Why You Should Consider Getting a Trust
Trusts aren’t as common as Wills. But, let me give you a brief illustration as to why you may want a Trust in addition to your Will. Let’s say you die and have done your due diligence in creating a life insurance policy- naming your minor children as beneficiaries. Your children will not have access to that money until they are legally declared adults. Now, your 18 year old gets a lump sum of money. How is that going to turn out? Not very well. Even though he/she is an adult in the eyes of the law, we know most are far from mature at that age. That’s not meant to be crass, but the reality is, a lot of adults don’t fair well with getting a lump sum of money. Ever hear about lotto winners that go broke or 6 or 7 figure athletes that do the same? So, coming into a large sum of money, without adequate training on financial management isn’t going to turn out so well.
A trust allows you to determine the rules of how that money will be issued. Policy monies could go to your Trust and give you say in how much your child gets (even as a minor)- at regular disbursements or for certain life events (private elementary or secondary education, college, getting married, buying first home, starting a business, etc.) You protect both the assets you worked so hard to acquire- even if it’s just that life insurance policy you paid into for years- just in case. But you also protect your beneficiaries from themselves.
For the above reason alone, you should consider a Trust in conjunction to your Will.
Terminology & General Overview
A Trust is a legal document that determines to whom, when, and under what circumstances your assets will pass on to other parties. In most cases Trusts don’t normally bypasses probate– a public judicial proceeding setup to determine how your assets will be distributed. The terms of a trust are normally private. Not having to go through probate can save time, money spent on court costs, and mental stress. In addition, less taxes may be due.
You would be the Grantor. Your Trust identifies someone to be the Trustee and Co-Trustee; who is responsible for executing the provisions of the trust. While you are living, you could hold one of these two roles in the case of a Living Trust (defined later). Trustees can be a person, organization, or public body who has legal ownership of your assets; but also has a responsibility to manager those assets to benefit the equitable owners (the beneficiaries). They are responsible for exercising integrity, good financial stewardship, accounting for funds, keeping proper records, and communicating with beneficiaries as necessary. Trustees can be compensated for their services and receive reimbursement for their fees. Trustees who do not carry their role responsibly can be removed by a judicial decision to do so and can be charged for criminal misconduct- if applicable. Trustees can be removed for failure to apply laws properly, so you as the Grantor, your Trustee, and Co-Trustee should seek legal counsel to avoid costly mistakes.
The recipients of your assets are called Beneficiaries (same as in the case of life insurance and a Will). They can be your children, grandchildren, nieces, nephews, parents, grandparents, and even future generations as long as assets remain.
Beneficiaries can also be beloved organizations or charities.
Your Trust can potentially keep a family home, land, or other item protected. Whereas if you willed an item to a beneficiary, it can be lost through mismanagement or taken through a judgment from a lawsuit. Since those items belong to the trust and not your child, in many cases those assets are normally protected.
Types of Trusts
There are actually at least a dozen types of Trusts. I’m only going to talk about the two major distinguishment. A Revocable Trust is also known as a Living Trust. You could name yourself as Trustee or Co-Trustee and retain control of the assets in that trust as long as you are alive and are capable of doing so. You can change the Trust or even dissolve it as long as you, the Grantor, are still living. You will identify a Successor to take control in the event you die or become incapacitated. All assets in the trust are still subject to taxes, as they are treated like any of the assets of a living person. Once the Trust is executed (through your death or incapacitation), it becomes irrevocable and normally cannot be changed under the law. An Irrevocable Trust cannot be changed. A trust can be created as irrevocable from the onset. Those who create Irrevocable Trusts while they are still living, knowing it cannot be changed, many times do so to avoid taxes from gains of the assets (even though taxes will likely be due upon distribution to beneficiaries).
If a trust is not identified as Revocable or Irrevocable, most states in the U.S. assume irrevocable; but there are a handful of states that assume it to be revocable. So, be explicit.
How to Get Your Will Started
When you are considering what types of things to include in your Trust, think: your homes, land, investment accounts, business, life insurance policies (which you would name the Trust as beneficiary, not the beneficiaries themselves- whether minors, adults, charities, or organizations).
You can write your own Trust using some “do-it-yourself” forms or sites. But, this is not a simple document, so you should hire a Trust and Estate Attorney. And you and your Trustees should sit down with you’re your attorney to understand what you are specifying in the trust, the repercussions of what you are saying, legal requirements, and ramifications.
Your Trust may never need to be updated, but if it is a Revocable Trust, you should review it annually with your other financials or at least every couple of years. There may be something that you notice needs to be added or changed. There is a legal way to do that, so make sure you follow your state guidelines. You cannot just edit your Trust.
Conclusion
By creating a Trust, you can protect your family’s legacy. For many brown and black people, we never really left a monetary legacy, so this is an opportunity to do a different thing. Perhaps you can protect a family home and/or land, so it can be enjoyed for generations. Perhaps you can set your children up so they don’t have to start from scratch when they enter adulthood, because you’ve helped them with their education, or their first home, or even left a gift for their future children who you never even met.
A Trust gives you a chance to do something special, if that’s something you want to do. I hope more of us will.
