Trusts also are private, unlike wills, he said. “The probate avoidance, secrecy, reduced legal fees (by avoiding probate) and expedited process — those aspects really relate to everybody,” he said.
There are downsides to trusts, Stone said. The “trustee,” or person managing the trust, has to follow certain legal rules. A separate tax return has to be filed for certain types of trusts. And to create a trust, you have to look into the future and answer hard questions: What if the trustee is incompetent? What if the trustee dies?
Here are four groups that may benefit from a trust:
A couple with young children
“When a couple has their first child, they often stop and think, ‘What would happen if both of us die?’ ” Stone said.
Most people can look back at themselves at 18, and realize it’s not an age where you’re responsible enough to handle a chunk of money, he said.
“So you look in the crystal ball and decide, when are the kids mature enough to take these assets without further supervision?” Stone said.
If you don’t want your kids to get their hands on everything at 18, you can use a trust to divvy out assets over time. If you don’t have a trust, the assets would go into a guardianship, “which is the last place you want them to be, especially in South Florida, because of the incredible bureaucracy and expense,” Stone said.
A couple may decide to give half the assets at age 25, and half at age 30. Or give distributions at age 25, 30 and 35. You can decide on the ages and the rules, Stone said.
“The idea is protecting assets until the kids are old enough to handle them on their own,” he said.
Gauthier said the child also can be appointed as a co-trustee, perhaps around 20 or 21, to help take on the responsibility of managing the money, investing and saving.
“That can be empowering and help them become more financially responsible,” she said.
Nelson said he created trusts that would dole out half of his kids’ inheritance at ages 30, 35 and 40. The other half would stay put as a safety net, to be used only as needed. “It’s a trust fund to pass from generation to generation,” he said. “I call it my ‘Salvation Army avoidance fund,’ so nobody ends up penniless.”
The goal is “not too much, too soon,” which takes away the incentive for kids to succeed on their own, Nelson said.
A single person
If you want someone to handle your affairs if you are incapacitated and are unable to do so, a power of attorney is a simple way to accomplish that, Stone said. You don’t need a trust.
“A power of attorney gives someone the ability to sign your name to anything, so you have to trust that person,” he said. “But that power stops when you die.”
However, if you want someone to take over your affairs, plus a way to designate where your assets go when you die, a trust can do both, Stone said.
Appointing a successor trustee, someone to take over your duties as trustee if you become incapacitated, also avoids guardianship, where the courts step in to administer your affairs, Nelson said.
Think carefully about who you name as a trustee, and have a back-up, Gauthier said. One tactic is to name a financial institution and an individual as co-trustees, so you have the financial management expertise and the human touch. If a financial institution is already handling your investments and charging a 1 percent annual fee, becoming your trustee would likely raise that fee to 1.25 to 1.5 percent, Gauthier said.