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7 Reasons to Utilize a Corporate Trustee

Understanding Corporate Trustees

7 Reasons to Have a Professional Help You Build, Manage and Protect Your Wealth

With people living longer and health care costs continuing to rise, our savings must grow larger and last longer. Deciding where to put your money in an uncertain market with so many investment options from which to choose can be very confusing, and making a wrong decision can be very costly.

One option you should not overlook is the bedrock of asset management and personal service—the corporate trustee.

What is a corporate trustee?

A corporate trustee is a bank trust department or trust
company. Its employees can help you build, manage and protect your wealth when you put your assets in a trust.

A trust is simply a legal document that lets you reduce unnecessary legal fees, save taxes and keep control over your assets while you are living, if you become physically or mentally incapacitated, and after you die.

When you set up a trust, you need to name someone (a trustee) to manage the assets your trust controls. While you can choose just about any adult, there are very good reasons why you should consider a corporate trustee.

7 Reasons to Use a Corporate Trustee

  1. 7 Reasons to Utilize a Corporate TrusteeYou’ll gain the advantage of years of experience.
    Because they manage trusts on a daily basis, they are familiar with all kinds of trusts, tax and estate planning strategies, and the legal responsibilities of a trustee.They can manage the assets in your trust now and/or after you die as your trust directs–buying and selling assets, paying bills, filing tax returns, maintaining accurate records, and distributing income and assets. Most have experience with all kinds of assets, including stocks and bonds, real estate, farms, closely held businesses, mineral properties, international investments, and collectibles.
  2. You’ll enjoy the potential of even greater investment returns.
    Corporate trustees give their full attention to managing trust assets–that’s their job. And because their staff collectively has more experience and resources than an individual, they often achieve better results.After discussing your financial goals, risk tolerance and long-term objectives with you, they will recommend the best investment strategy for you. Then, depending on how involved you want them to be, they can provide ongoing advice, or even make decisions for you, to make sure your investments stay on track to reach your goals.
  3. You’ll protect your wealth because corporate trustees are regulated by both state and federal agencies.
    Also, most courts consider them “experts” and expect them to meet higher standards than a nonprofessional.
  4. You’ll receive reliable, professional service.
    A corporate trustee won’t become ill or die, divorce, go on vacation, move away or become distrated by personal concerns or emotions as an individual might.
  5. You’ll value their objectivity.
    They will follow your trust instructions objectively and faithfully, something family members are often unable to do.
  6. You’ll tap their rich sources of advice and referrals.
    They routinely provide advice on investment, tax, retirement and estate planning issues, and can refer you to attorneys and other qualified professionals as needed.
  7. You’ll enjoy peace of mind.
    Knowing you have selected someone with experience and integrity to manage your financial affairs now and/or when you are no longer able to do so yourself can be very reassuring.

When would I use a corporate trustee?

Five Mistakes with Living TrustsIf you set up an irrevocable trust (like a charitable or life insurance trust), or you plan to make gifts in trust–strategies often used to save estate taxes by removing assets now from your taxable estate–you will probably need to name someone other than yourself as trustee for tax reasons. A corporate trustee is a natural choice to make sure your irrevocable trust is administered properly.

If you set up a revocable living trust–to avoid probate when you die and prevent court control of your assets at incapacity–you can be your own trustee. Even so, there are many benefits to having a corporate trustee involved. They can assist you in several ways:

  1. As Trustee
    As trustee, a corporate trustee has full responsiblity for managing your trust assets according to your instructions.This would be an excellent choice if you are elderly and have no one you can trust to take care of your financial affairs. You may be widowed, have no children or other trusted relatives living nearby (or don’t want to burden them), or you and your spouse may be in declining health.

    Even if you are capable of managing your own trust, a corporate trustee can be a wise choice. You may not have the time, desire or invenstment experience to manage your trust yourself. Or perhaps you just feel that someone with more time and experience could do a better job than you.

