By Laura Vaught
This article was first published in the official magazine of the Tennessee Cattlemen’s Association, Tennessee Cattle Business.
A trust can be a useful tool in estate planning, but one you may not be as familiar with. Unfortunately trusts often have a negative connotation, associated with the inability of the beneficiary to manage their own affairs. However, they can be used in many situations to transfer and protect assets. This month’s column will give a brief overview of trusts, including the types of trusts and the advantages in using a trust in your estate planning.
A trust is a fiduciary relationship between three parties: the grantor (the individual creating the trust), the trustee (the individual or company managing the assets of the trust), and the beneficiary or beneficiaries (the individual(s) whom the trust was created to benefit). Trusts are created by grantors either by executing trust documents or by including a provision in their will that creates a trust upon their death.
Trusts can be revocable or irrevocable. A revocable trust is one that can be altered or dissolved by the grantor. Revocable trusts are created during the grantor’s life. An irrevocable trust is one that cannot be altered or dissolved by the grantor without the approval of the beneficiaries of the trust. An example of an irrevocable trust is one that is included in a will and established upon the grantor’s death.
There are many benefits to creating revocable trusts during your lifetime to manage and later provide for the transfer of your assets. First, trusts avoid probate. If you use a will to plan your estate, the will must be probated in court. In that case, a will and your estate details become part of the public record. Trusts, on the other hand, are not required to be probated in court, which leads to more privacy, more efficient administration, and less overall administrative work on the trustee’s part. Second, although this is less of a concern in the wake of new tax laws, trusts can often be used to reduce an estate’s tax burden.
Third, trusts can be used to give the grantor more control and ease of mind that the beneficiary(ies) will receive their intended assets. One example of this is what is often called the “remarriage tax:” husband and wife get married. They have two children, and then husband dies. Wife remarries and executes a new will leaving everything to new husband and nothing to the children. The children will receive nothing from their father and mother’s estate, even though the father wanted them to receive his assets following his wife’s death. These situations, and others, can be prevented by establishing trusts.
Finally, trusts can indeed be used in situations where either the beneficiary is incapable of providing for themselves due to special needs or lack of responsibility. By having the third-party trustee manage the assets, the grantor can be at ease knowing the beneficiary will have the assets they need.
An example of how a trust could be used on the farm follows. Husband and wife own farmland that they want their children to farm one day as well. Husband and wife create a trust in which they are the initial trustee. They name a successor trustee to manage the farmland upon their death. If husband and wife pass away, the farmland will be held in the trust for the benefit of the children. The trust will not be probated, allowing for easier and more efficient transition.
Trusts can be a useful tool in estate planning. If you think a trust might work for you, contact your attorney for more information.
About the author: Laura grew up on a farm in Lascassas, Tennessee, and is passionate about serving farmers and other agribusiness owners through her legal practice.