Providing for the distribution of assets afterdeath is not a task eagerly approached byany physician-investor or their loved ones. Itis, however, a task everyone must face. Whilehopefully this distribution is many years away, thearrangements should be made sooner than later.That's where trusts enter the estate planning arena. Atrust is simply an arrangement whereby one personholds legal title to an asset and manages it for the benefitof another. In one form or another, it may be usedin personal financial planning.
The ability of the trust to bridge the gap between lifeand death is one of its most remarkable characteristics.Through a trust, the person establishing it may rule fromthe grave, not forever, but to the extent that the lawallows. Generally, a trust may be established to last formany generations, ending 21 years after the death of thelast named beneficiary.
An individual often will establish a trust for their ownbenefit, not necessarily for tax purposes, but for manyother reasons. They may want investment managementor to invest in a new business venture with strong potentialand high risk. In these situations, they could use thetrust to guarantee an income in the event of failure.
Someone may set up a family trust with the primarypurpose of observing its operation, and then eliminateany deficiencies that might appear in actual operation.They may decide that while they presently are capable ofmanaging their affairs, they're not sure about the future.In that case, a standby trust could prove useful.
Watching over Others
On the other hand, trusts can be established for thebenefit of others, such as a spouse, children, parents, orgrandchildren. In addition, an individual may want toprovide for beneficiaries who are regarded as missing elementsin their abilities, experience, or training.
This is clearly the case when minors or othersdeemed legally incompetent are the intended recipients.But trusts may be created for the benefit ofresponsible, competent adults too—and for the samereasons those establishing trusts want to set them upfor themselves. These include freedom from managementburdens, expert administration, mobility, andother practical reasons. Trusts'greatestbenefit is their cash savings.
While avoiding probate may be a consideration,the estate and gift tax savings made possible by theuse of trusts is more important in many cases. Using atrust can often permit a donor to transfer assets forthe benefit of a beneficiary, while at the same timeshield assets from the reach of creditors.
The laws of most states permit the creation of so-calledspendthrift trusts. Use of these trusts may permitthe person establishing the trust to place both trustincome and principal beyond the reach of the beneficiary's creditors. For the most part, these laws preventthe beneficiary from assigning any part of the interestin income or principal of the trust.
This is because most creditors look to propertythat could freely be assigned by the beneficiary. Theirattempts to reach assets can be thwarted, or at leastmade more difficult. The person establishing the trustis generally permitted to make free use of their assets,even if the result prevents a beneficiary from dealingwith the trust's assets at will.
Care should be taken before trusts are established. Inaddition, be sure to seek the advice of a qualified legalprofessional before making any final decisions.
is a wealth advisor and
owner of Connington Wealth Management Group in
Pine Brook, NJ. He specializes in working with health
care professionals who are committed to long-term
investing, improving their quality of life, and working
toward a more secure future. He welcomes questions
or comments at 973-808-8181 or email@example.com.
Securities offered through Linsco/Private Ledger, member NASD/SIPC.
William J. Connington III