Trusts

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While still not necessary to avoid Federal Estate Taxes, this is a good point to start thinking about a trust. While you can certainly use a trust at any net worth, the greater your net worth, the greater need there is for a trust. Wisconsin charges a 0.2% filing fee on the total value of each probate estate. This comes out to $20,000 for a probate estate of $1 million. Having a trust is one of the ways you can avoid probate entirely, simultaneously avoiding the filing fee. If you want to leave as much of your assets to your loved ones, a trust may be the best plan for you. 

A spendthrift clause is a provision in a trust that allows for the protection of the trust assets from the beneficiary’s creditors or anyone else the beneficiary may owe money to. It allows the trustee to pay vendors and service providers for goods and services directly so the money is never in the hands of the beneficiary. This prevents the beneficiary’s creditors from accessing the trust assets to pay any debt owed. It also can even prevent a beneficiary’s ex-spouse from taking half of the available trust assets. A spendthrift clause is almost always a good idea; especially if the beneficiary is in a lot of debt, may get divorced, struggles financially, or has or may experience serious health problems. A spendthrift clause is vital to ensure your money ends up being used to benefit the individuals you want it to.

Your trustee or trustees are the person or company that will manage your trust property and distribute it to your beneficiaries according to your instructions. You should name someone, professional, bank, or trust company you trust and who has the skills and experience to handle the trust duties.

Picking a trustee can seem like a daunting task, but it doesn’t need to be. The best advice is to pick someone you trust to fulfill your wishes and be able to handle the assets of the trust. A close friend or relative who is a financial/accounting professional is an excellent choice. Alternatively, you can use a corporate trustee. A corporate trustee is a company that specializes in administering trusts. The company is staffed by financial, accounting, and legal professionals to ensure your trust is administered according to its terms. Don’t want a company looking after your trust assets or think your trust is too complicated to have one of your friends or family members administer it? Then just have the best of both worlds! You can name both a corporate trustee and a trusted friend or family member as co-trustees over your trust. While this will slow administration of your trust, you can rest assured that your trust will be administered according to its terms and you’ll have a trusted advisor working alongside the corporate trustee to ensure it is being administered according to your wishes. 

The steps to creating a trust:

1. decide on the type of trust you want
2. choose a trustee who will manage the trust and follow your instructions and desires
3. choose the beneficiaries of the trust and when and how they will receive distributions from the trust
4. have the trust instrument drafted by an experienced licensed lawyer
5. transfer assets to the trust or make other arrangements as to when and how it will be funded in the future
6. review and update your trust periodically to reflect any changes in your situation or wishes

Because trusts can live on well after your life, this is not a do-it-yourself or ask-the-internet project. Mistakes in drafting a trust can have financially devastating and costly consequences for you and your beneficiaries.  Always consult with an experienced licensed lawyer to advise you on the right plan for you and prepare a proper legally enforceable trust for you. 

Funding your trust means transferring your property into the name of the trust or designating the trust as the beneficiary of your property. You can fund your trust with various types of assets, such as bank accounts, stocks, bonds, real estate, life insurance, retirement accounts, and more. 

A revocable trust is one that you can change or cancel at any time, while an irrevocable trust you cannot. A revocable trust gives you more flexibility and control, but an irrevocable trust may offer more tax benefits and asset protection.

A living trust is one that you create and fund during your lifetime, while a testamentary trust is one that is created by your will and funded after your death. A living trust can help you avoid probate and manage your property while you are alive, but a testamentary trust does not. 

Trusts are custom drafted to your particular needs and wishes; as such they start around $4,000 and increase from there depending on the extent and types of special provisions needed to carry out your intentions.