This article was originally published in Hartford Business Journal’s Ask the Expert and features Charles (Chip) Olson, Partner & Managing Advisor at Connecticut Wealth Management (CTWM).
What is the significance of a trust?
For many, the significance of a trust is to plan out their legacy, but it is also a tax planning vehicle and can be a way to manage your affairs from the grave. If you’ve accumulated significant wealth, it’s important to determine what assets you want to leave behind and the best way to go about it – a trust may be a viable solution for doing this.
A trust is a legal document that enables you to plan for the inevitable. Taking the time to reflect on your family values and the things that are most important helps to ensure that your wishes are honored upon your passing. It can also help you map out how and when your assets are distributed and to whom. The role of the trustee is crucial to ensuring that your wishes are carried out according to your design and is a choice that should be carefully made.
Trusts are a way of ensuring that assets are transferred to beneficiaries in the most tax-efficient manner possible. Additionally, a trust can help avoid the time and cost associated with settling one’s estate in probate court. By avoiding the public nature of probate court, one can keep family affairs private. A well-designed estate may also help families avoid litigation.
What considerations are there when setting up a trust?
You should consider setting one up if you are single and have accumulated more than $13 million or are married with more than $24.5 million. The efficient transfer of assets within a well-crafted estate plan can help avoid significant federal and state death taxes. Often, the time and effort put into creating trusts enables individuals or families to transfer significant wealth to the next generation.
Another consideration for setting up a trust is when there is concern about a spendthrift. Grantors of the trust can outline their wishes for how the money should be spent to help beneficiaries navigate their newfound inheritance.
A final instance, which I won’t go into too much detail, is a special needs trust. This can help to protect and preserve the lifestyle of a family member living with special needs, while also preventing that individual from losing access to state funds as a result of their inheritance.
Do beneficiaries need to be involved with the trust setup?
It really comes down to preference, and I’ve seen the planning process unfold in a few different ways, from some involvement to none. In my experience, I’ve seen things go a lot smoother when adult children are involved with the planning process. Now, they might not know all the details about the estate, but they understand their parents’ wishes and are included in educational sessions and family meetings where the goals of the trust are defined.
How can a financial advisor help?
There is a lot that goes into the creation of a trust, and no one trust is the same. A financial advisor is the quarterback of everything that goes into this document. By working closely with your other advisors, like a certified public accountant (CPA) or an estate planning lawyer, we help to build a complete financial picture and uncover what your goals are when determining what to leave behind for the next generation.
Our role as your advisor is to ensure that no details of your estate plan are overlooked. We make sure accounts are properly titled, beneficiary designations are current, and taxes are paid. We’ve seen firsthand the disaster of not having accounts titled properly on the trust itself. Our top priority as your advisor is to ensure that everything is taken care of so that you can find peace of mind knowing that your family will be taken care of, and your legacy will prevail.