When Can a Trust Be Useful?

A trust is a planning device that can accomplish a number of goals.  Whether the cost and bother of a establishing a trust is justified for me depends upon whether any of those goals are mine.  Here are some of the most common things a trust can do.

I.  To save estate taxes if I am married, depending upon what my and my spouse’s assets amount to.

There is an Ohio estate tax which applies to the amount in excess of $338,333 that is left to individuals other than my spouse.  The tax rate ranges from 6% to 7%, and potential savings ranges up to $35,000.

The federal estate tax has been in a state of disarray.  People who died in 2009 and left more than $3.5 million to individuals other than a spouse were taxed on the excess at graduated rates that topped off at 45%.  For the fortunate heirs of wealthy people who died in 2010 (George Steinbrenner, for example), there has been no tax at all.  And faced with the threat that in 2011, the taxation threshold would drop down to $1 million, and the maximum rate rise to 55%, Congress has reset the numbers again.  Individuals with estates worth less than $5 million, and couples with less than $10 million, will pay no tax.  Those who are wealthier may face a top tax rate of 35%.

II. To provide a vehicle for management of assets when the person to whom I leave an inheritance can’t or shouldn’t receive or manage the assets themselves.  Such persons might include my minor children or grandchildren, those with disabilities, individuals who are simply spendthrifts, and people who are receiving public assistance.  For some of these individuals, what is called a “special needs” trust may be in order.

III. To limit who ultimately benefits from an inheritance, or to limit how the inheritance is used.  For example, if I want to leave something for my son but don’t want his wife to enjoy it; or if I want to take care of my spouse, but not the stepchildren.   Another example might be if I want the inheritance to be used exclusively for educational purposes – for college, not a convertible.

IV. To “avoid probate.”  This is a particularly appropriate goal if, for example, my privacy is a major concern, or if I own property in multiple states, or if I have a large number of beneficiaries scattered about the country.  Despite what you may have heard, simply “avoiding probate” is not, in every case, reason enough to have a trust.  It is always useful to conduct a cost-benefit analysis.

Posted in Blog, Disabilities.