It’s not only heiresses and socialites who can benefit from a trust. Used in the right circumstances, a trust can be a helpful estate planning tool to pass assets to your children, take care of your affairs if you are incapacitated, or dole out your wealth — whatever its size — in a certain way.
“The first objection we always get is ‘I’m not rich, I don’t need that,’ ” said Debra Gauthier, a trust officer and certified financial planner at Wells Fargo Private Bank in Miami.
“Most people don’t understand estate planning, until their parents die and they see how complicated it can be,” she said. “It is necessary to do some planning before that happens.”
Trusts can be part of a simple estate plan that includes a will, power of attorney and living will.
But people don’t like to think about mortality, Gauthier said, and they don’t know the benefits of trusts, which can be complex.
“They really don’t understand that it makes the administration of your assets simpler — to transition wealth to your family, and to take care of you if you become incapacitated,” she said.
Deciding whether you need a trust or not can be confusing. What is a trust? It is a legal entity that allows you to put conditions on how your assets are distributed after you die. It can help minimize estate taxes and avoid probate. It can also be used to protect an heir’s assets from creditors.
But don’t let fear push you into a trust, said Bruce Stone, an estate attorney with Goldman, Felcoski & Stone in Coral Gables. “Trusts can do some things for you, but don’t get sold something that you don’t need.”
Stone said most don’t have to worry about estate taxes, which kick in at $5.25 million. Since that’s per individual, a married couple has more than a $10 million exemption.
“Essentially, the estate tax has been repealed,” for most, said Stone, also an adjunct professor at the University of Miami School of Law.
There are two main types of trusts: a living trust, created when you are living, and a testamentary trust, which goes into effect after your death.
The person who creates the trust is called a “grantor,” “donor” or “settlor.” The grantor chooses a “trustee” to manage the trust, and the “beneficiary” who will receive the assets. The grantor, trustee and beneficiary can be the same person. The trustee also can be a friend, relative, financial institution or financial advisor — anyone you trust with your money.
Living trusts can be revocable, which means you keep control of assets in the trust, and can change the terms of the trust at any time. This is the most common type of trust. In an irrevocable trust, you typically cannot make any changes to the trust, but the assets within it are not subject to estate taxes. There are also many specialized trusts.
Barry Nelson, an attorney with Nelson & Nelson in North Miami Beach, said he sets up a revocable living trust for all of his clients who want an estate plan. Then clients can transfer assets to them as needed. Assets in a trust avoid probate, a court process that can drag on as creditors are contacted and paid before beneficiaries get their money.