  2. As Co-Trustee
    If you want to take advantage of a corporate trustee’s investment experience but still be involved, you could have one work with you as co-trustee. Developing a working relationship with a corporate trustee now lets them become familiar with your objectives, your trust and your beneficiaries’ needs and personalities while you are around and able to provide guidance and input.It would also let you see how they would perform in your absence, let you evaluate their investment performance and service, and let you see how comfortable you feel with them overall–a kind of “trustee test drive.”
  3. As Investment Agent
    You could also name a corporate trustee as agent. While a co-trustee has equal responsiblity with you (usually both signatures are required to transact business), an agent can have as much responsibility as you wish.You can have an agent manage only a portion of your trust’s assets (your stocks and bonds, for example) or just provide you with investment advice, with you making all final investment decisions.
  4. As Successor Trustee
    If you decide to be your own trustee (for example of your revocable living trust), consider naming a corporate trustee as yoru successor trustee. In this capacity, they will step in and manage your trust for you when you can no longer act due to incapacity or death. Many people like the idea of having a professional take care of the paperwork, tax filings and other final details.

Friends & Family v. Corporate TrusteeCouldn’t I name a relative or friend instead?

You could, but keep in mind that family and friends are not always a good choice to be involved with your trust.

They may be too busy with their own affairs, may reside in a distant area, may not get along with other family members, or may not be responsible or experienced enough to manage the trust assets. An innocent error by a well-meaning but inexperienced relative or friend could negate your careful planning and cost your beneficiaries thousands of dollars.

One option is having a relative (perhaps one or more of your adult children) and a corporate trustee work together. This would give you the professional experience and objectivity of a corporate trustee and the personal involvement of someone who knows you.

Do I lose control if I use a corporate trustee?

Not if the trust is prepared correctly. With most trusts, you can change your trustee at any time if you aren’t satisfied. Even with an irrevocable trust, you or your beneficiaries can have the right to change the corporate trustee.

Also, the trustee you select must follow the instructions you put in your trust—while you are living, if you become incapacitated, and after you die. That’s because a trust is a binding legal contract, and your trustee can be held liable if he or she doesn’t follow your instructions.

How safe are trust assets?

Even if a bank or trust company fails, trust assets are safe. By law, trust assets must be kept separate from all other assets. They cannot be loaned out, mixed with the corporate trustee’s own assets or used to satisfy its creditors. Because of these safeguards, trust assets are not insured by the FDIC.

You are also protected against fraud, theft (for example, if an employee takes trust assets and disappears), or if they make an error administering your trust. But, of course, there is no insurance or bond that will protect you if your assets lose value simply due to a decline in market values.

Should everyone use a corporate trustee?

No, of course not. But many more people should consider one. Most people are just not aware of the many benefits a corporate trustee can offer them and their families.

You need to look objectively at your situation and the type of trust you set up. If you have a modest estate and your trust is fairly simple, you may be fine being your own trustee and having a capable family member step in for you when you can no longer manage your trust yourself.

But if your estate is larger, has a variety of assets, includes tax planning, or if you doubt your relatives’ capabilities or intentions, you should definitely consider a corporate trustee.

Are there any disadvantages to using a corporate trustee?

Because they must objectively follow the instructions for the trusts they manage, some beneficiaries (especially those who want the money now instead of when the trust states) have found them to be uncooperative.

But that may be exactly what you want. One reason why many trusts are set up, and a corporate trustee chosen, is to keep a beneficiary from getting the money until Mom and Dad (or whoever set up the trust) intended.

However, if you are concerned about a corporate trustee being too impersonal, you can always name a family member or close friend to act with them as co-trustee.

Is a corporate trustee expensive?

Most are very reasonable, especially when you compare their fee to the costs of paying others for estate and tax planning advice, for investment management, for preparing tax returns, and for investment trading commissions.

A corporate trustee typically provides all these services and more for only a small percentage of the value of the assets they manage for you. (Fees are published, so you can find out what they are.) And because their compensation is based on how much those assets are worth (instead of on how many trades they make for you), a corporate trustee is motivated to help your assets grow.

How can I evaluate a corporate trustee?

Talk to several. Visit them if you can. Ask how long the trust department has been in business, how many trusts they manage, minimum and average size of trusts they manage (most require a certain amount of assets) and how much experience their people have in the trust business.

Compare investment returns, fees (including when and how much the last increase was) and services. Ask to see samples of statements or reports you would receive and see how easy they are to understand.

