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Cents and Sensibility Guy Steele |
Trusts can help you
achieve estate planning goalsWhen you develop your estate plans, you might be surprised at all of the objectives you want to accomplish.
Of course, you want to leave your assets to your family members in a way that's fair and beneficial to everyone. But while you're at it, can't you avoid the drawbacks of probate? And how can you make sure your wishes are carried out if you're incapacitated? And can't you support your favorite charity without shortchanging your heirs?
Clearly, these are major goals. And if you're going to achieve them, you'll need to employ the right estate planning strategies -- and you may find that trusts can help.
Several different trusts are available. Let's look at a few of them, starting with a living trust.
When you create a living trust, you get some key benefits, including the following:
>> You may avoid probate. If you just have a will, your assets may have to pass through the probate process --- which can be time-consuming, expensive and a matter of public record. But with a properly established living trust, your assets can pass directly to your beneficiaries, with no court interference, no legal fees, no lengthy delays and no public disclosure.
>> You can safeguard your children's interests. When your will is probated, the court sets up a guardianship for your minor children. You can name the guardian in your will, but the court could still appoint someone else. Just as importantly, the court, not the guardian, may control the inheritance until your children reach legal age. At that time, they may receive the entire inheritance. But with a living trust, you determine when your children or grandchildren will receive their inheritances. You can even have the money distributed in installments, over a period of years.
>> You can retain control of assets, even in cases of incapacity. When you establish a living trust, you designate a "successor trustee" who can immediately step in for you if you become incapacitated. And your trustee must follow your wishes as far as providing funds for you, and later, for your beneficiaries.
A living trust can help you deal with many issues that relate to your family. But if you want to include a charitable organization in your estate plans as well as make your appreciated low-yield assets more productive, you may want to consider a charitable remainder trust.
If you place appreciated stocks in a charitable remainder trust, you'll receive an immediate income-tax deduction and later an estate tax deduction. The trust can sell your appreciated stocks with no immediate capital-gain taxation, purchase an income-producing vehicle and pay you an income stream for life. Upon your death, the trust will pay out the remaining funds to the charity or charities you've chosen.
But if you set up a charitable remainder trust and fund it with appreciated stocks or other assets, won't you be depriving your family of those resources? Yes. But you could use some of the income you receive from your trust to pay the premiums on a life insurance policy on yourself, with your heirs as beneficiaries. To keep this policy out of your estate and avoid estate taxes, you may want to put it in another type of trust -- an irrevocable life insurance trust.
Trusts are not suitable for everyone. And they can be complex instruments, so before taking any action, consult with your tax and legal advisers. But if your trusts are correctly set up, they can go a long way toward helping turn your estate plans into reality.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com