Over the Thanksgiving holiday I was talking with my brother Troy, and because he knows that I am an estates attorney, the topic of trusts came up.
“Do I need a trust?” he asked.
I cracked a smile, stroked my chin, and then replied, “That depends.”
Ah, the “That depends” phrase. We say it often to stall as we formulate how we wish to respond. This time was no different, but since I’ve had this conversation many times with my clients, I knew where I wanted to go.
I continued, “Why do you think you need a trust?”
He chuckled a bit, looked away for a second, and said, “Heather (his wife) and I have been thinking about the kids, and how we want to take care of them, and us, as we get older. Having a trust seems to be the next logical step.”
Since my brother and I have never had this conversation before, I wanted to see what he already knew, so I asked, “What do you know about trusts?”
“Well, I know that they can control how assets are distributed after we die.”
I nodded, “Correct. That is one of the main reasons that people create trusts. They, the grantor or grantors, want to determine how much and when the assets can be given to the trust beneficiaries. It’s all written down in the trust document that is prepared by a qualified attorney.”
He leaned in, looked behind him, and asked in a whisper, “What happens when I die, and Heather wants to remarry? Can I control how my money is used?”
I sat back and laughed softly. “That’s another reason for a trust, to dictate how your assets are spent or not spent, especially when someone else enters the picture.”
I went on to explain that a Qualified Terminable Interest Property (QTIP) trust can be used to pay income to his wife to take care of her needs, and when she passes away, the remaining amount is distributed to the trust beneficiaries.
“Oh, I’ve heard that term before. A QTIP trust.” My brother relaxed a bit, and then asked another question.
“What about my IRA accounts? Can those be a part of my trust?”
“That’s a great question, and there are good reasons to have those be a part of your trust, but only after you pass away. An IRA or any other retirement account can only be owned by you as an individual, but they can pass to either your spouse, non-spouse, or an entity like a trust.”
I cleared my throat and continued. “There are different distribution rules that apply, depending on the beneficiary of the IRA, because at some point, those retirement assets are going to need to be taken out. You’ve heard the term Required Minimum Distribution, or RMD, right?”
“I’m not exactly sure what that is.”
“An RMD is what the IRS requires the beneficiary to take out each year once you as the original depositor pass away. Depending on your age when you die, or the age of your spouse if she were to be the direct beneficiary of your IRA, those factors will determine when those distributions must take place.”
“Interesting!” Troy said. He scrunched his face up and asked, “Can I use my trust to pay for college for my kids and grandkids?”
“You certainly can,” I replied. “Those types of expenses are often written into a trust document, and you can be as broad or as narrow as you wish. Say, for instance, that you wanted to encourage your grandchildren to apply for admittance to your alma mater, and that you would pay for their tuition if they get accepted and complete a four-year degree. That can all be a provision of the trust, and could only pay out once certain criteria are met.”
Troy smiled and told me that he expected all of his grandkids to go to college. “They’ll be brilliant, all of them!”
We laughed, and then my brother asked one final question.
“What happens if Heather and I become incapacitated? I see that all the time at the hospital where I work. There are family members who struggle with understanding the finances of their aging parents, and because of their decline, sudden or not, the parents are not very helpful. It causes them a lot of stress…”
I frowned. “Yes, I see that as well, which is why every trust should have a succession built in for trustees who become unable to act. While most financial institutions will not allow a Durable Power of Attorney to act on behalf of a trust, they can be made the successor trustees who take over once certain provisions are met.”
Just then my 5-year-old niece came up to my brother and asked, “Daddy, do you want to go play in the snow with me?” We looked outside and saw snowflakes coming down, so with squeals of delight that came from all the younger cousins, we bundled up and went outside to play.
I mention this conversation because it touches on a topic that a lot of people should have with their families. Just like my brother and his wife have done, you may have amassed wealth that you want to be used wisely in order to provide for your future needs. Opening up a trust through a qualified estates attorney will give you the peace of mind knowing that not only your needs will be taken care of, the needs of your family will be as well.
Since everyone has a unique financial situation – some of which can be quite complex – I encourage you to have a discussion with your attorney to see if a trust is right for you.
If you need an estates attorney in the greater Dallas/Fort Worth area, give us a call at 817-821-8120. For a limited time, at Lawson & Breuder, we offer a free 30-minute consultation where we discuss at a high-level any issues about your estate. We will then come up with a game plan to move forward.
There is no obligation, and I promise that you will come away from that consultation knowing what your next steps are to financial security.
So call us now at 817-821-8120 and ask for a free 30-minute consultation. Our staff will set up an appointment with you to visit with one of our certified estates attorneys at a time that is convenient for you.
P.S. When you call, don’t forget to ask about our complimentary guide entitled “How to avoid the 7 most common pitfalls of retirement.” This report is made available to all of our callers, absolutely free, even if you are unable to schedule an appointment at this time.
You owe it to yourself and your family to put your financial affairs in order, so call us today at 817-821-8120.
We look forward to hearing from you soon!