Gayle Reeves' Blog

Non Tax Reasons for Using Trusts

Gayle A. Reeves - Wednesday, April 01, 2015

Providing for the distribution of one’s property after death is not a task eagerly approached by anyone.  It is, however, a task we all should face.  A Will alone can leave property outright as you direct.  Only a trust, however, can own your property during your lifetime, hold it over time, and distribute it in the future upon the special conditions you instruct.  A trust is a powerful legal arrangement, whereby one person holds legal title to property and manages it for the benefit of another. Often, a trust can be revocable so that you can change it in the future.

The ability of a trust to manage property is one of its most remarkable characteristics.  Through a trust, the grantor establishing it may control his or her property after death, not always forever, but to the extent the law allows.

Often, an individual will establish a trust for his or her own benefit, not necessarily for tax purposes.  One may feel that while one presently is capable of managing one’s own affairs, one is not sure about the future.  In that case, a contingent trust may serve a useful purpose.  A trust can serve as a private alternative to a probate court guardianship while you are living.  You may choose the trustee in advance of any need.

Trusts are also established for the benefit of others, such as a spouse, children, parents, grandchildren, siblings, nieces and nephews, friends or charities.  One might want to provide support for beneficiaries but in a manner that protects the property from waste.  This is clearly the case where minors, dependants or incompetents are the intended recipients.

You as the grantor of the trust can direct that the income and the principal of the property be paid out only as your direct.  While your trust is operating, the trustee can pay or not pay the income and principal on the conditions and for the purposes that you define.  Alternatively, you might have your trust support certain people for their lives and then at their deaths pay out to charity.

Use of trusts can also permit a grantor to transfer assets for the benefit of a beneficiary, while at the same time shielding such assets from the reach of your beneficiary’s creditors, including, for example, a beneficiary’s spouse in a divorce.  Trusts also can be written to protect assets from certain government disqualifications and reimbursements, such as Medicaid, for one’s beneficiaries.

You should take care before you establish any trust to ensure that it accomplishes what you want.  Your own unique circumstances and intentions will suggest opportunities where trust provisions may be desirable for you.