Asset-based solutions Featured

7:45am EDT January 30, 2004
"I am not rich like the Rockefellers or the DuPonts, so I do not need a trust."

I hear this all the time. The truth is, you do not have to be a millionaire or billionaire to benefit from a trust. It's not uncommon for an average family to have assets of $500,000 or more, including a house, a couple of cars, a 401(k) plan and/or an IRA. A trust can be a useful tool to transfer wealth between generations.

Here are five ways a trust can benefits your estate.

Organizes and marshals assets

Without a trust in place, being an estate executor can be frustrating. Often, the decedent fails to leave an organized structure, and an executor can spend an inordinate amount of time trying to establish the whereabouts, or even existence, of assets.

Then, once all the assets are finally located, an executor must determine how many of the assets should go to a particular beneficiary, which may involve probate court.

Creating a Living Trust allows an individual to place all of his or her assets into the trust and bypass probate. The trust also allows an executor to easily and more quickly locate all of the decedent's property, distribute it and close the estate.

Ensures a competent individual manages the assets

It is usually a bad idea to give young children access to money. Some may be responsible and save inherited money intended for college instead of buying a brand new car; others may not.

A trust leaves nothing to chance. It can be established naming a trustee, or for that matter, an adviser, who is more capable of managing the assets until a minor beneficiary reaches maturity.

Avoids probate court

Probate is not a dirty word, but there are three disadvantages of an estate going through probate. First, there is a small tax associated with assets that go through probate.

Second, when an estate goes through probate, it often delays the ability of an executor to distribute the assets to the beneficiaries. Third, probate is public record. This means that anyone can obtain information about the type and amount of assets in an individual's estate.

Living Trusts avoid probate because the assets in the trust have a legal disposition. For example, when two individuals are named on a joint checking account and one dies, the other automatically is deemed to own the entire account by operation of law.

The same thing occurs when an individual's assets are placed into a trust. Because the trust document dictates the disposition of assets, there is no need for a court to approve the owner.

Provides beneficiary creditor protection

A creditor is not able to force a trustee to distribute any assets to a beneficiary in order to settle a claim against the beneficiary. This enables those assets to stay in the family.

Minimizes estate taxes

There are several types of trusts, including a Charitable Remainder Trust, a Qualified Personal Resident Trust and an ordinary Irrevocable Trust.

Individuals transferring assets into one of these trusts must give up control of the property, thereby ensuring that a gift has been made. As long as the gift is complete, when the individual dies, generally the gifted assets will not be brought back into his or her estate.

What makes transfer to an Irrevocable Trust so appealing is the inherent appreciation of assets. If an individual gives away an asset today that is worth $1 million and pays a transfer tax on the asset now, the estate will be better off than if the asset remained in the estate for 20 years and appreciated to $5 million.

Steven Hartstein, CPA, JD, is a principal with Skoda, Minotti & Co., an accounting and financial services firm that focuses on helping clients grow and develop their opportunities by becoming an integral part of their management team. Reach him at (440) 449-6800 or shartstein@skodaminotti.com.