Facts and numbers are important, but so are the people. Do they seem to genuinely care about you and your family? Do they listen and seem to understand your concerns? Can you understand them? How confident are you that they will be there for you and your family when they are needed?

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Who Should Be Your Successor Trustee

If you have a revocable living trust, you probably named yourself as trustee so you can continue to manage your own financial affairs. But eventually someone will need to step in for you when you are no longer able to act due to incapacity or after your death. Because successor trustees have a lot of responsibility, they should be chosen carefully.

The Role of Successor

Who Should Be Your Successor TrusteeIf you become incapacitated, your successor will step in and take full control of your finances for you—paying bills, making financial decisions, even selling or refinancing assets. Your successor will be able to do anything you could with your trust assets, as long as it does not conflict with the instructions in your trust document and does not breach fiduciary duty.

After you die, your successor acts just like an executor would—takes an inventory of your assets, pays your final bills, sells assets if necessary, has your final tax returns prepared, and distributes your assets according to the instructions in your trust.

Your successor trustee will be acting without court supervision, which is why your affairs can be handled privately and efficiently—and probably one of the reasons you have a living trust in the first place. But this also means it will be up to your successor to get things started and keep them moving along. It isn’t necessary for this person to know exactly what to do and when because your attorney, CPA, and other advisors can help guide him or her, but it is important that you name someone who is responsible and conscientious.

Choosing a Successor

Successor trustees can be your adult children, other relatives, a trusted friend and or a corporate trustee (bank trust department or trust company). If you choose an individual, you should name more than one in case your first choice is unable to act. They should be people you know and trust, people whose judgment you respect and who will also respect your wishes.

When choosing a successor, keep in mind the type and amount of assets in your trust and the complexity of the provisions in your trust document. For example, if you plan to keep assets in your trust after you die for your beneficiaries, your successor would have more responsibilities for a longer period of time than if your assets will be distributed all at once.

Also, keep in mind the qualifications of your candidates. Consider personalities, financial or business experience, and time available due to their own family or career demands. Taking over as trustee for someone can take a substantial amount of time and requires a certain amount of business sense.

Be sure to ask the people you are considering if they would want this responsibility. Don’t put them on the spot and just assume they want to do this. Finally, trustees should be paid for this work; your trust document should provide for fair and reasonable compensation.

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Estate Planning for Divorced Parents with Minor Children

Estate Planning for Divorced Parents with Minor Children

As our families grow, change, and become more complicated, their estate plans must grow and change with them. Those with minor children need to pay careful attention to their estate plans after divorcing their spouse. These individuals have two main estate planning concerns: guardianship and inheritance.

Guardianship determines who you would like to care for your children if you’re unable to care for them because of your incapacity or death. The child’s guardian will be responsible for providing the child with food, shelter, support, and education. Guardianship also concerns visitation of your family should you die before your former spouse.

Estate Planning for Divorced Parents with Minor ChildrenFor the benefit of your children, it is important to sit down with your former spouse to develop a unified plan for guardianship. Typically, parents will designate the each other as the guardian of the child. Barring extraordinary circumstances, the remaining parent is usually granted guardianship under state law in the event of the disability or death of the other parent.

Inheritance concerns what assets your children will receive from your estate after you die, as well as how they will receive the assets. Typically, the parent will appoint the guardian to manage any funds left to the child. If you are concerned that your child’s guardian will not be able to manage the funds appropriately, consider setting up a Revocable Living Trust to hold your child’s inheritance. In the terms of the trust, you can designate that the trustee only use the funds for specific purposes that benefit the child, such as education related expenses. You can also designate in that the funds only be paid out to the institutions providing the services to the child, rather than to the guardian directly.

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Asset Protection for Business Owners

Asset Protection Considerations for Business Owners

By Ryland F. Mahathey, ESQ., LL.M. and Brand Milhauser, ESQ., LL.M

Many business owners devote much time and energy “working in” their business to improve business operations and profitability; howerver, they often neglect to “work on” their business by not addressing certain asset protection issues. Business owners, particularly those owning their business in corporate from, should consider the following: 1) how to own C corporation or S corporation stock to minimize exposure to creditors, an “outside” asset protection issue; and, 2) whether to implement several basic business agreements designed to protect and even enhance business value from the “inside” of the corporation.

