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What is a trust and does it matter to me if I am not filthy rich?

When I used to live in Chicago I was lucky enough to work in the northern suburbs. There was a lot of great people that I met while I worked there, including many small-business owners, immigrants who were supporting their families, as well as suburban families that were living the American dream. I also heard about another type of person that seemed to be from that area…the “trust-fund baby”. I didn’t completely understand at the time what that meant but I knew it wasn’t a positive description. They were wealthy kids or adults, who generally had little or no work experience of their own but they always seemed to have money to spend and liked really nice things. Now that I am a financial planner and get to do this for a living, I have learned that this is a stereotype, and that a trust can be a valuable part of the financial planning process for the disposition of assets and to help individuals have some control of their money even after they are gone.  

What is a trust? Well, in simple terms it is a legal document that is used by individuals to transfer some or all of their assets to their chosen beneficiaries at their death. It involves the re-titling of those assets in the name of the trust which is managed by a successor trustee at death. That trustee could be chosen by the grantor of the assets as an outside third-party trustee or it could name the beneficiary as the trustee. There are a number of different factors that each grantor or grantors should consider in whether or not to establish a trust, determine which type of trust to create,  who to choose as the successor trustee, and how the assets will be divided to the intended beneficiaries of the trust.  

Some of those considerations have to do with issues such as lifetime gift/estate tax liability, the desire to keep assets out of the probate courts (which can be costly), control over the access to the funds for a minor child or financially irresponsible beneficiary, as well as creating a long-term legacy for your assets that will live on long after you leave the earth. There are different types of trusts that operate under different tax rules as well as the unique benefits that they offer the grantor who establishes the trust. They don’t just exist to create a way to leave large amounts of money to kids or other beneficiaries that will allow them to never work but live the high life!

Generally, I have found that clients that have a diversified portfolio of assets, including real estate, retirement accounts, investment accounts, collectibles and others have benefitted from speaking with an estate planning attorney to learn about their goals for the disposition of these assets and how they would like to see them transferred. At the very least, an updated and clear will should be drafted in order to clearly define where they wish these assets to go. A pourover will is used with a revocable living trust to have all assets moved to the trust upon death, thereby shielding them from the probate process. In this meeting the topics of who the beneficiaries would be, how much of the assets they will be entitled to and who would serve as trustee over these assets can be discussed and then a decision on how or if to proceed can be made. It can also be discussed as to special-needs beneficiaries and how to protect their interests if their care costs are dependent on assets that are considered a part of their estate. We at Walkner Condon work with experienced estate planning attorneys to help clients with this important step in the financial planning process. We also generally cover topics such as MPOA and FPOA, which is Medical Power of Attorney and Financial Power of Attorney in situations where the incapacitation of the client would cause need for someone to make important decisions on their behalf.  

You may be asking yourself “Should I create a trust?” Although I was introduced to the idea of what “trust-fund babies” were, and there definitely are some out there who fit this description, it could be a very valuable and cost-saving step to explore whether or not a trust would benefit you. After all, you worked hard for your life savings and assets and it could be a positive step to ensure how they will live on long after you are gone!

-Jonathon Jordan