What can we Trust anymore?
Lately, I have heard increasing chatter regarding an anti-government revolution that is/will be sweeping the country. Tea Party activists and conservatives are becoming more confident about the 2010 election cycle. Fear of the growing national debt, declining health care, and the tenuous economic climate are perhaps harbingers for radical change in the breadth, depth, and dimensionality of our government. Along with those feelings is an implicit, grading notion that our government is too big and too probing.
But until that time, everyone is still going to die, and you are better off preparing for death with the assumption that our government will exist in one form or another. And if you do not like the government and want the courts and the lawyers [to some extent] to stay out of your business, then create a trust! Once thought of as simply a tool for the wealthy to avoid taxes, it has become a useful planning tool for almost everyone!
A trust is like a bucket in that the grantor, the person that creates and funds the trust, can place assets such as land, stock, cash, personal property, cars, or any other kind of property into the trust. These assets are no longer “owned” by the grantor, although he or she can still manage, remove, add to, sell, and gift the assets. These assets are held for the benefit of another person(s), called beneficiaries, and the person that manages the trust is called a trustee. The grantor creates rules on how the trust assets should be managed and the trustee must follow those rules and execute the trust.
Many different kinds of trusts exist. For instance, a trust can be revocable or irrevocable. An irrevocable trust means the grantor has no control over the trust assets, except to place assets into the trust. The trust is like a separate person, like a corporation, and if the grantor does exercise control over the trust, it becomes revocable. This doesn’t sound like big deal, but if you are the IRS, then it is HUGE! Irrevocable trusts are created to save on taxes and the IRS will allow a person to create an irrevocable trust in order to do so. However, rules must be strictly followed by both the grantor and the trustee, or the grantor will lose her beneficial tax treatment. Millions of dollars could be lost.
However, most Hometown Focus readers do not have millions to lose to the IRS, but do have thousands of dollars that don’t need to go to lawyers and courts. Trusts are most commonly used to avoid probate. If you have land in your name and die, your estate will probate. But a trust can be used to get land out of your name and to your descendants without going to court. Hence, people can protect their privacy and avoid probate!
What’s the catch? Upfront costs. Yes, a lawyer ought to draft a trust and advise on how to fund it, but otherwise, they are moneysaving legal instruments. Yes, you can try to draft and fund a trust yourself, which is fine with me because the fallout of a bad trust or conflicting provisions will generate huge legal fees that the trust is required to pay in the end, and the benefits of creating a trust—to save money, avoid court, and maintain privacy—are all gone. Nevertheless, a properly formulated and managed trust will be surprisingly smooth and useful…trusts might seem scary or for the rich, but they provide wonderful benefits for everyone and keep the government out of your life…and death!
