Trusts: The Cilantro of Estate Planning

Cilantro is a spice that can add a certain special something to a very specific number of dishes. However, it typically isn’t the only spice used. It’s used in partnership with other spices like salt, pepper, or even parsley. Trust are very similar. Trust are typically not the only thing we use in estate planning. They work in partnership with power of attorney, health care proxy and wills but only in certain situations. Recently, I’ve spoken with a number of clients who either had trusts, had family members with trusts, or were being told they themselves should have a trust. None of them really knew what they had or what they were considering so let’s put some perspective on things.

Trusts can be great tools to protect someone who isn’t used to money management—providing a structured income stream they can rely on. They can be invaluable for someone with a disability to help maintain access to government resources that support their ongoing care or needs. Trusts can come into use for protecting large or complicated estates from public, prying eyes (think courtroom paparazzi) or help streamline a large estate that holds unusual assets.

With that being said, a trust must be well thought-out and set up properly. For example, only specific trusts can protect assets from the costs of long-term care so it’s important to know the difference. Additionally, the strongest and smartest trusts can be a bear to manage or revoke should circumstances change and the trust was not well thought-out. Another thing to think about is that most trusts have carrying costs. There’s the Trustee (who can/will charge a percentage), the investment manager (who almost certainly will charge a percentage), the tax preparer (should the trust require its own return), and that’s on top of the legal fees the attorney is going to charge to draft the documents (usually in the several thousand dollar range).

If you are thinking about a trust, step back and begin to consider the following:

  • What is the goal? Can I reach that goal any other way? What if that goal changes; what then? Remember that you might not be the one changing the goal—often times the tax laws will be happy to do that for you at no charge (and, of course, without your input!)
  • What are the all-in costs for the trust and am I getting value for my money? How much is the attorney going to charge? Is the attorney thinking they’ll be the Trustee as well? (Hint – this may not be your best choice.) Does the Trustee provide an itemized bill for the work they are doing? How about the investment manager? Structuring a trust where the embedded Trustee and investment manager expenses eat up the income doesn’t do the beneficiary any good.

If a trust is still right for your needs, an important first step is to get objective advice from someone who isn’t trying to sell you the trust. Fee-only advisors or an objective attorney will review the situation and give you their opinion of whether or not a trust should be in your future. If it is, it’s important to shop around for a Trustee and an investment manager. Look for ones that understand your intentions, charge reasonable, well-documented fees and are preferably local (there’s nothing worse than trying to get someone on the phone in another state when you are dealing with a crisis).

Trusts can be invaluable in the right circumstances, just like that sprinkle of cilantro that provides a burst of flavor on that specialty dish. However, a poorly thought out trust is like sprinkling that herb on a delicate French soufflé—just enough to make the whole dish flop. A little careful menu planning and that cilantro trust can complement your estate plan and make it flavorful dish.

Your Life Changes…So Should Your Will

Just as our life and circumstances change with time, so should our legal documents. I often tell the story of my parents’ wills, which, at a point well into my adulthood, didn’t even mention my brother. It certainly wasn’t anything malicious on my parents’ part, but updating their will was just one of those things that never quite rose to the top of the “to do” pile as they worked, raised two kids, saved for retirement, maintained a home, took care of their parents, etc. Of course, being the generous, kind, benevolent sister that I am, I would never cut off my brother without a cent but not all families are like that. Even families with the best intentions can do strange things in the face of grief and mourning. By updating your will, you have the sole discretion over how your belongings, assets and estate should be distributed, which can help your family avoid any unnecessary turmoil.

This month, take a moment to dig out your will and see if it needs updating. Our lives change…there are births (kids and grandkids), marriages (first, second, third), divorces (first, second, third), and deaths (in every generation). There are also things we overlook. Perhaps you have a loved one who is in a nursing home on Medicaid or a child with emotional challenges living on assistance. Leaving a bequest in your will could be problematic. Also, did you know that the person you designate to raise your kids doesn’t have to be the person in charge of the money you left for them? Your appointed guardian may be great with kids but lousy with money so why risk your children’s financial future.

While you are at it, how about putting together an outline of your last instructions? Families often have a hard enough time dealing with loss. If you put your wishes on paper it can provide a sense a relief to your loved ones and give them some much needed direction during a difficult time. For example, do you want to be buried or cremated? Scattered or interred? A funeral or a traditional Irish wake complete with single malt?

It’s not fun topic to discuss, but we cannot evade death…whether we’ve talked about it or not. And, putting your wishes to paper doesn’t make it happen any sooner. Your will is a necessity that can save your family time, money and grief. Plus, it gives you the peace of mind knowing that your wishes will be clearly followed. Sometimes it is just about knowing how to get started – any good advisor can put you in touch with an estate attorney and will even walk through the process with you.