If retirees want to leave as much money as possible to their heirs, they need to do tax planning to minimize the tax burden their heirs will be faced with. Beyond the necessities of a will, power of attorney and advance medical directive, another important document retirees should consider is a trust.

A trust can be a complicated legal document and conceptually difficult to understand. There are dedicated, skilled professionals able to help with this matter.

For a basic overview, a trust is a legal entity that can own assets and conduct legal transactions, similar to a corporation. The primary reason for establishing a trust is for the assets not to be owned in an individual’s name.

There are two basic distinctions of trusts, revocable and irrevocable, with benefits for each.

The three parties to a trust are the grantor – the individual who grants or funds the trust; the trustee – who oversees and manages the assets of the trust; and the beneficiary – who receives proceeds from the trust.

The grantor puts money in the trust, and the trustee handles and distributes the money to the beneficiary per the trust stipulations. For both revocable and irrevocable trusts, you would be the grantor if you are funding the trust you establish.

In a revocable trust, the grantor is usually also the trustee and beneficiary, and both controls and gets money from the trust. Conversely, in an irrevocable trust, the grantor is neither the trustee nor the beneficiary, and is not able to directly control or receive proceeds.

Trusts have two main benefits. One is to avoid the probate process. The trust does not go through probate, a method used to determine who will inherit the assets of an individual who is deceased. Even in a revocable trust, the will has no impact on how the trust assets are distributed, because the will is limited to specifying the disposition of assets owned by the individual.

A second benefit is creditor protection. In a properly executed irrevocable trust, assets are protected from the grantor’s creditors, because the grantor does not own or control those assets. A trust is commonly used to protect assets from being sold off to pay for the grantor’s long-term care, usually in a nursing home. Also, assets in an irrevocable trust cannot be targeted by creditors who may have sued the grantor. However, assets in a revocable trust may be subject to creditors’ claims during the grantor’s lifetime.

Revocable and irrevocable trusts differ in who is assigned to fill the three trust roles and their use.

In a revocable trust, the grantor, trustee and beneficiary are the same. It’s used for probate avoidance.

In an irrevocable trust, the grantor is not the same as the trustee/beneficiary. It’s used for probate avoidance and also asset protection, but the grantor loses control of the assets. Since most folks do not want to lose control, many only consider this provision as they get closer to showing signs of cognitive impairment or needing care.

Retirees who might benefit most from considering a trust include those who are concerned about disputes among heirs over ownership of assets and want to avoid probate. Another category is those who own multiple pieces of property and/or dwellings, especially in multiple states, as real property has to go through probate in the state where it is located. If an individual owns real estate in three different states, their executor will have to handle each property probate separately. Trusts are also an important tactic for retirees who want to shield assets from long-term care expenses, preserving them for the healthier spouse and to supplement the care they receive through Medicaid, leaving whatever is left for heirs.

What retirees leave behind when they die and who they leave it to is up to them, and planning ahead is a benefit to all. Retirees’ financial advisors are not listed in their retirement plans, so the advisors should have no vested interest in those named to inherit money. In fact, financial advisors who are not members of the bar cannot give their clients legal advice. But it is very important for advisors to direct their retiree clients to have the right documents prepared by properly licensed attorneys. All decisions or actions considered should only be carried out after contacting a legal professional.

Len Hayduchok is the founder of The Delaware Retiree Connection, and the director and owner of Dedicated Financial Services. As a fiduciary and Certified Financial Planner, he offers his wealth of experience to guide others through the mire of financial and retirement planning. As a Certified Life Coach, he pairs his financial expertise with a heart to help others who want to make the most of their retirement plan. Investment Advisory services offered through SGL Financial LLC.

ORIGINALLY POSTED IN: https://www.capegazette.com/article/when-should-retirees-consider-making-trust/253286