Stock Ownership

Generally, a creditor of a corporate shareholder may seize the shareholder’s stock and thus have the same management and liquidation rights as the debtor shareholder. Charging order protection (described below), normally applicable to limited liability entities, does not apply to S corporations or C corporations. S corporation owners may have additional concerns if a creditor is an ineligible S corporation shareholder thereby causing the corporation to lose its S election. As a result the corporation will be treated as a C corporation and exposed to double taxation.

Asset Protection for Business OwnersA business owner who owns S corporation or C corporation stock should consider the asset protection benefits of converting or merging the corporation to a new Limited Liability Company (“LLC”). There are several limited liability organizations that can protect business assets from the personal liabilities of the owner. However, entities such as limited partnerships, or limited liability limited partnerships, are treated as partnerships for federal tax purposes and therefore cannot own S corporation stock; whereas, an LLC electing to be taxed as a corporation may.

Generally, the asset protection benefit of an LLC is a judicial remedy as known as a “charging order” which protects the owner’s interest in the LLC from his or her personal liabilities. If a creditor obtains a charging order, the creditor is limited to the rights of an assignee of a membership interest in the LLC. If a distribution is made from the LLC, the creditor is entitled to receive a proportionate distribution. However, the creditor has no voting rights and thus, cannot force a distribution, liquidate the LLC, or otherwise manage the business.

With proper planning, both C corporation and S corporation owners may be able to avail themselves of the LLC asset protection benefits by converting the corporation to an LLC taxed as a corporation. Generally, such conversions are treated as nontaxable “F” reorganizations under IRC Section 368(a)(1)(F). However, potential income tax consequences and individual state law considerations should be carefully evaluated. For instance, C corporations considering conversion should analyze potential exposure to the “built-in-gains tax” under IRC Section 1374. Also, the strength of the charging order protection provided by an LLC varies depending upon state law.

Business Agreements to Protect Value “Inside” the Business

Asset Protection for Business OwnersAmong the basic business agreements or legal documents that should be considered by business owners to protect business value include a Non-Compete and Confidentiality Agreement, Buy-Sell Agreement, and perhaps even a Deferred Compensation or Bonus Plan for key employees.

Few events can sap the value of a small business like a key employee or associate leaving the business and starting a similar enterprise, especially if such an employee departs with trade secrets, confidential information or even customer lists. Business owners should require their employees to sign Non-Compete and Confidentiality Agreements to prevent this from occurring. If the terms of such an agreement are considered reasonable under state law, the agreement should be enforceable.

A Buy-Sell Agreement is another key document that if properly structured, funded, and updated will protect the value of both the exiting and remaining business owner’s interest in the business. The Buy-Sell Agreement accompanied by proper planning should provide the exiting owner a fair value for his or her ownership interest and provide the remaining owner a means to purchase the exiting owner’s interest without depleting the business of cash flow and its value. A Buy-Sell Agreement is designed to establish a predetermined and agreed-upon business value (or method of arriving at the value) at the occurrence of certain trigger events such as the death, disability, voluntary or involuntary termination, or retirement of a shareholder or partner.

It is crucial that planning be done to ensure there are sufficient funds available to implement the buy-sell provisions when triggered. Funding at an owner’s death with life insurance may be the easy part. More problematic may be how to buy-out a departing owner’s interest in the event of disability, retirement or voluntary termination, especially if a portion of the business’ cash flow must be devoted to that purpose. Further, once in place a Buy-Sell Agreement should periodically be updated to reflect changes in the business value and the owners’ objectives.

Finally, business owners should consider putting into place a deferred compensation or bonus plan designed to reward key employees who meet certain performance targets. A properly planned deferred compensation or bonus arrangement can serve two purposes which will work toward protecting the value of the business. First, the plan should be designed so that employees are rewarded for achieving benchmarks that not only protect but increase the business value. Second, such agreements, for example through gradual vesting schedules, should place “golden handcuffs” on valuable employees by making it difficult for a key employee to leave the business and forfeit certain benefits.

A detailed discussion of the aforesaid legal documents is beyond the scope of this article. The point here is that when considering asset protection strategies for business owners, protecting the internal value of the business through a few important but often overlooked documents can be just as important as the legal wrapper placed on the ownership of the business. It should also be noted that implementing such agreements not only protects the value of the business but also enhances its value and makes the business a more attractive target to a potential buyer when the owner eventually exits.

