Ensure Further Protection with a Trust

Physician's Money Digest, September30 2003, Volume 10, Issue 18

Trusts play an important role in estate planning.They're frequently used in largerestates to minimize potential future estatetax liabilities. Trusts are also utilized fornontax reasons. Revocable living trusts are commonlyused today to provide a convenient vehicle forongoing financial management in the event of incapacityand for the probate-free transfer of estate assetsto beneficiaries after death.

In addition, trusts are useful for handling "specialcircumstances," such as parents providing financiallyfor disabled children in the event of their death andkeeping assets separate in blended families where eachspouse has children from a previous relationship.Knowledgeable financial advisors are familiar with thedifferent types of trusts and can counsel you on whetheryou should use a trust, what kind of trust you shouldconsider, and the options that are available to you.

Choosing Your Trustee

If you decide to use a trust in your estate plan, makesure that you consider 2 important issues regarding theprovisions of your trust: your trustee and trust protectors.Let's consider the former first. All trusts requireyou to name a trustee. In many circumstances, you canbe your own initial trustee. Eventually, and sometimesright away, your trust is going to require that someoneother than you serve that role.

Most likely, you'll consider a family member orfriend in your trustee decision. However, you shouldalso consider using a trust company or a locally ownedand operated independent trust company. Most peopledon't think about using a professional trustee. In addition,it's not uncommon for estate planning professionalsto encourage people to appoint individual trustees toavoid the cost of a professional trustee.

The result:

Certainly there are costs associated with hiring aprofessional trustee. However, there are also costs associatedwith hiring an inexperienced individual trustee,which may pale in comparison to what it costs to hire aprofessional. Often, individual trustees are not capableof handling the legal, accounting, and tax responsibilities. An individual trustee has to pay bigbucks for assistance.

There's also the possibility for mistakes because ofinexperience and the potential for theft because individualtrustees aren't closely monitored. On the otherhand, trust companies are examined by the governmentto ensure that they're following orders. Whilemistakes are still possible, special training and experiencemake them less likely. Insurance also protects thetrust in case errors are made. In most cases, it's actuallymore expensive to hire an individual trustee thana professional trustee.

Creating Flexibility

If you haven't heard about "trust protectors," askabout them, learn about them, and incorporate theminto your estate plan. While some trusts are irrevocablefrom the beginning, all trusts eventually reach a pointwhere they are irrevocable, which means they cannot bechanged. At this point, you may wish the trust had differentprovisions. For example, maybe the tax laws havechanged, rendering some of your original ideas obsolete,or the trust beneficiaries have moved across the country.

There are a number of reasons why you would wantto change an irrevocable trust's provisions. You are normallyunable to make changes because the trust is irrevocable,unless you have a trust protector. The trust protectoris someone other than yourself who you vest withthe authority to make changes to the trust in the future.If someone has the ability to change the terms of theirrevocable trust in the future, you have an element offlexibility that is not otherwise available.

Thomas W. Batterman is the immediate pastpresident of the Association of IndependentTrust Companies, a national organization ofmore than 100 chartered, well-capitalized, andinsured members who manage their clients'financial assets during life and after death. Formore information, visit www.aitco.net.