Trusts are essential to estate planning, regardless of your financial means. After all, you do not have to be a millionaire to protect your family members and plan for their continual care after you are gone. With a trust, you can help ensure that your wishes are followed, and your assets are transferred to heirs in the most efficient manner. However, it is important to recognize that, no matter your wealth, the intended benefits of a trust may be lost when you do not plan carefully.
Trusts can be structured in various ways to meet a diverse range of short- and long-term needs and goals. In all instances, they provide families with the ability to avoid the very public, time-consuming and often costly process of probate, which is the legal administration of a decedent’s estate and includes identifying the decedent’s assets, paying their outstanding debts and distributing remaining assets to beneficiaries named in a will, if one exists. With a trust, assets are not made public, nor do beneficiaries have to wait to access those resources. To yield these and other benefits, it is critical that trusts are established under the guidance of experienced financial advisors and accountants and that the following mistakes are avoided.
The individual you name to maintain, protect and manage trust assets after you are gone must be prepared to devote significant time and resources to fulfill the objectives of your estate plan and be bound by a fiduciary duty to act in the best interests of the trust and its beneficiaries. The trustee’s responsibilities go far beyond recordkeeping and distributing trust assets to named beneficiaries. They are also liable for making investment decisions, planning for tax efficiency, filing the trust’s annual tax returns and issuing tax reports to beneficiaries, collecting income and dividends and defending the trust against any challenges.
While naming a surviving spouse or child to serve as trustee may seem like an easy choice, it can lead to many years of family conflict, especially when surviving family members have competing interests. Instead, grantors should consider the benefits of naming their professional advisors to serve as trustees and co-trustees, including their impartiality, investment and trust management experience, and their personal knowledge of your wishes and your unique family dynamics.
Surprisingly, the biggest mistakes grantors make when establishing a trust is failing to review all the assets in their names (both individually and jointly) and retitling them into the name of the trust. An equally damaging result occurs when grantors forget to name the trust as a beneficiary of assets that pass by beneficiary designation. Your financial advisors can help complete these actions and protect your assets from probate by properly transferring assets to your trust and ensuring your beneficiary designations are updated to include the trust.
When establishing a trust, it is not uncommon for grantors to focus their planning on their beneficiaries’ short-term financial burdens, such as paying the mortgage to stay in the family home. However, it is equally important to consider longer-term financial needs, such as home repairs and medical bills that can pile up over 10 years or more. Grantors should also consider beneficiaries’ abilities to properly manage the trust assets distributed to them and the potential negative impact distributions may have on a beneficiary’s ability to qualify for government benefits, as is the case with inheritances passed to individuals with special needs.
Throughout your life, things change. You may get married, have children and grandchildren, get divorced and remarry. In each of these circumstances, it is likely you will want to modify the beneficiaries you previously named to receive assets held in a revocable trust. Similarly, as the tax laws change, you may need to amend the terms of a revocable trust to ensure it continues to provide the same benefits and tax efficiency as you originally planned. Make it a point to review and update your estate plan and trust documents with your financial advisor and estate-planning attorney when your life circumstances change and, at the very least, every four to five years.
About the Author: Brendan T. Hayes is a financial planner with Provenance Wealth Advisors, an Independent Registered Investment advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with Raymond James Financial Services. He can be reached in the firm’s Boca Raton, Fla., office at (561) 361-2001 or via email at info@provwealth.com.
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Brendan T. Hayes is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Updated on June 21, 2023