For many of us, November signals the beginning of the holiday season. It’s a time of preparation—many of us look forward to creating memories with our loved ones—but every heartfelt gift, exciting experience, and morsel of delicious food must be carefully planned, often weeks in advance. We make lists and check them twice, putting in significant amounts of time and effort for the people we love because… well, we love them!
Planning is also essential when it comes to the management and eventual inheritance of our possessions—and for many of the same reasons! Making it easier for our loved ones to manage our affairs can be as great a gift as anything they will receive next month.
One of the ways we can do this is by creating a Lifetime Management Trust.
What is a Trust?
A trust is a legal entity that holds and manages your assets. You decide who manages it (the “trustee”) and who benefits (the “beneficiaries”), both during your lifetime and at your death. You then let your bankers and financial advisors know you have a Trust, and you direct them to take things out of your name and put them into the name of your Trust. You’re creating a central storage container for your assets, managed by your chosen person.
Trusts, when properly created and carefully managed throughout your lifetime, are the best vehicle for seamless transition and management of your assets if you become incapacitated during your lifetime. And, at your death, your chosen trustee doesn’t have to file anything with the court, which makes the trust administration process easier and more efficient than executing a will.
Why Create a Trust?
- It is easier for your loved ones to step in and manage your affairs.
When you create a Trust, your financial institutions know that you have taken the time to develop a detailed set of instructions about who can manage it during your lifetime and what they may or may not do with the assets in the Trust.
This creates a sense of stability for the financial institution, making it easier for your loved one to step in and take control of things when you need them to. Your financial institutions have already recognized your trustee as a legitimate manager of your affairs, so when something happens to you, they are ready for your trustee to take over.
- You are less likely to disinherit someone accidentally.
Yes, this does happen! If you do not have a Trust and become incapacitated, someone can manage your assets with a Power of Attorney (making them your “agent”). A Power of Attorney gives your agent broad authority to manage all types of accounts—with no restriction on which accounts they can use.
So, they can use whichever bucket of your money seems appropriate for your needs. This can be effective for taking care of things during your lifetime, but what if you wanted someone else to inherit that particular bucket of money after you’ve passed? Well, that money is gone, and that beneficiary is out of luck.
With a Trust, this awful situation doesn’t happen because all of your assets are in one place and divided according to your prior instructions. Your trustee knows exactly which sources of funds to use for expenses and which to save for later. Your wishes are much more likely to be respected.
- Trusts save time and money by streamlining the management and inheritance process.
Without a Trust, you’re depending on your Power of Attorney to decide who can manage your assets in your name during your lifetime. (That’s your “Agent,” remember?) However, under the Power of Attorney (POA), your agent only has the power to do the things you’ve listed in your POA document. If you forget something or don’t anticipate a particular complication, your agent may be unable to handle the issue effectively.
In addition, signing a POA does not automatically revoke a prior POA. You may have established someone as an agent for a business some time ago, for example, and forgotten about it. That agent is still an agent until you manually revoke their Power of Attorney, and if you forget to do so, it can cause all kinds of legal headaches.
Banks and other financial institutions know these rules, which can make them nervous about accepting Powers of Attorney. When banks aren’t certain about your agent’s legal ability to do certain things, they can demand additional documentation, which can be time-consuming and costly.
Other Things to Consider
What if you want to maintain control of your own assets as long as possible?
Several types of Trusts allow you to serve as your own trustee and have the option to change who manages your Trust and who inherits from the Trust at your death. After your death, your successor trustee takes over, and your beneficiaries receive their inheritance as you directed.
What are the limitations of a Trust?
Trusts do have a few financial limitations. Retirement accounts cannot go into your Trust while you’re living. Also, life insurance policies typically continue to be owned by you in your name. There are other affairs that need to be handled outside of the Trust, like filing tax returns, but for the most part, Trusts are the form of asset management most likely to be accepted by institutions.
If you’re interested in learning more about Trusts, attend an upcoming workshop or watch our on-demand workshop! We talk more about trusts and how they can benefit you during our workshop – and just for attending (or watching ‘til the end), you’ll receive a free initial meeting with an attorney. This is a great way to get started, and you will receive the advice and guidance you need to make the best decisions about your assets.
Contact our office at (757) 279-8127 to schedule a consultation. We look forward to hearing from you.
