by Bob Paster

The good old simple will is a reasonable, if not always desirable, means of transferring property from a decedent to his intended beneficiaries. In fact, when it comes to preserving your estate and providing for your family, a living trust provides a preferable alternative.

In Missouri, a will must be in writing, signed by the testator, or by some person, by his direction, in his presence, and shall be attested by two or more competent witnesses subscribing their names to the will in the presence of the testator.Any sound-minded person 18 years old or older can make a will, as can an emancipated minor by adjudication, marriage or entry into active military duty.

The drawback of a simple will is that there is a six-month claims period, so the easiest estates take nearly a year of waiting for it to open, the claim period to run, and then close. Also, because attorney and personal representatives get compensated according to a statutory schedule, approximately six percent of an estate can be lost to attorney’s and personal representative’s fees. Lastly, a will is made public, so anyone can go to the courthouse and look at your personal affairs.

A better method of transferring property is through use of trusts. Revocable Living Trusts need only be in writing and signed by the party who is creating the trust, though notarizing them is also a good idea. There are three components to a trust: (1) the Grantor, the person who creates and funds the trust; (2) the trustee, the person who manages the assets of the trust; and (3) the beneficiary, the person who enjoys the benefits of the trust. For people creating Revocable Living Trusts (RLTs) as will substitutes, the person creating the trust will at first hold all three positions. If and when they die or become incapacitated, they can appoint a successor trustee to take over administration of the trust. After they die, their designated beneficiaries become the beneficiaries of the trust.

The use of trusts for estate planning offers several advantages. First, if the trust creator becomes incapacitated, the successor trustee steps in and takes over, usually upon a declaration of incompetency by a doctor. This avoids the extreme hassle and expense of getting a conservatorship set up with the court. Second, upon death, it avoids the time delay and expense of probate. Third, it can help avoid the need to have an ancillary estate administration if real estate is owned in a state other than the creator’s primary state of residence. Fourth, it allows people to “control from the grave” and take care of loved ones even after they’re gone.

Thus, a parent can instruct a successor trustee to hold money in trust for the benefit of a child until the child reaches a predetermined age or ages. Many parents like to make “step” distributions, i.e., 1/3 at 25, 1/3 at 30, and the balance at 35, in order to help their children but not give them so much at once that they lose their incentive to work. Also, if they quickly spend the first distribution of money, they still have some money left and a second and maybe third chance to learn how to manage their inheritance.

While assets are held in trust for the benefit of a child, the trustee is usually authorized to spend income and principal for the child’s education, medical needs, support and maintenance. Provisions can allow for distributions for such things as a wedding, a down payment on a first residence, or money to start or purchase a business. Incentive trusts can be used to try to influence a beneficiary’s behavior. For example, the trust could say that for every dollar a beneficiary earns, he gets a dollar from the trust. This situation gives the beneficiary an incentive to earn money and hold a job and prevents him from relying on trust money as a sole means of support.

Another huge benefit of a trust is the estate tax savings that can be achieved by its use. Each individual has an applicable exclusion amount from estate and gift taxes. The current applicable exclusion amount is $1.5 million. The applicable exclusion amount rises to $2 million for 2006 through 2008 and $3.5 million in 2009. After 2009, we go back to the system that was in place before the Economic Growth and Tax Relief Reconciliation Act of 2001, which translates to an applicable exclusion amount of $1 million. Most experts believe, however, that Congress will do something to change that.

The advantage of using trusts, then, is that a couple can divide their assets amongst two trusts, thus utilizing both their applicable exclusion amounts and shielding twice as much from estate taxes.

For example, if a couple has $3 million, and they don’t have separate trusts, when the first spouse dies, everything will go to the surviving spouse, and when she dies, her taxable estate will be $3 million. After applying her applicable exclusion amount, $1.5 million would be subject to tax, and approximately $700,000 would go to Uncle Sam. Alternatively, if each spouse has a trust and each dies with $1.5 million in their respective trusts, after applying both applicable exclusion amounts, $0 would be subject to tax, and the full $3 million could pass to their beneficiaries.

As you can see, trusts offer many valuable benefits for their creators and their families. The cost pales in comparison to the savings, and can give great peace of mind to those who want to promote family harmony, care for their families, preserve their estates and make things easier for their loved ones at a time when they need it most.

Robert W. Paster is an attorney in private practice, concentrating in estate planning and probate.

This article is included for general information purposes only and does not constitute legal advice. The reader should consult qualified legal counsel to determine how laws apply to specific situations.

BACK TO NETWORK HOME