Traditionally, one of the primary reasons for establishing a living trust has been to avoid probate. But there are a few more benefits of a living trust that can help you do much more than that if it’s set up correctly:
Asset protection for heirs
One of the most significant benefits of a living trust is to protect inherited assets for heirs. For example, minor children are not allowed by law to inherit property. Instead, a guardian is appointed by the state to hold the property for them until they reach the age of 18 or 21. However, most parents would agree that even 21 is too young to manage a significant inheritance. Executing a living trust allows you to control how and when an inheritance is distributed and to name a trusted person to serve as trustee. In addition, a living trust can be especially useful in protecting assets from spendthrift heirs (those with poor money management skills), creditors, or an heir’s potential divorce, if it’s set up correctly.
Most living trusts I see distribute assets outright to kids at 25, 30, and 35 instead of keeping assets in trust for the life of the beneficiary -- while giving the beneficiary control of the assets -- via a lifetime asset protection trust. This type of planning is still fairly unknown to many attorneys, so you'll want to seek one with knowledge and experience in this kind of specialty trust if this is something you'd like for your heirs. A lifetime asset protection trust can ensure that what you leave to your kids will not be at risk from their future divorce, lawsuit, bankruptcy, or other creditor matter.
Ensure none of your assets are lost
The vast majority of the time that a living trust is created, one of the most important and valuable aspects of creating the trust are lost -- and that’s making sure that when you become incapacitated or die that your loved ones stay out of court and the assets you’ve worked so hard for, make it to the people you love and aren’t lost along the way.
If your assets are not titled in the name of your trust, that won’t happen. Your loved ones will have to go to court to take ownership and control of your assets. And, they may not even be able to find your assets to do that. There are currently billions of dollars in assets sitting in the State Departments of Unclaimed Property--Hawaii had $230 million in 2017 with about $30 million added every year--because people die and their loved ones didn’t know what they had left behind.
One of the things I do in my office is prepare a Family Wealth Inventory for you to ensure your assets are easily located by your family and as long as you keep that up to date or join my membership program so I can do it for you, you’ll never have to worry that what you are working so hard to create will be lost when you are gone.
Plus, when you have a relationship with my office, I’ll make sure your loved ones know just what to do if anything happens to you.
Incentivize your children to grow your wealth, not squander it
As I mentioned, most trust plans are crafted to distribute assets outright to kids when they turn certain ages, whether they are ready for it or not. And chances are that if you die when your kids are still young, they will not be ready to fully inherit your wealth at an early age.
I recommend you use your living trust to properly prepare your children to receive their inheritance. That means allowing them to be a co-trustee for some period of time before receiving full control of their trust assets. It means introducing them to me if I am your lawyer, so I can begin to guide them during your lifetime and not wait until after you are gone.
You may also want to consider making small lifetime gifts into an irrevocable trust for their benefit so you can start to teach them how to grow the assets while you are living and enter into a partnership for creating more family wealth that can last for generations.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That is why we offer a strategic planning session, during which you will get more financially organized than you have ever been before and make all the best choices for the people you love. You can begin by contacting our office today to schedule a planning session and mention this article to find out how to get this $750 session at no charge. Disclaimer: All information on this website is for informational purposes only and is not legal advice. You should contact an attorney trained to work with families on estate planning matters regarding your specific situation. Use of and access to this website or any of the email links contained within the site do not create an attorney-client relationship between the Law Office of Keoni Souza, LLC, and any users or any other party.