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Business Owners: Have You Planned Your Exit?

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Exit Option #1: Family Members

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business Owners: Have You Planned Your Exit?Exit Option #2: Business Partners

Busines partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Exit Option #3: Employees

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

Exit Option #4: Charity

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Exit Option #5: Sale

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or diability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

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Five Mistakes with Living Trusts

Five Common Mistakes with Living Trusts

A properly prepared and funded living trust has many benefits, including avoiding court interference at death and incapacity. But people often make mistakes that prevent their trusts from working the way they intended. Here are five of the most common ones:

1. Not having a properly prepared document.

Too many people try to save money by using online or do-it-yourself forms, or choosing an attorney with the lowest price. If the documents are not properly prepared, you have wasted your money. Your trust may not work the way you intended or, worse, you could be left with no valid plan at all. It’s best to go with a local, experienced estate planning attorney who will be able to provide you with well-written documents and valuable counsel. Finding the right attorney may take some time, but it will be well worth it in the end.

Five Mistakes with Living Trusts2. Not reading the trust document.

How will you know if your plan is what you want if you don’t read it? If you are having trouble understanding certain parts of it, ask your attorney or paralegal to explain them to you.

3.  Not funding your trust.

Your living trust can only control the assets you put into it. You can have the best documents that contain all of your instructions, but until you fund it (by changing titles and beneficiary designations to the name of your trust) it doesn’t control anything. All too often people don’t finish the funding process and some assets end up going through probate–and avoiding probate is one of the reasons they wanted a living trust in the first place. If you have a trust, make sure it is fully funded so it can do its job.

4. Naming the wrong successor trustee(s).

Your properly preapred and funded living trust may not work the way you intended if your successor trustee does not follow the trust’s instructions and perform his/her duties as required. Many people name one or more of their adult children as successor trustee(s), but consider all of your candidates carefully. Keep in mind the complexities of your trust and how long it will last (for example, to provide for a child with special needs), as well as the personalities and abilities of your candidates, where they live and how busy they are with their own affairs. We all have different gifts and abilities, and being older does not necessarily make one wiser. You need to be more concerned about your trust working properly than about hurting a child’s feelings. A professional trustee may be your best option.

5. Not keeping the trust document current.

Your trust is a reflection of your personal, family and financial situations at the time it was created. These things change over time, and your trust will need to change with them. Review yor trust every year or so, and have it updated whenever needed.

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Service Your Estate Plan

When Is It Time To Service Your Estate Plan

If you own a car, then you know it requires regular servicing in order to perform well and be reliable. More than likely, your car came with a recommended schedule for service, based on how many miles it has been driven; after a certain number of miles, you need to change the oil, replace the brake pads, rotate the tires, and so on.

If you have a newer car, you probably have an irritating dash light that comes on when it’s time for services and stays on until the mechanic resets it. Either way, whether you pay attention to the odometer or rely on that dash light, it’s pretty easy to know when it’s time to service your car. And if you keep driving it without servicing it, it’s a sure bet your car will let you down.

Service Your Estate PlanLike your car, your estate plan needs “servicing” if it is going to perform the way you want when you need it. Your estate plan is a snapshot of you, your family, your assets and the tax laws in effect at the time it was created. All of these change over time, and so should your plan. It is unreasonable to expect the simple will written when  you were a newlywed to be effective now that you have a growing family, or now that you are divorced from your spouse, or now that you are retired and have an ever-increasing swarm of grandchildren! Over the course of your lifetime, your estate plan will need check-ups, maintenance, tweaking, maybe even replacing.

So how do you know when it’s time to give your estate plan a check-up? Well, instead of having mileage checkpoints, your estate plan has event checkpoints. Generally, any change in your personal, family, financial or health situation, or a change in the tax laws, could prompt a change in your estate plan. Use the following list to guide you.

It’s a good idea to review your estate plan every year. Set aside a specific time every year (your birthday, anniversary, family gathering) to review it.

