Last post, I described several reasons why a person might move their assets into a revocable living trust. But there are additional factors that play into whenever transferring assets into revocable living trust makes sense for a client.
Another reason to establish a living trust is a person’s family situation. The more complex the family relationship, the more it makes sense to establish a trust. With a large number of Americans getting divorced and then remarrying, merged families inherently create tension. Most of the strife arises between children of the settlor and a second spouse but could also surface between half-siblings and full siblings. Most often, children fear the second spouse could take the inheritance and “blow it” leaving nothing to the children. Another scenario occurs when a local child bears the burden of taking care of their elderly parent while other siblings reside across the country. The local child often feels that he or she “earned” more inheritance by taking on added responsibility.
Court decisions have generally found trusts harder to challenge by an aggrieved party than a will. Establishing a living trust demonstrates that the settlor wanted assets to be transferred in a certain way to a certain person or entity. Trusts are not published and create a veil against perceived unequal inheritance arguments. If a settlor feels one of the beneficiaries, or non-beneficiaries, is going to challenge the will or their share in the will then a living trust would be good step in mitigating that challenger’s success.
Another good reason to create a living trust is if a settlor believes their spouse needs to be protected because the settlor believes their beneficiaries are incapable of making good decisions – be it financial or otherwise. A testator/settlor can appoint a trustee that will act with a fiduciary responsibility to the trust. While a settlor can define those responsibilities, generally a trustee must act with the best interest of the trust and duty to administer the trust in the best interest of the beneficiaries.
A settlor does not even have to pick a relative to be trustee. A number of financial institutions have trust departments that will act as a trustee for a fee. Most of the time, a corporate trustee is appointed because one spouse has taken care of all the personal finances of the couple and wants to “protect” the surviving spouse from being scammed by con artist or making bad financial decisions that could leave the surviving spouse destitute.
Next post will include more factors in why you should create a trust.