A will might be enough planning for simple situations. However, most people’s lives aren’t so simple anymore. Succession planning is a comprehensive approach to estate planning that identifies the most important goals to you and how to achieve them. You may want to consider a trust if you have a large estate, a second marriage, heirs with problems, children with special needs or charitable goals. The recent article, “Do I Need a Trust?” from Ag Web explains how this estate planning tool works.
Whether or not you need a trust is about your goals and objectives. However, it’s also about control, asset protection and about family relationships, especially for a family business, whether it is a farm, ranch, or privately held company.
First, let’s define a trust. A trust is a set of instructions for managing a legal entity owning the trust separate and apart from the individual. You could think of it as a mini corporation, a separate legal entity that owns property.
Most trusts are either revocable living trusts, irrevocable living trusts, or testamentary trusts. However, there’s more, mostly described by acronyms: CRAT, CRUT, GRIT, GRAT, IDGT, SLAT, ILIT, among others.
The basic trust is the revocable living trust. It can be controlled by the grantor and does not require a separate tax return. Upon the death of the grantor, it becomes irrevocable, and assets are transferred per its terms to beneficiaries.
Farmers and family business owners can benefit from a trust for two reasons:
- If assets are owned by the trust at death, they do not go through probate, keeping the assets and their transfer private.
- Administration of this trust moves at a faster pace than if the assets were to be included in the probate estate.
Once the trust is created, it’s very important to fund the trust. This is done by retitling assets in the proper name, which an estate planning attorney can help with. Everything needs to be retitled, but only once. If you need to make changes, depending upon the changes wished, you likely will only need to change the trust documents and not go through the retitling process again.
Trusts can be very simple, or they can be very sophisticated. It depends upon what the objectives are, the value of the assets being protected, the complexity of the business and the family dynamics.
As you go through the estate planning process, stay focused on big-picture goals, and consider the desired final results. Do you want to protect your business, so it passes easily from one generation to the next, or are you protecting assets from a litigious family member? These are all subjects to review in depth with an experienced estate planning attorney.
Reference: Ag Web (March 14, 2023) “Do I Need a Trust?”