Event Checkpoints to Review Your Estate Plan

You and Your Spouse, If Married

  • You marry, divorce or seperate
  • You or your spouse’s health declines
  • Your spouse dies
  • Value of assets change dramatically
  • Change in business interests
  • You buy real estate in another state

Your Family

  • Birth or adoption
  • Marriage or divorce
  • Finances change
  • Parent or relative becomes dependent on you
  • Minor becomes adult
  • Attitude toward you changes
  • Health declines
  • Family member dies


  • Federal or state tax laws change
  • You plan to move to a different state
  • Your successor trustee, guardian or administrator moves, becomes ill, changes mind
  • You change your mind

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Do All Assets Go Through Probate

Do All Assets Go Through Probate?

Not everything you own will automatically go through probate. The obivous assets that will need to be probated are those with a title that is in your name only. These might include bank accounts, investments, home, other real estate, vehicles, etc. If yours is the only name on the title and you are deceased, only the probate court can take your name off the title and put someone else’s name on.

Assets that generally do not go through probate are 1) jointly owned assets that transfer to the surviving owner; 2) assets that have a valid beneficiary designation; and 3) assets that are in a trust. However, these assets do not always avoid probate.

Do All Assets Go Through Probate1. Jointly Owned Assets

Jointly owned assets that transfer to the survivng owner do not go through probate. (This kind of joint ownership is “joint ownership (or joint tenants) with right of survivorship.”) But if the survivng owner dies without adding another owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.

You should be aware that transfer of this ownership happens immediately upon the first owner’s death. So, even if your will says you want to someone else to receive your share (like your children from a previous marriage) and you die first, the asset will still go to the surviving owner who can then do whatever he/she wants with it–and your children would likely be disinherited.

Another kind of joint ownership is tenants-in-common. With this kind of joint ownership, if you die first, your share will be distributted as directed in your will (or to your heirs if there is no will); it will not go to the other owner unless your will says so. This lets you control who receives your share, but the asset will still have to go through probate.

2. Beneficiary Designations

Some assets–including insurance policies, IRAs, retirement plans and some bank accounts–let you name a beneficiary. When you die, these assets will be paid directly to the person(s) you have named as beneficiary without probate. Well, that is the way it is supposed to work, but it doesn’t always happen that way.

  • If your beneficiary dies before you or at the same time as you, the proceeds will have to go through probate so they can be distributed with your other assets.
  • If your beneficiary is incapacitated, the probate court will probably take control of the funds through a guardianship/conservatorship. This is because the institution will not knowingly pay to an incompetent person and will usually insist on court supervision.
  • If you list “my estate” as beneficiary, the court will have to determine who “my estate” is. The funds will go through probate and be distributed with your other assets.
  • If you name a minor as a beneficiary, a probate court will probably have to establish a guardianship for the child. Most institutions will not pay directly to a minor or to another person for the child’s benefit; they do not want the potential legal liabilities and will usually require proof of a court-supervised guardianship.

3. Trust Assets

Assets in a trust, like a revocable living trust, avoid probate. However, if you have a trust in your will (called a testamentary trust), your assets will not avoid probate. The will and your assets will have to go through probate before  the trust can go into effect. Any assets you leave out of your living trust will probably also have to go through probate.

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Treating Your Family Fairly In Your Estate Plan

Treating Your Children Fairly (But Not Necessarily Equally) In Your Estate Plan

Most parents want to treat their children fairly in their estate planning, and many assume that means having their children inherit equally. But fair does not necessarily mean equal. There may be special circumstances to consider before you divide the family pie into equal parts. For example:

  • Treat Your Family Fairly During Estate PlanningYou may want to leave more to your son who struggles to support his family on a modest teacher’s salary than to your daughter who is a successful professional, married well and has chosen not to have children.
  • You may want to conpensate a child who has given up part of his/her own life to care for you.
  • You may have a much younger child who will need care longer than your older children.
  • You may have a special needs child who will need care for his/her lifetime.
  • You may have one child who has joined the family business and other children who have not. Instead of making them all equal owners in the business, you may want to leave the business to the one who has shown an interest and compensate the others with other assets and/or life insurance.

