.

Sometimes, a special needs trust is also advisable. You don’t have to have a disabled family member to consider creating a special needs trust — you may have a loved one who is struggling with addiction, is irresponsible or is on disability and wants to protect government benefits like Medicaid.

If you’d like to preserve your wealth for your children, grandchildren and great-grandchildren, it might also be strategic to consider a dynasty trust, which is designed to provide benefits for future generations by preserving the principal. A dynasty trust can be transferable to subsequent generations or you can limit its distribution to the first generation.

Selecting a Trustee
The selection of a trustee is an important decision that requires planning, strategy and foresight. When selecting a trustee, make sure the designated person has a strong attention to detail, a solid understanding of and commitment to the required duties, an understanding of finances and investing, good communication skills, and like-minded values.

Transparency is also important. Some people prefer to appoint a family member or a friend as a trustee, but those individuals may or may not be able to provide beneficiaries with proper reporting and to efficiently and accurately pay bills from the trust. Likewise, it is not advisable to designate a child as a trustee. It’s more strategic to bring in a professional who can be objective and who can keep your best interests in mind.

The time to set up a trust is when you’re healthy, strong and clear-minded. A decline in judgment is inevitable, if you live long enough. Remember that an estate attorney should always be part of the process, making sure that your trust is set up in full compliance with all state and federal laws.

Always work with a trusted financial advisor to collaborate with your estate attorney to set up a trust, help you achieve your goals, and ensure that future generations will benefit from your generosity, in accordance with your wishes.

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AUTHOR:

MALCOLM BUTLER, JD