Veronica Van Nest is an accredited estate planning attorney who serves as Vice President and Trust Officer of our Personal Trust Services team. As a Trust Officer, she is responsible for working with clients to review and administer trusts. Veronica is also a Senior Wealth Management Consultant for Manning & Napier’s Advisory Services Group where her primary responsibilities are to review and evaluate clients’ estate plans, as well as advise them on any recommended changes and coordinate those changes with their outside advisors, and provide advice on financial planning to clients.
Does a trust make sense for you, your family, and your wishes? As you’re preparing or reviewing your estate plan, it’s a question that everyone needs to answer. Establishing a trust is a common estate planning tool used to protect assets — even if you think trusts are only for the mega wealthy (they’re not!) – you may be surprised to find why so many clients are creating trusts today. While many can benefit from creating a trust, knowing where to start can be overwhelming.
I’m Veronica Van Nest, Vice President and Trust Officer for Manning & Napier’s Personal Trust Services group, and to help, I’ve compiled a list of the most frequently asked questions I often hear about estate planning and opening up a trust. I hope you use this as your starting guide with loved ones to help spark a discussion on whether a trust is right and if now is the time.
Who needs a trust?
Trusts are an estate planning tool that can be used by anyone, but that doesn’t mean they’re for everyone. To create a generalized starting point, I find that many of my clients have one of the following circumstances that prompt a conversation on the need to establish a trust.
- Seeking efficient tax strategies
- Unique planning purposes, often involving:
- Minor children
- Second marriage
- Complex family dynamics (children with money management issues/toxic spouse/addiction issues)
- Disabled children
Everyone's situation is unique, and there are many more reasons to consider adding a trust to your estate plan depending on your personal goals and objectives. But in general, trusts can provide either tax or planning benefits, or both, to an overall estate plan.
What are the advantages of creating a trust?
The benefits of a trust vary depending on your wishes. They range from providing guidance and assets for your loved ones after you pass, to reducing paperwork and taxes.
A recent trend is families inquiring about using a corporate trustee to keep family members from having to make difficult decisions on distributions to beneficiaries. Corporate trustees can be the “bad guy” in telling the beneficiary “no” without creating family issues.
Corporate trustees also can handle all the back-office paperwork – filing of income tax returns for the trust, communication with beneficiaries (including obtaining any budget from a beneficiary), any accountings/statements to beneficiaries, handle any court filings, and establish how the trust assets are to be invested.
Another common advantage is asset protection for assets held in trust; as long as the trust is managed appropriately. This can protect assets from liability including legal action, creditor issues, etc.
Other common advantages for creating a trust are:
- Protection of assets from divorce proceedings
- Reducing or eliminating estate taxes
- Providing for your loved ones’ needs now and after death
- Safeguarding the confidentiality of your assets
- Protecting your heirs from family disputes, and eliminating the need and expense of putting your loved ones through probate
What are the key differences between a will and a trust?
A will is a legal document that articulates your wishes regarding the care of your children, as well as the distribution of your assets after your death. A trust is a fiduciary arrangement that allows a third party (i.e., a trustee) to hold and direct assets in a trust fund on behalf your beneficiaries.
Many clients don’t realize that even if they have a will, it still requires the family and heirs to go through probate – versus non-probate if assets are titled in name of a trust.
Trusts allow for the management of assets during life and death, compared to a will that only handles assets after death. This means that a trust can provide protection and direct your assets if you become mentally incapacitated, something a will is unable to do.
Lastly, it is worth mentioning that trusts are also very beneficial if you own property in multiple states to avoid probate in multiple states.
There are many different types of trusts, but what are the main differences in an irrevocable versus revocable trust?
Revocable trusts are created to manage assets during life and at death and avoid probate for their loved ones. They can be changed at any time.
Irrevocable trusts are generally for gifting or estate tax planning and are created for children/grandchildren, spouses, to hold life insurance, and sometimes homes. Although irrevocable trusts (unlike their name) may possibly be changed in the future, changes are limited since the point is to create a trust where the grantor/creator has no interest in it once it’s created to remove the assets in the trust from the grantor’s estate.
A spousal lifetime access trust (SLAT) is one of many types of irrevocable trusts utilized for transferring wealth outside of an estate for spouses. A qualified personal residence trust (QPRT) is a specific type of irrevocable trust that allows its grantor to remove a personal home from their estate for the purpose of reducing the amount of estate tax potentially due at the grantor’s death.
What are some of the most important estate planning mistakes you see with your clients?
Two main things, one trust-related and one not.
- The most common trust-related issue we see is in not funding revocable trusts by not retitling assets into the name of the trusts. Revocable trusts are designed to avoid probate, but any assets still in an individual’s name not payable to a beneficiary will have to pass through probate before they may be transferred to the name of the trust, which defeats one of the main purposes of the revocable trust.
- The second biggest issue is not updating their beneficiary designations, or in some cases, not even knowing who their beneficiaries are. Some people do not understand that any asset that has a beneficiary designation must pass under that designation and not under the will. So, if the will has assets passing differently than the beneficiary designation, their plan may not work how they want it to work.
What is the best piece of advice for those that are unsure if they need a trust or think it’s only for the mega-wealthy?
If you have minor children, if you are unsure of how your children will manage the money, have concerns over how your spouse will spend money after you die, or have any concerns about a child’s marital situation, then you are a prime candidate for incorporating a trust into your estate plan. Trusts are the only way to protect beneficiaries from themselves. We generally know our children and families the best, so if there is a concern, it is best to plan for the worst-case scenario.
When should an individual or family engage with you for estate planning or establishing a trust?
An estate plan and trust are how your legacy will live on. You have spent your life building your assets, and your estate plan is how your assets will be handled after you pass. We can’t plan the unexpected, but we can prepare for it by having a plan in place.
The information in this paper is not intended as legal or tax advice. Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.
Manning & Napier Personal Trust Services provided by Exeter Trust Company (ETC), a New Hampshire charted trust company and affiliate of Manning & Napier Advisors, LLC. Fiduciary trust and custody services are available through Exeter Trust Company.