TRUSTS ARE POWERFUL, FLEXIBLE LIFE PLANNING DOCUMENTS
Although many people think of a Trust as a rigid document prepared by extremely wealthy people to keep children from squandering the family fortune, it is actually a very powerful, flexible, and useful Life Planning document for everyone. Of course, not everyone needs a trust and a trust is not for everyone.
LGBT people rarely confine themselves to traditional family structures. LGBT families, for example, often include former legal spouses, biological children with former legal spouses, adopted children, step-children, parents, siblings, “in-laws,” nieces, nephews, and unrelated, chosen family. Single LGBT individuals, while often close to their blood family, also form “chosen families” of friends and build strong support communities. Following traditional “blood lines” will often exclude the most important people in the lives of LGBT individuals. This makes Life Planning particularly important for LGBT people and consideration of a trust useful.
A Trust brings several advantages to Life Planning. These include:
- A Trust is a private document. Unless challenged, it is not filed in court.
- A Trust manages only the assets placed in the trust (titled in the name of the trust).
- A Trust is effective when funded (i.e., when at least one asset, such as a small amount of cash, is placed in the trust) continues even if the grantor (the person who created the trust) becomes incapacitated, and continues after death. A Will, on the other hand, becomes effective only upon death. A Power of Attorney terminates upon death.
- A Trust does not require court involvement.
- A revocable Trust can easily be changed or terminated so long as the grantor has legal capacity to do so.
- Assets can be added to the Trust, even after death by naming the Trust as beneficiary or through a “pour-over will,” or (with most revocable trusts) removed from the Trust.
- A Trust can provide for multiple contingencies. This would include co-trustees and successor trustees, discretionary forms of distribution (such as distributing assets in their original form or selling them and distributing cash), and discretionary methods of distribution (such as lump-sum distribution, investment in an annuity, periodic distributions, etc.).
- A Trust can provide for many beneficiaries in simple or complicated contingencies. For example, a Trust can provide for the support and maintenance of the grantor and the grantor’s spouse, partner, parents, business partners, children, former legal spouses, pets, blood relatives, friends, charities, and others in a carefully limited or discretionary manner both during the grantor’s lifetime and after death. It can provide equal, defined sum, proportional, or discretionary distributions to different beneficiaries. It can provide distributions only in the presence of specific events (e.g., if a child enrolls in college or a partner becomes disabled).
- A Trust can protect beneficiaries from creditors (through a “spendthrift” clause that prevents beneficiaries from selling or placing a lien on their right to receive a distribution from the trust).
- A Trust can provide the flexibility needed to restructure financial assets and qualify for governmental benefits in the presence of disabling illness or injury. LGBT persons, specifically, should consider how their spouses, partners, and chosen families will continue if they become incapacitated and their financial contribution is removed from the household. Like all persons, LGBT persons should consider how they will preserve assets if they cannot afford long-term care and must apply for governmental benefits.
- A Trust can usually gather, manage, and distribute assets after death more quickly, efficiently, flexibly, and privately than a publicly probated will.
Despite these and other benefits, a Trust is not for everyone and not everyone needs a Trust. There are limitations and disadvantages to a Trust, such as the following:
- A Trust requires a Trustee (who can be the grantor so long as the grantor has legal capacity).
- Although subject to legal duties and accountability, a Trustee can mismanage trust assets.
- A Trustee is subject to specific legal duties, such as the duty to act in the best interests of the beneficiaries and to follow the Trust plan.
- A Trustee must keep records and provide written accounting of trust assets.
- A Trustee can be entitled to compensation and, if actively managing assets, should be compensated.
- A Trust does not avoid tax liabilities, including estate and gift tax liabilities.
- A Trust is more expensive to prepare than a simple, form will.
This short summary is not designed to explain everything about Trusts. It is intended to suggest that most LGBT people consider how a Trust might help to create a Life Plan that brings clarity, authority, ease, and peace of mind to daily affairs. If you have questions, please refer to Frequently Asked Questions on this website, download the FREE Life Planning Guide available on this website, or call Blackburn Law Firm to schedule a consultation.