By Jonathan G. Blattmachr & Matthew D. Blattmachr
Many people associate trusts with the very wealthy, because they are often used in the media and pop culture in the context of two other words: “fund” and “baby”. The reality is that a trust is a helpful estate planning instrument for most of your clients, not just the wealthy. Clients with $250,000 to $1 million in investable assets should consider a trust to help tackle their estate and financial planning challenges.
Another reason trusts are commonly associated with the rich is because in the past for many families the cost of creating a trust was prohibitive. Additionally, many trust companies require a minimum deposit of $1+ million to open a trust. However, some trust companies, like Alaska Trust Company, tailor its services to meet the needs of your clients by allowing them to create a trust with as little as $250,000. Now your clients can enjoy the benefits that were previously only available to the very wealthy.
Another misconception about trusts is that they are only used to avoid taxes. Although trusts can be used for tax planning, they are also an effective tool for clients who want more control over how and when their assets are distributed to their beneficiaries. A trust can help in a variety of situations. For instance, people who plan to leave money to their children or grandchildren may not want them to have access to the money unless they are mature enough to handle it wisely. I have seen many cases where young adults have poor money habits. Fortunately, a trust can place effective controls on how and when the money is used.
Although an estate plan can use a trust as a tax saving strategy, there are many other objectives that a trust can achieve. Below I’ve provided a checklist that you can use to identify potential benefits for your clients.
Trust Situational Checklist
___ The client has concerns about family members or beneficiaries that cannot manage their financial affairs.
In this situation the estate plan can contain a trust that will prevent beneficiaries from squandering their inheritance and protect them from creditors, lawsuits and divorces. In some cases, you may even be protecting the heir from other family members and friends who want to borrow money.
The trust can be written in a way that will pass assets on to the beneficiaries immediately upon the client’s death, or the client can designate distribution over time in what amounts and even for reasons that they specify.
___The client is on their second (or later) marriage and/or has a blended family.
Families with second marriages and blended families present some additional estate planning challenges due to the various relationships involved. A potential hurdle is figuring out how to divide an estate when each spouse has children from a previous marriage.
For example, in a blended family, the husband may use a trust to make sure that his biological children are the beneficiaries of his life insurance benefits. Without a trust in place, it is possible that his current wife receives the benefits and when she dies, that money would pass to her biological children, leaving the husband’s children with nothing.
___The client is concerned about privacy.
Unlike a Will, which is public information, trusts are confidential. For this reason, people who want to protect their privacy can benefit from a trust. This can be helpful for clients who wish to maintain privacy over how and to whom their assets are distributed.
___Your client is in a relationship without specific legal status.
Unmarried couples miss out on the biggest estate tax break there is: the unlimited spousal exemption. The couple might assume that each will leave the other everything. While this is possible, the first to die will pay an estate tax and then the inherited assets will be included in the estate of the second person, who will then have to pay an estate tax on the same assets. Ideally in this situation they should leave property in a trust for the other to avoid paying taxes on the same money twice. Unmarried couples also need to beware of the consequences of unintended gifting during life. Rules about transferring property freely between husband and wife do not apply in this case.
___The client has a disabled child.
In this case, a special needs plan should be carefully designed to make sure the disabled child continues to receive their government benefits. Inheriting even modest assets from any source can cause them to lose important benefits such as health care and housing.
A Special Needs Trust (SNT) can be created to ensure that they will be taken care of once your client is gone. The SNT has two main benefits:
- The beneficiary can enjoy the assets that were intended for their benefit without disqualifying them from important governmental benefits.
- If the beneficiary lacks the mental capacity to handle financial affairs, the trust can be administered by either a family member and/or by a trustee who can look out for their best interests, giving your clients peace of mind.
___Client is a professional in a high risk occupation.
Assets that are transferred through a trust can be protected from creditors, which may be an attractive feature for people in professions that carry a substantial amount of risk such as business owners, doctors, architects and lawyers.
___The client has a business or holds an interest in such a business.
Passing the family business intact from one generation to the next is one of today’s most challenging estate planning problems. Especially, in situations where your client is trying to give the company over to one child who is active in the business while maintaining proportionate distributions to others who are not. Using a trust, you can help your client keep the family business in the family for years to come.
