Trusts can offer families benefits

BY LAURA ISENSEE

Many people asked attorney Richard Lewis to set up a trust because they hope they can save money on taxes.

Unfortunately, as the saying goes, nothing is certain but death and taxes. For most people, a trust won't save on their final tax bill, Lewis said.

But trusts — typically revocable living trusts— can offer other benefits. Among them: avoiding the often time-consuming and expensive legal process of probate court; protecting your assets if you become incapacitated and managing assets for children who can't handle money themselves.

"What made these living trusts very popular is the cost of probate. The beauty of the trust is that everything that goes into the trust avoids probate," explained Lewis, who practices near Dadeland Mall.

Probate courts have a special task in the judicial system to distribute the assets of someone who has died, enforce wills and provide oversight. However, the process can be costly and take time, especially with recent budget cuts to the court system. Also, trusts provide privacy; the inventory of assets outlined in a trust are not a public court record.

Attorneys and financial planners agree trusts become very important if someone becomes incapacitated.

"As someone gets older and they may have Alzheimer's or dementia or another health condition that makes them incapable of handling their affairs, a will is going to do no good there. In those situations a trust is going to be very valuable," said Dan Tasciotti, a certified financial planner and president of the Estate Planning Council of Greater Miami. A certified financial planner is not an attorney.

Other factors in whether a trust might be a good financial move: the size of the estate and family dynamics. Tasciotti said that there is no one-size-fits all plan and that what makes sense for a large estate may not make sense for a smaller one. He said probate court is not always a horror story, and for some families it might prove the best oversight for the distribution of assets.

If someone considers setting up a trust, a good first step would be to speak with a professional, such as an accountant, attorney or financial planner, who usually would set up a trust. Planners warn against relying on online documents, which may not fit someone's specific situation.

As one moves through the process, it's important to remember a trust is only good if someone has designated a good trustee. If and when the original trustee dies or is determined to be incapacitated, a successor trustee named in the trust takes over managing the assets.

Children or other relatives can serve as trustees. Banks and other professionals can also be hired to manage and administer the assets in a trust, although they charge management fees that usually are a percentage of the trust's assets, which can run into the thousands of dollars.

"The number one thing is honesty," Lewis said. He added it's also important to look for someone who understands financial investments.

"Even if they're honest, if they don't know what they're doing, it's not good," he added.

There are some disadvantages with trusts. For example, if someone sets up a trust, but does not transfer the title of their assets into the trust, or transfers only a portion of their assets into the trust.

"If they don't, then they don't avoid probate," said Richard Milstein, a lawyer who specializes in elder law at the Miami office of Akerman Senterfitt.

Milstein also recommended that people still write up a last will and testament to transfer any extra assets to their trust.

"It's like belts and suspenders," Milstein said. "It's extra protection — sometimes more than you need."

Milstein said a trust is not just an option for senior citizens. It can also be advantage for younger people in their 20s and 30s if they have assets — like a condo or a home — they want to leave to their loved ones or charitable groups.

Perhaps the best thing about a revocable living trust: the word revocable.

"You can amend it. You can change it," Milstein said. Even end the trust. "It's a fluid document," he said.

A GUIDE TO UNDERSTANDING TRUSTS

•  Trust: This is a legal entity that can own property. Similar to a will, it gives instructions on who will manage your affairs if you become incapacitated or die.

•  Revocable living trust: An agreement that determines how a person's property is to be managed and distributed during his or her lifetime and also upon death. It normally involves three parties: the settlor, the trustee and the beneficiaries. A trust is classified as a "living" trust when it is established during the person's life. A "revocable" trust is flexible. It can be changed, amended, even cancelled during the maker's lifetime. Generally, once the grantor of a revocable trust becomes incapacitated or dies, the trust becomes irrevocable.

•  Irrevocable trust: This kind of trust cannot be changed. It does provide some benefit for estate and tax planning, because the assets of an irrevocable trust are not part of a person's estate. That means those assets are not taxed for estate tax purposes. The grantor of the irrevocable trust has to give up ownership and control of the assets so that it is not considered part of the decedent's estate. This saves the beneficiaries from having to pay estate taxes on the assets. An irrevocable trust also protects the trust assets from certain creditor lawsuits.

•  Settlor: This is also called a grantor, trustmaker, creator or trustor and refers to the person who creates the trust and usually provides the funding for the trust.

• Trustee: The person who holds title to the trust property and manages it according to the terms of the agreement. The trustee can be a family member or a professional hired to manage the trust. With a living trust, many trustmakers choose to be their own trustee and manage the trust's assets, until they can no longer do so.

•  Successor trustee: When the trustmaker is no longer able to continue because of incapacity or death, the successor trustee, named by the settlor, steps in.

•  Beneficiary: The person or entity that will receive income or principal from the trust.

•  Guardian: While a guardian often refers to someone appointed by a judge to take care of a minor child, a guardian can also be appointed by a judge to care for an adult who is incapacitated. Trusts often contain clauses in which a court-appointed guardian does not have jurisdiction over the trust's assets.

For more information on these matters, please call our office at 305 548 5020.

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