Putting Your Trust in Trusts

June 12, 2023 Austin F DuBois

Establishing a trust delivers a range of useful benefits when it comes to sound planning for your future. What’s better, is that those benefits come with virtually zero drawbacks.

Among the things a well-structured trust provides, two of the most important to understand are its usefulness in asset protection and probate avoidance. Although most folks understand the importance of avoiding probate (the time, expense and headaches of the court system), people don’t usually realize how important it is to protect the stuff you have. Failure to protect assets is what leads to nursing homes, taxes, creditors and unwanted beneficiaries taking your hard-earned savings, and sometimes even your house.

Worse, some people think that “asset protection” means just giving away their house or savings to their kids. That comes with its own set of dangers, which a trust helps to avoid.

Should you create a trust?

For many people, the term “trust fund” brings to mind stereotypical images of posh garden parties on stately grounds and spoiled adult children, but nothing could be farther from the truth. In fact, trusts are a valuable tool for anyone, in any tax bracket, who has amassed assets that they want to protect for the future. For some people, that does mean multi-millions in business and investments, but for others, it means a house and  modest bank accounts they’ve toiled during their lives to pay off and save up. Everyone should be able to protect their assets—where you fall on the wealth spectrum just indicates a certain way of doing it. And almost all of them involve a trust.

The ultimate goal of most trusts is for people to live with the confidence of knowing that their assets, placed within a trust, will be preserved for a spouse, child, or other beneficiary once they are gone. Assets in a trust can include money and property, for example a paid-off house. It is a forward-thinking form of asset protection that ultimately ensures the beneficiaries get as much of their inheritance, with as little taxes, as possible.

How do trusts help?

For people with more modest wealth, the biggest value of a trust is to protect assets for Medicaid planning. Moving assets into a trust can help ensure that if the time comes, you meet all Medicaid benefit qualifications without your property being ”spent down.” Because of high exemptions, taxes tend to be less of an issue—but using a trust does help to avoid tax pitfalls associated with simple gifts. As far as the IRS is concerned, the most common types of trusts cannot be taxed separately from the person who sets it up.

For those on the wealthier side of the spectrum, trusts are an excellent way to legally avoid – not evade – certain taxes and liability from potential creditors. They are crucial in business succession planning as well.

Placing assets into certain types of irrevocable trusts means that those assets become property of the trust. If they are no longer owned and directly controlled by you, they are thereby not available when valuing your estate, effectively sheltering that wealth from gift and estate taxes.

Avoid bad mechanics.

Have you ever had your car worked on by someone who you didn’t quite feel right about, but the price was unbeatable or it was convenient, only to have your car break down again? Don’t make the bad mechanic mistake! Most, if not all, of the trust “horror stories” you may hear come from people that either tried to do the planning themselves, or used a lawyer that, contrary to Socrates, did not know what he or she did not know. Your wealth should be fully utilized in the way you want, for the people you want. Do not leave that in the hands of the cheapest possible option—cost is only bad in absence of value.

Having your trust done right means working with an experienced, attentive attorney in the field whom you trust. A qualified Trusts & Estates and Elder Law attorney should be able to help you assess your wealth, ask the right questions to understand your situation, advise you on ways a trust can protect it and write up the documents to make it so. When trust planning is done well and supported with annual reviews, it is superior to other types of asset protection planning. A trust will save you on taxes later in life but it will not complicate your taxes now and, as mentioned already, there is virtually no downside.

Asset protection for everyone.

DuBois Law Group can help anyone set up a carefully-structured, flexible trust that will serve them and their beneficiaries well over the long term. That said, we also offer a suite of services tailored specifically toward business owners and those with assets significant enough to approach and exceed estate tax exemptions – see this prior post: https://duboiselderlaw.com/new-bernie-sanders-legislation-seeks-to-increase-taxes-on-wealth-estates/ for those exemption limits.

Just about everyone who comes to our team for legal guidance is a good candidate for setting up a trust, and it’s never too early to look into ways you can protect the things for which you’ve worked so hard. Call us at (845) 420-7999 to discuss the many ways a trust can work to protect you.