___Couples without Children.
Clients without children may be concerned about who will look a5er their financial interests later in life. By setting up a trust, they can appoint a trust company to serve as a financial fiduciary giving them peace of mind in case they are ever in a position where they cannot manage their own finances.
These are just some of the situations where your clients may benefit from a trust. To discuss a specific client or for help figuring out which trust may be right for your client please feel free to Alaska Trust Company at www.AlaskaTrust.com.
ABOUT THE AUTHORS
Jonathan G. Blattmachr brings over 35 years of experience in trusts and estates law. He is a retired member of Milbank Tweed Hadley & McCloy and the Alaska, California and New York Bars. Mr. Blattmachr has been recognized as one of the country’s most creative trusts and estates lawyers. He writes and lectures extensively on estate and trust taxation and charitable giving and has authored or co-authored five books and over 500 articles on estate planning topics.
He has served as a lecturer-in-law of the Columbia University School of Law and is an Adjunct Professor of Law at New York University Law School in its Masters in Tax Program (LLM). He is a former chairperson of the Trusts & Estates Law Section of the New York State Bar Association and the American Bar Association. Mr. Blattmachr is a Fellow and a former Regent of the American College of Trust and Estate Counsel and past chair of its Estate and Gift Tax Committee. Among professional activities, which are too numerous to list, Mr. Blattmachr has served as an Advisor on The American Law Institute, Restatement of the Law, Trusts 3rd; and as a Fellow and Director of The New York Bar Foundation and as a Fellow of the American Bar Foundation.
Mr. Blattmachr graduated from Columbia University School of Law cum laude, where he was recognized as a Harlan Fiske Stone Scholar, and received his A.B. degree from Bucknell University, majoring in mathematics.
Matthew D. Blattmachr is a trust officer with and Vice President of Alaska Trust Company since 2010. He is an active member of the ATC Trust Committee and is responsible for coordinating all aspects of business development including creating a strategic business plan for company expansion. Matthew is also on the Board of the Anchorage Senior Center Endowment Fund. Matthew has a Bachelor degree from the University of Alaska Anchorage, a CFP designation from the College of Financial Planning, and has earned a Certified Fiduciary & Investment Risk Management Specialist designation from the Cannon Financial Institute. Matthew will also earn a Master of Business Administration degree from Alaska Pacific University in August. Matthew can be reached at mblattmachr@alaskatrust.com.
OTHER ARTICLES IN THIS ISSUE
- MARKETING: “Referring Advisors—Shelf Life?” by Joseph J. Strazzeri, J.D.
- ADVANCED-LEVEL ESTATE PLANNING: “Top Five Reasons to Situs Your Irrevocable Trust In a Different Jurisdiction” by Steven J. Oshins, J.D., AEP (Distinguished)
- TAX PLANNING: “Tax Alpha®: What Sophisticated Counselors & Advisors Need to Know—Part 2” By Robert S. Keebler, CPA, MST, AEP (Distinguished), CGMA
- ESTATE PLANNING: “With Estate Tax Planning Basically Dead, Here’s a Trust You Should Be Selling to a Lot of Your Clients” by Philip J. Kavesh, J.D., LL.M. (Taxation), CFP®, ChFC, California State Bar Certified Specialist in Estate Planning, Trust & Probate Law
- PRACTICE BUILDING: “The Importance of Taking Time Off and Getting a Break from Work” by Kristina Schneider, Executive Assistant
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I would add another key purpose. Trusts can avoid the need for a guardianship if you client themselves become incapacitated. While a durable power of attorney may also effectively deal with such a circumstance, the trust format remains more flexible and perhaps more secure as the choice to be honored by a court if there is a challenge to the delegation of authority.
Hi Scott! Yes, absolutely. We find in Phil’s law firm, that this is a huge concern for a lot of clients. Great point!
It stood out to me when you mentioned that trusts can be written in a way that passes assets to beneficiaries. I would imagine that you would need to make sure that you use the right verbiage when you are trying to pass assets down. The right verbiage will ensure that everyone gets the assets that you wanted them to get.