Wednesday, April 21, 2021

Five Reasons a Trust is Necessary



Ask The CFP®
Darcie Guerin


“The first step to getting the things you want out of life is this: Decide what you want.” Ben Stein


Question: Why should I consider having a trust document?

Answer: Before the American Taxpayer Relief Act (ATRA) of 2012 was approved, trusts were primarily used to minimize tax liabilities. The ATRA made “permanent” the lifetime exclusion for estate, gift, and generation skipping purposes permanent and set the limit at $5.25 million (inflation-adjusted). Since the tax planning aspect is no longer the driving force for trust document planning, here are five reasons why you may want to consider trusts for your legacy planning.

I. Maintaining Control: One key reason to use a trust is to retain control of your assets now and/or when you pass away. We’ve all heard stories about stepchildren and/or a surviving spouse going to court over an estate and the challenges with second and third marriages. Trusts help ensure that your wishes for a spouse and your children are protected and achieved.

Another key consideration in estate planning is the prospect of leaving all or a portion of your assets to a young child, or even an adult who isn’t ready for the responsibility. A trust can help make sure that your assets are controlled and managed by a trustee of your choosing rather than to the intended recipient, who could be malevolently influenced by others.

II. Protecting Assets: An irrevocable (irreversible) trust is effective against claims of liability, lawsuit, creditors, and divorce settlements. If you work in a high-risk profession, like a doctor, transferring assets to a trust may shield them from a malpractice suit. The same applies if someone sues you because of a car accident or if there are injuries to people while on your property. A trust may also protect assets from a settlement if your marriage were to end.

III. Planning for a Disability: Life expectancy continues to increase so it may be wise to have a plan in place for if –or when, you experience a disability later in life. Your ability to manage financial affairs may be impaired. By establishing a revocable (changeable) trust

and naming yourself as both beneficiary and trustee, a pre-appointed successor trustee would take over management of trust assets if you experience diminished capacity.

As a side note, for anyone with a special needs family member, an irrevocable special needs trust preserves eligibility for government benefit programs for a disabled beneficiary, such as a child. This irrevocable trust allows you to leave assets to help meet the future needs of someone with a mental or physical disability. Without such a trust, a disabled beneficiary may be disqualified for needs based assistance such as Medicaid and Social Security Income.

IV. Philanthropic Giving: Currently you may gift up to $14,000 ($28,000 for couples) per year to any number of individuals without triggering estate taxes. Gifts larger than this apply to your lifetime gift tax exemption. For those larger gifts, you may wish to use a trust to help you retain control and use of your current assets while leaving the remaining balance for the charitable organization(s) of your choice. Another advantage for today’s estate planning strategies is the current low interest rate environment, which can reduce the taxable value of transferred assets. Any future appreciation that could be earned by these assets is also removed from your estate. Transferring assets while living allows you to ensure distribution goes according to your desires.

V. Avoiding Probate: Unlike a will, which simply distributes your assets upon death, a living trust places assets and property in trust where they’re managed for the benefit of your heirs. It allows you to avoid probate entirely because the assets and property are already distributed to the trust.

Yes, these are complex matters and we’ve just scratched the surface. This type of planning requires analysis and advice from your team of trusted financial professionals. If you’d like a copy of our Estate Planning Checklist, please let us know. Stay focused and invest accordingly.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Opinions expressed herein are those of the author and subject to change at any time.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame logo), which it awards to individuals who successfully complete initial and ongoing certification requirements.

Darcie Guerin, CFP®, is Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email


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