By Greg Hart, CFP®
Do you have your estate planning documents in place? When most people think of estate planning, they think of wills, powers of attorney, and advanced directives. Those are the basic documents of estate planning. But is your financial life basic?
If you have significant assets or a more complicated family situation, then you shouldn’t settle for a simple will. There are much more advanced estate planning tools that can better fulfill your wishes. One of the best estate planning tools is the use of trusts. There are numerous different kinds of trusts designed to provide all kinds of solutions, from privacy needs to providing for family members with unique needs, to avoiding taxes. Here are just a few examples of how your estate plan could benefit from incorporating the use of trusts.
Avoid Probate Potential Costs And Publicity
Probate is the legal process where a court validates a deceased person’s will, supervises the orderly distribution of their assets to their heirs, and ensures that all of their valid debts are paid. Unfortunately, probate can be very expensive depending on what state you live in (thankfully, the cost of probate in NJ is de minimis). But, another issue with probate is that your will/estate becomes a matter of public record. So, your will and your instructions on where and to whom your assets transfer can be seen by anyone.
The best way to avoid the costs and publicity of probate is through the use of a revocable living trust. This is a trust that you create and manage to hold some or all of your assets. You have full access and use of those assets while you are alive. Then, when you pass away, the trust becomes irrevocable, meaning no one can change your instructions. Assets in the trust avoid probate and are distributed according to the trust documents, which means that you avoid the probate fees (of up to 6% in some states) and how you choose to dispose of your assets remains private. At your passing, the trust essentially acts like your will would, providing instruction on where your assets pass.
Pass Family Wealth To Future Generations
Between estate taxes, gift taxes, and generation-skipping transfer taxes, the IRS does their best to get a share of the wealth that you have accumulated to pass on to your family members. Once you surpass the lifetime exemption limit, the government will take nearly half of the wealth that you try to pass down to the next generations.
One way to avoid this and protect your family legacy from the government is through a dynasty trust. A dynasty trust shelters your family’s wealth from estate and generation-skipping taxes as it is passed from one generation to the next so that all future generations can benefit from what you have worked so hard to build.
Protect Family Wealth From Creditors
While you have been wise with your money, not all of your loved ones may share your self-control and discipline. After being careful and saving diligently for so many years, it would be a shame for your hard-earned wealth to fund another’s irresponsibility.
Trusts provide a way for you to pass on the benefit of your wealth to loved ones without allowing them to borrow against or pledge expected trust distributions. A spendthrift trust, or a trust with a spendthrift clause, prohibits the beneficiary to anticipate distributions from the trust, assign, pledge, hypothecate, or otherwise promise to give distributions from the trust to anyone. If they do make such a promise, it is void and may not be enforced against the trust. This is an excellent way to protect a loved one’s inheritance from creditors.
Protect Your Children If You And Your Spouse Both Pass
Does your will currently address the occurrence if both you and your spouse should die at or near the same time? If you total up all of the assets that you and your spouse own, plus both of your life insurance benefits, it could amount to quite a substantial amount! Have you thought about, and planned for, how your children would handle such a large sum of money? Obviously, if they’re minors, they will need someone to manage the funds for them. This is why you should consider adding a “contingency trust” in your will – in case you and your spouse both pass – your children may need someone to handle the financial assets until they are old enough to handle it themselves. A trust can be just the right vehicle to hold the assets until the proper time for distribution.
Provide For A Special-Needs Family Member
There are very low asset limits for a special-needs person to receive government aid such as Medicaid or Supplemental Security Insurance. Because of this, it could be a big mistake for a person with special needs to receive a traditional inheritance. Anything over a few thousand dollars will end their government aid and their inheritance will quickly be spent.
In order to preserve your special-needs family member’s inheritance and provide a higher standard of living for them, it is better to create a Special Needs Trust (SNT). An SNT allows you to set money aside for their benefit without risking their eligibility for government aid or jeopardizing their inheritance after they are gone.
How We Can Help
These are just a few examples of different kinds of trusts that can enhance your estate planning and protect your wealth for future generations. There are many other types of trusts that you may be able to benefit from: charitable remainder trusts, irrevocable life insurance trusts, Crummey trusts, bypass trusts, grantor retained annuity trusts, qualified personal residence trusts, and the list goes on and on – there are as many as over thirty different kinds of trusts!
If you want to pass on as much of your wealth to future generations as possible and have a say in how it’s handled, then it’s important to work with a financial advisor who doesn’t just understand investments but can help you with your entire financial life in a complete manner. At Haddon Wealth Management, we provide customized financial solutions that will meet your family’s needs in every arena of life. Call us at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting where we can discuss your needs and how we may be able to meet them.
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744 to begin a discussion.