More On Trusts

Flexibility

Last time, I wrote about using a testamentary trust to prevent your minor children from receiving a large lump sum when they turn 18. Trusts can be used to accomplish other goals as well. One of the biggest benefits of a trust is flexibility. While a will, in a sense, only “speaks once,” a trust can allow your wishes to continue well after you are gone.

Two goals

Suppose you have adult children and that your first spouse, unfortunately, passed away. You re-marry someone who also has children from a prior marriage. You want to ensure that your spouse is taken care of when you pass, but it’s also your preference that when your spouse passes, the remainder (if any) of your property goes to your heirs, not your spouse’s heirs. There isn’t anything wrong with this desire, and it is, in fact, quite common.

A simple will would be inadequate

Accomplishing this goal with a simple will would be difficult. A will passes property from one person (deceased) to other people (living). If all of your property passes to your spouse when you pass so that your spouse is taken care of, nothing guarantees that that property will eventually end up with your heirs. Your spouse may promise, “I’ll make sure that the property coming from you gets to your children,” and your spouse may even mean it. But your spouse would have to take certain steps to ensure that this occurs (like keeping the property segregated, drafting her will in the correct way, etc.).

How to accomplish both goals with a trust

A trust provides a solid solution. You can place your property—either before or after death—in a trust and name your spouse as a beneficiary of that trust. Your spouse doesn’t technically own that property, but you can draft the trust document such that she receives regular distributions from the trust, which adequately provides for her (your first goal). You can then add a provision that upon your spouse’s death, the remainder of any property in the trust goes to your heirs, not your spouse’s (your second goal). This is possible because, again, your spouse doesn’t legally own the property in the trust, whereas if you pass all of your property to her under a will, your spouse does own the property.

Legal fictions

Trusts can be complicated, and I plan to write more about them later. For now, it’s enough to know that they are, in a way, legal fictions. Legally, the property is placed in the hands of a trustee. But equitably—or, put another way, how things actually play out—the property belongs to the beneficiaries.

As I’ve said again and again, this stuff can be tricky. Employ me to navigate your way through estate planning. It’s my promise that I’ll make things as smooth as possible.

–Joel Dendiu

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