So say you want to pass your assets on to your daughter at your death, but she is married to a gentleman you generally consider to be a louse.
You and your own spouse have no interest in lining his pockets with your hard-earned life savings, so a simple will simply will not suffice to ensure that your wishes are carried out.
Now imagine for a moment that you have four children, all of whom are under the age of 18 and who enjoy the simple pleasures of life, like instigating their other siblings into disagreements that often escalate to an occasional fist-fight. Simply listing the children as beneficiaries on your accounts in no way encourages them to continue to "play nice" when you're no longer around to referee.
Or maybe you want to reduce your personal tax liability by getting fast-appreciating assets out of your name, yet keeping them under your control.
When grappling with proper estate planning techniques to achieve these and similar goals, you simply need to remember one word: Trust.
Trusts and the estate-planning strategies that use them as tools to achieve some of the goals mentioned above can prove to be infinitely complex entities. So complex, even, that there are entire schools dedicated solely to training students about the intricacies of these instruments. Let's review just a few key points about how trusts themselves work and what they are.
A trust is an entity that can hold many different types of assets, including real assets for the benefit of one or more designated beneficiaries. Types of assets often held in trust include securities (stocks, bonds, etc.), cash, insurance policies, real estate, and even artwork.
Talking terms: Who does what?
The person who creates and then funds the trust is called the "grantor," and it is this person who normally chooses the people or other entities that will benefit from the assets held in trust. There are many various types of trusts that can be used to address the certain specific needs identified by the grantor and, commonly, those needs can include the distribution of income to beneficiaries during the life of the trust or the distribution of principal to beneficiaries either during or at the end of the life of the trust.
The "trustee" of the trust is tasked with overseeing management of the assets inside the trust in order to meet the goals of the strategy as defined by its documents. A trustee administers the trust, manages the trust and carries out the requirements for distribution of principal or income in accordance with the trust agreement.
Commonly, a team or individual who is not a trustee is tasked with managing the assets inside a trust. These managers are required to invest the assets in service of meeting the goals set forth in the trust documents.
A common primary objective of a trust is to distribute income from the assets held within to a designated beneficiary. Asset managers may choose, in this instance, to include in the portfolio high-income producing securities such as bonds or preferred stocks in order to meet the distribution goals. But if the goal is to forgo current income in order to provide a larger distribution to beneficiaries when the trust is dissolved, the managers may choose instead to hold securities from sectors or industries considered "growth" in style.
By no means are these the sole money management techniques required in this sort of estate planning; suitable investment strategies to meet the mandates set forth in the trust are as diverse as the individuals themselves.
Common uses for trusts
Various types of trusts exist in service of fulfilling the wishes of grantors. While many individuals may be unaware of the different types of trusts available, I contend that an even greater number of individuals remain ignorant of the fact that many of their wishes can be carried out at all, let alone by what means.
Because of this, it is advisable to discuss one's intentions with a professional as they relate to the management and distribution of his/her assets while living and upon the individual's death.
Commonly, the professionals consulted should include an estate planning attorney, a financial planner and an experienced tax adviser. This team of professionals, in consort with the grantor, when possible, can often easily address the issues listed below using a variety of trusts and planning techniques. Depending on the specific situation, trusts may be used to:
• Provide support to a charity.
• Minimize estate taxes.
• Shift income from individuals in higher tax brackets to those in lower tax brackets.
• Avoid the passage of assets through the will, thus avoiding the expense and additional delay of the probate process.
• Protect and preserve an inheritance for minor children until they either reach the age of majority or achieve some other trust-defined trigger (age, income, education requirement, etc.).
• Establish a fund to support the grantor in the event of his/her own disability or for the care of another disabled individual.
• Protect assets from creditors.
Trusts can be used to achieve a wide variety of goals even beyond the limited list above, and with the help of an informed and experienced team of advisers, investors are often able to achieve a desired outcome for his/her life savings after death.
Anthony M. Conte, MSFS, CFP is a managing partner of Conte Wealth Advisors, LLC, a primarily fee-based team of advisers focused on wealth management and investment strategies for individuals and business owners. Conte Wealth Advisors is based in Camp Hill with a second office in Fort Myers, Fla.
Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors LLC are not affiliated.
The information provided is for educational and informational purposes only. This should not be construed as legal advice. Should you require legal advice, please contact a legal professional licensed to offer and counsel legal advice in your area.