Estate planning may involve the expertise of more than one type of professional adviser. Don't let that scare you off. Legal and financial analyses start the process, but often trust and insurance considerations play a part, as well.
In general, any revocable or irrevocable trust is established to put conditions on the assets owned by the trust to control who receives how much and when. An individual will no longer own the assets; the trust will, but the assets in the trust will benefit one or more persons or entities.
Trusts can be set up during a person's lifetime or through their estate.
A variety of purposes can be served through revocable and irrevocable trusts. The main advantages are tax benefits, control of the assets for a period of time, and the potential for professional management of the assets when needed.
During lifetime, an irrevocable trust can be used to transfer assets as a way to reduce estate taxes later and receive financial benefits from the assets now.
A trust created through a person's estate can be used to shelter the amount of assets (currently $5.12 million per estate) not subject to estate taxes. Those trust assets can provide income and support for the surviving spouse after the first spouse's death and assure professional asset management if the remaining spouse would benefit from that. Typically, the trust assets will pass to the children when the second spouse dies.
For those concerned about wasteful use of an inheritance, a trust can impose income limitations and spendthrift restrictions to preserve assets long-term.
For future educational expenses, a trust can be helpful, although Section 529 plans are simpler overall.
A trust can be the owner of a life insurance policy. The proceeds will be paid to the listed beneficiaries without being a part of the policy owner's estate for taxation purposes.
To support those with special needs, a trust can provide auxiliary funds.
Finding the right organization or person to serve as trustee for administration, management and investment purposes is as important as are the trust's terms.
Trusts can also serve a charitable purpose while benefiting loved ones first. The terms of your will or revocable trust can create a charitable trust that will provide income for your spouse, children, or others and earn an estate tax deduction.
When the income payout ends, the remaining funds will carry out the charitable purpose you specified years before to help the organization carry out its important goals.
Trusts are not a do-it-yourself project. Seeking professional assistance from an attorney or a financial institution's trust department can assure the trust complies with state law and other requirements.
That's good planning.
Deborah Miller is the director of planned giving for the West Virginia Foundation.