Distribution of Their Inheritances May Also Vary

Not only do you need to decide how much  each should receive, but also when  they will receive it–and that can be different for each one, too. You can distribute their inheritances in one lump sum or in installments, or you can keep an inheritance in a trust. Consider how much the inheritance is, their ages and family situation, how they have handled their own money, and how much they need your money. For example:

  • If your children are already older (say, in their 60s) and they have shown some responsiblity with their own money, they you may be fine with them inheriting a lump sum.
  • If you have an adult child who is struggling to buy a home, then you may want to provide a distribution immediately upon your death and distribute the rest later.
  • If your children are younger adults, you may want them to inherit in installments to give them several chances to become responsible with money.

Benefits of Keeping Inheritances in a Trust

These days, many parents do not distribute inheritances at all and decide to keep the money in a trust for their children. Your trustee can make periodic distributions based on guidelines you provide, but assets that stay in the trust are protected from irresponsible spending, creditors (bankruptcy and divorce), and predators (those with undue influence on your child).  Circumstances that might warrant this:

  • You have a child who is irresponsible with money or has dependency issues.
  • You are concerned that a current or future marriage might end in divorce, and you do not want the ex-spouse to receive part of the inheritance in the divorce settlement.
  • Your child is easily influenced by others who may encourage irresponsible spending.
  • You are concerned the inheritance may be exposed to possible future lawsuits or creditors.

Benefits of Making Some Distributions Now

Treating Your Family Fairly In Your Estate PlanIf you can afford it, you may want to consider giving your children some of their inheritance now, while you are living. Of course, you firsst need to make sure you have enough to provide for you and your spouse if you are married. But if your spouse is much younger (for example, if this is a second marriage), your children may never see their inheritances if they have to wait for the surviving spouse to die.

The benefit to you is that you will be able to see the results of your gifts–seeing your children buy a home, start a business or be able to stay at home and raise your grandchildren; or seeing your grandchild go to college–and know this may not have happened without your help. Also, any gifts you make now will reduce the amount of estate taxes that may be due at your death.

Should They Inherit Everything You Own?

Most parents want leave their children enough that they can do anything they want, but not so much that they will do nothing at all. You don’t have to leave everything to your children. If you have sizeable assets, you can set up trusts for your grandchildren and future generations. You can also make contributions to charitable, educational and religious organizations.

What Suits You?

There are many options when it comes to your estate plan. Contact your attorney to create a plan that best suits you and your situation.

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Special Needs Trust

The Special Needs Trust

Planning for a Disabled Dependent

If you have a child, sibling, parent, spouse, or other loved one who is physically, mentally or developmentally disabled — whether from birth, illness, injury or drug abuse — he or she may be entitled to valuable government benefits (SSI and/or Medicaid) now or in the future. Unfortunately, most of these benefits are available only to those with very limited means.

As a result, you may find yourself faced with a difficult choice. If you leave a substantial inheritance to your special needs person, he will be disqualified from receiving government benefits which may be crucial for his care. On the other hand, you may not want to have to disinherit him in order to preserve these benefits.

Fortunately, a special needs trust will keep you from having to make this wrenching decision.

What is a special needs trust?

A special needs trust must be very specfic in stating that its purpose is to supplement government benefits, to provide only benefits or luxuries above and beyond the benefits the special needs beneficiary receives from any local, state, federal or private agencies.

Special Needs TrustIt is critical that the trust not duplicate any government-provided services and that this beneficiary not have any resemblance of ownership of the trust assets. Otherwise, the government could attempt to seize the trust assets for repayment of services already provided or determine that the special needs beneficiary does not qualify for future benefits.

To accomplish this, you will need to give the trustee complete control over the distribution of the assets and any income they generate; the special needs beneficiary cannot be able to demand any principal or interest from the trust.

Give careful consideration to your choice for trustee. Of course, you (and your spouse) will continue to provide for this loved one while you are alive and able. But someone will need to assume this responsiblity after your death or incapacity.

The most obvious choice is another family member who also cares deeply about this person. But be aware of a possible conflict of interest, especially if she will inherit the trust assets after your special needs dependent has died; she may care more about preserving trust assets than providing for this beneficiary.

Consider using (or adding) a corporate trustee; that’s a bank or trust company that specializes in managing trusts. They can be impartial, and they will be around for as long as your special needs beneficiary lives.

Finally, be sure to work closely with an attorney who has considerable experience with these trusts.