Philadelphia, PA estates & probate lawyer Marc H. Jaffe talks about the benefits of having a trust in their estate plan.
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Trusts are not for everybody, but they’re also not just for the rich. There are a lot of reasons why we might use trusts in an estate plan. And there are different kinds of trusts. There are revocable trusts, that is trusts that we can revoke and change at any time, and irrevocable trusts, trusts that either cannot be changed at all or can only be changed with difficulty, for example, going into court. There are testamentary trusts, that is trusts that we create in our will that take affect when we die. And there are what we lawyers call inter-vivos trusts, that is trusts that take affect while we’re still alive.
What purpose might you have for a trust? Well, if you have young children or young adults as children or anybody who is not going to be able to be competent to handle money or funds for themselves, you might want to leave everything to them in a trust that will control that kind of thing. In this day and age, when we have so many blended families, you might have a situation where, for example, a husband is married to a second wife. He wants to provide for the second wife while she’s alive, but after she’s gone, he wants everything to go to the children from his first marriage, not the second wife’s family. He might set up something we call a Q-TIP trust to accomplish that. We might set up trusts to protect assets from creditors. We might have a situation where you have a special needs child, and we set up a special kind of trust that allows that child to get some benefit from what you leave for them without disqualifying the child from their public assistance benefits.
We might use trusts to save taxes. Back when the federal estate tax threshold was much lower than it is today. We often use trusts with complicated formulas to allow people to pass more money to their heirs without federal estate tax. We use trusts in other ways to save taxes. Sometimes we’ll have a trust that owns a life insurance policy to keep that life insurance policy out of the estate. We might have a trust set up because we want to have a complicated distribution scheme and we have life insurance, and the life insurance company’s not going to follow complicated instructions, so we have the life insurance payable to the trust. So then the trustee, acting under the trust document, can make the distributions. So there are a lot of different reasons why somebody might have a trust. A trust can be a very powerful tool to help the client accomplish their goals.