Mark F. Winn

When it comes time to prepare, update or revise your estate planning papers, you should consider whether it is attractive to leave assets in trust for your loved ones.

First, what does it mean to leave assets “in trust” for loved ones? It means leaving assets subject to the rules or parameters of a trust that has certain terms governing its administration.

For instance, a simple trust might state that the loved one is both the trustee and the beneficiary; they are entitled to income or principal from the trust.

If you wanted to make sure the assets would not defeat eligibility of a loved one from obtaining government benefits (such as in the case of a child with special needs), then you might want the trustee to be independent. You might also want the standard for distributions be purely discretionary for the benefit of the loved one, but constrain the trustee’s discretion by stating that they shall not distribute except as to supplement any government benefits the loved one may be receiving.

The key here is if the trust assets do not replace or supplant the government benefits, but rather just supplement the benefits, then the threat of losing eligibility for government benefits can be avoided. This can be a big plus for your loved ones.

Also, you might want funds to benefit a loved one, but have someone other than the loved one manage the funds – in effect to protect the loved one from his or her own indiscretion or wild spending.

If you want to keep your assets in your bloodline so they are not lost to in-laws in a divorce or another lawsuit, you might want to leave your assets to your children in trust so they, as trustees, can distribute to themselves, as beneficiary, for their needs related to health, education and maintenance.

If there is also a clause stating their right to the income or principal shall not be subject to claims of their creditors, then the trust assets would be protected from most claims, including claims of equitable distributions and alimony in the event of a divorce.

As you can imagine, doing this saves families lots of money. After all, 50% of marriages are said to end in divorce.

Leaving assets in trust can ensure these assets will not be lost to divorce. You can then direct the remainder to grandchildren or others as you wish. This is tremendously beneficial and guarantees your funds stay in your family as you wish.

If you wanted to ensure that the assets in the trust were not included in a loved one’s estate for purposes of the federal estate tax, you might indicate that principal is only to be invaded for the loved ones needs related to their health, education, maintenance and support in their accustomed manner of living.

This standard “health, education, maintenance, and support” is ascertainable. As such, the entire trust would not be included in the loved one’s estate. Leaving assets to a loved one so they can benefit from it during their life but so it is not exposed to federal estate taxes in their estate is basic planning that can mean big savings for your family.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney.