Estate Planning Series: A Brief Discussion About Trusts

Estate Planning Series: A Brief Discussion About Trusts

May 09, 2024

Today we continue our estate planning series with arguably the #1 question that we get during our financial planning meetings with clients. DO I NEED A TRUST? First off, as the compliance department makes me disclose, I am not an attorney and cannot give legal advice.

This article will not attempt to explain the nuances of the trust or the various types of trusts (Revocable, Irrevocable, Testamentary, Asset Protection, Dynasty, Generation-Skipping, etc.). This is more of a 10,000 ft. view of the concept and the best practices that we see with our clients.

What is a Trust? After looking up many respected institutions' definitions on the topic I have decided The New York City Bar Association Website had the clearest definition (If you go to the IRS website and read their definition it makes about as much sense as a screen door on a submarine). Here’s the NYC bar’s definition:

A trust is a document giving you, another person, or an institution the power to hold and manage your money for your benefit or the benefit of another person. A trust can serve many purposes, including estate planning, tax planning, medical planning, and charitable giving.

Purpose of Trusts - Types of Trusts | NYC Bar

In practical terms and for the purposes of your investment portfolio, a trust is something that you can create to hold your investment assets during your life and after death. During both phases, it can dictate how and when those assets are distributed and who manages the accounts on your behalf. In many cases, it can make the settling of your estate easier for your beneficiaries.

Here are the primary reasons we see clients create a trust and then use that trust to hold their assets.

  1. Avoid Probate
    A trust spells out the distribution of your assets after death. Basically, who or what entity gets the money and how much. If you have a trust, it’s a pretty solid way to avoid getting the courts involved to help distribute your wealth. The probate process can be long, frustrating, and expensive for your heirs. There are other ways to avoid probate that don’t involve a trust (see my article on beneficiary designations on our website here).

  2. Estate Tax Planning
    15+ years ago this was the primary reason I saw clients establish trusts. At the time the estate tax limit was $1,000,000. The estate tax limits have been dramatically increased recently and most states have established rules that allow for married couples to utilize both individuals’ estate tax credits without special planning. It used to be that you needed a trust for each spouse to be able to use the tax credit. All tax laws are subject to change and if we see the estate tax limit lowered, then this conversation will become more common. Under the current tax code if you have an estate over $20 million this is a conversation you need to have with an estate planning attorney. By the way, just because you utilize a trust doesn’t mean you can avoid estate taxes.

  3. Control from the Grave
    This is the most common reason that we see clients create more complex trusts. A trust can be as basic or as complex as the individual chooses. If you have beneficiaries who are minors, for example, you can dictate when and how the trust will distribute some or all of the assets to the individual. Let’s say you plan to leave $1,000,000 to your only grandson and he is currently 13 years old. Imagine you were to pass away on his 21st birthday and you had not created a trust. He is considered an adult and would inherit the money as a lump sum. Do you feel that he would be a good steward of the money? Would he invest and plan for the future or would he buy a Lamborghini and celebrate his 21st birthday in Vegas? I would like to think that my children are more responsible than the latter, but I also don’t think they would be sophisticated or more importantly, mature enough to handle that sum of money without some help. A trust can spell out who manages the money for their benefit and when they can take some or all of the money. Your imagination is the only limit as to what type of provisions you can put in place for your heirs. Want your money to last for several generations? No problem, an attorney can help you work through the details.

  4. Provide your heirs with a clear outline of your wishes
    In our line of work, we are very blessed to work with clients who have done a great job of saving, growing, and managing wealth. It’s such a blessing to help our clients enjoy their retirement and the fruits of their labor. In my experience one of the most difficult and gut-wrenching parts of our job is when we deal with an estate settlement that is poorly planned. If your heirs don’t have clear instructions on how to distribute your estate it can often lead to frustration, hurt feelings, and sometimes even severed relationships. I can’t explain how frustrating it is to sit in a meeting where there is a life-changing sum of money being received and rather than reverence and excitement we have anger, bitterness, and fights. All of that can be avoided if you clearly outline how you wish for your wealth to be distributed. Don’t ever assume someone will know, especially when you are dealing with multiple beneficiaries. A trust can help outline in detail your wishes and can have the participation of an attorney who can help your heirs understand the best way to go about distributing the assets. If there was one reason to at least explore a trust, this is that reason.

I hope that this gave you some things to think about as you consider your options for your estate plan. I encourage you to call our office with questions and to seek the services of a licensed attorney to see if a trust is right for you. Our goal is for our clients to feel confident that their estate plan is properly in place so that they can get on with the important things in life.

Until next time.

Important Disclosure:

Platte River Private Wealth and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.

LPL Financial representatives offer access to Trust Services through The Private Trust Company N.A. an affiliate of LPL Financial. (154-LPL)


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.