16 Apr

Trusts — An Often-misunderstood Estate-planning Tool

Does a trust suggest an image of “trust fund babies” living a life of leisure on their inherited money? The truth is, trusts aren’t useful only for the wealthy. When set up properly, trusts can provide benefits to even those with modest means.

What’s a trust?

A trust is an arrangement with three main parties:

  1. A trustee (usually a third party) who holds the assets in the trust.
  2. A grantor, who sets up the trust and provides the assets.
  3. A beneficiary, (or beneficiaries), the person or persons who will ultimately benefit from the trust.

There are two major types. An irrevocable trust, as the name implies, cannot be changed once it is set up. A revocable trust can be changed at any time during the grantor’s lifetime. Usually, a revocable trust becomes irrevocable when the grantor dies.

Who Can Benefit from a Trust?

Depending on how they’re set up, trusts can help:

  • Avoid probate. Probate is the legal process of proving a will, which can be lengthy and expensive. If you leave property to someone in a will, it must go through probate. Property left in a trust usually does not go through probate, so the beneficiary may receive the assets more quickly at lower cost to the estate.
  • Ensure privacy. Probate is public record. A trust is generally private.
  • Provide control. A trust can allow you to determine how and when assets are distributed to the beneficiary. For example, rather than leave a lump sum to your beneficiary, a trust can allow you to parcel out the money over time, or when a milestone — such as completing a college education — is reached.
  • Protect your family. For example, if you’ve been married more than once and have children from a previous marriage, a qualified terminable interest property (QTIP) trust can provide income to your surviving spouse and pass the remaining assets onto other beneficiaries upon the second spouse’s death. In another example, a special needs trust can help ensure that a child with special needs has access to funds to enhance his or her quality of life, without losing any government benefits to which he or she may be entitled.
  • Minimize estate taxes. Certain irrevocable trusts may remove assets from your estate, potentially saving on estate taxes.
  • Fulfill charitable goals. For example, a charitable remainder trust can be constructed to provide income to you during your lifetime or a period you specify, with any remaining assets going to the charity upon your death.

Put Your Trust in Us

The trust and estate planning professionals at Navigator Credit Union can work with you and your attorney to determine if a trust would be beneficial in your situation. Give us a call at (228) 474-3427 to learn more.

09 Apr

Avoid Major Headaches When Naming Minors as Beneficiaries

Naming children as beneficiaries or contingent beneficiaries of an insurance policy, retirement account or payable-on-death account seems a natural way to provide for those you love. But special care must be taken to ensure that, should the children inherit as minors, the money provides for them in the way you intend.

Minor Difficulties

Because minors cannot legally hold substantial assets in their own names, complications arise when they inherit large sums. The way the inheritance is handled in such cases depends on the type of account and the amount of the inheritance, but one of the most common solutions is the court appointment of a guardian to administer the inheritance for the minor. Unfortunately, in such cases problems may arise that work to the disadvantage of the child you are hoping to take care of.

  • Appointing a guardian may take months, delaying the time when the money becomes available for the minor’s support.
  • Court costs and attorneys’ fees will diminish the amount of the inheritance.
  • The appointed guardian may not be the person you would have chosen and the court’s choice may cause tension and quarrels within your family.
  • The guardian must get court approval for financial transactions and submit to annual accounting, which can make accessing the money cumbersome, time-consuming and expensive. Plus, the court’s decisions may result in the funds not being made available to your child as you would have wished.
  • At age 18 or 21, depending on state law, the child will gain full control over the inheritance regardless of their maturity and financial good sense.

Finding a Best Practices Solution

One of the most effective ways to ensure that a minor gets the most benefit from an inheritance is to create a trust for the child and name the trust as the beneficiary of your life insurance policy, retirement account and the like. With a trust you can:

  • Avoid probate so that the money becomes available to the child with less delay.
  • Have a trustee of your choosing manage the assets for the minor. The trustee does not have to be the child’s legal guardian, or even a relative. And you can change your trustee selection at any time if circumstances change.
  • Establish the terms of use for the assets, such as a college education.
  • Choose to have the child gain control of the assets when they are older than the age of majority and may be more likely to have the good judgment necessary to handle the inheritance responsibly.

Keep in mind that tax considerations, family circumstances and creditor protection also play a role in choosing the best estate planning tools for you and your loved ones. To learn more about trusts or which estate planning tools are best for your situation, talk to one of our estate planning professionals. To make an appointment, call 228-474-3427 or visit www.navigatorcu.org.