Just the other day, I had a discussion with one of my friends. Their mother had passed recently and my friend had become the executor of the trust and responsible for distributing the assets. It was great that there was a trust in place but there was one problem. One of the properties that my friend’s mother owned was not recorded in the title of the trust. This property is in the mainland, California to be exact. And now, because the property was not in the trust, my friend needs to go through a long and arduous process to get the property into the trust so she can distribute it to the beneficiaries, which involves paying a probate referee for an inventory and appraisal just for starters.
What is a trust? Well, per Fidelity.com, a trust is traditionally used for minimizing estate taxes and can offer other benefits as part of a well-crafted estate plan. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. A great example is if a husband and wife feel their child is irresponsible with money and immature, the couple’s trust may state that upon their death, the trust assets will be distributed throughout their child’s life until the age of 55. This preserves the trust assets from fiscal irresponsibility and also potential protection from the child’s future creditors. Some trusts have tax benefits. Irrevocable trusts may not be considered part of one’s taxable estate, so fewer taxes may be owed when you die.
There are a lot of functionality to trusts that you don’t learn until you actually consult with a trust attorney. Did you know you can even protect your assets from your widow’s future husbands? I like that function!
Talking about trusts can be depressing and morbid, however it’s something that I feel is important to consider getting and updating every 3-5 years. Estate planning attorneys usually have trust package deals that can range from as low as $3,000 to the 10s of thousands of dollars. It also depends on your needs and your net worth. The higher-end attorneys will have different tools for wealth preservation and tax sheltering.
One last mentionable is that in the state of Hawaii, for real estate, if you’re married and have a trust with your spouse, you can hold title both in the trust and with tenants in the entirety status. So, you get the benefits of the trust as well as the asset protection of tenants in the entirety!
In the words of the American author, Alan Lakein, “Planning is bringing the future into the present so that you can do something about it now.”
DISCLAIMER: This is not to legal advice. All situations are different so please talk to your attorney for advice on your situation.
