Creative Planning Options with a Revocable Living Trust

October 17, 2017 Business planning, Estate Planning, Uncategorized Comments Off on Creative Planning Options with a Revocable Living Trust

Estate planning is something most know they should do, but most American adults simply haven’t gotten it done.  In a survey available from AARP,  60% of American adults do not have an estate plan.  The number gets even higher for some minority populations.  In most cases, this is simply due to procrastination that “I just haven’t gotten around to it.”  Many people that I speak to as a lawyer simply don’t understand the consequences of passing away without an estate plan.

One of the primary reasons for a Trust is to avoid probate, which is a court supervised process for the distribution of a decedent’s assets (especially real estate) when a person dies without a trust.  However, the revocable living trust affords many creative planning opportunities that generally cannot be accomplished without a comprehensive estate plan.  Many individuals who have not consulted with a professional estate planner do not know the creative strategies that can be accomplished through a trust.  Examples of some creative planning opportunities include:

Planning for the Disabled

In general, eligibility for certain need based government benefits such as disability or SSI have restrictions based on income and assets.    Many people mistakenly assume that if they have a child or other dependent that is disabled or who otherwise relies on government benefits, that they should disinherit these disabled dependents in order to ensure that the dependents continue to qualify for disability benefits.  Disinheriting a dependent entirely just so they can continue to get disability represents a fundamental misunderstanding of the available options and often times simply indicates bad planning.  A “special needs trust” is a special type of trust that can allow a dependent to potentially receive funds and benefits from the trust without interfering with government benefits.    These types of trusts require very precise terms and conditions so that any benefits from the trust do not disqualify the dependent’s eligibility for the particular government benefit to which the dependent is or may be eligible.

Asset Protection for the Beneficiaries (Your Kids/Heirs)

A trust can provide significant asset protection for children who have difficulties handling money or who are otherwise high risk.  Most states allow trusts to contain “spendthrift” provisions which can restrict the ability of creditors of the beneficiary from reaching the beneficiary’s interest in the trust.  In general, a creditor can only reach assets from a debtor which the debtor himself/herself can reach.  Different states may have different rules and there may be exceptions for certain types of creditors (for example, claims by a spouse for alimony or child support may not be protected by a spendthrift clause).  In addition, the protection of the spendthrift provision general applies only to the beneficiary, not the original creator (i.e. the grantor) of the trust.  However, the spendthrift provision could be an effective planning tool to provide for your beneficiary without risking that the trust could be subject to that beneficiary’s creditors.

Planning for Blended or Non-traditional Families

Lets face it, our conception of the family unit from generations ago is constantly changing and evolving.   Many of us are now raised in blended families, or by individuals who were not our blood parents, or live in various types of family arrangements.  In most cases, the law has not evolved in recognition of these different family arrangements.   A primary purpose of the revocable living trust is to dictate how your loved ones will share in your legacy.  With a Trust, you can help ensure that certain individuals do (or don’t) share in your legacy.    Otherwise, leaving this decision up to the laws of the state could result in people you care for being cut off from your estate.   The most common example is someone who divorces and remarries but has children from the original marriage.  In many states, if that person passes without an estate plan (will or trust), the estate passes to the surviving spouse and the children from the first marriage are cut off.   Proper planning using the revocable living trust will help ensure that the people you wish to benefit will actually receive those benefits.

Planning and Supporting a Legacy

A trust is a very flexible document and can be drafted in different ways to support the ones you love but not allow the assets to be wasted.  Do you want to provide support to a grandchild, but not have it affect their eligibility for financial aide for college?  Do you want to help a child start a business, but not unless he/she first gets a college degree?   Do you want to assist your children to buy their first home, or finance their wedding?  A revocable living trust allows you to set terms and conditions for your generosity to ensure that your gift is used the way you wanted it to be used, and for nothing else.

Of course if you’re one of those people who feel that “I can’t take it with me so I’m going to spend it all now,” then perhaps these planning opportunities are not for you.  But for those who wish to leave a legacy behind for your loved ones (or loved causes) future and want it protected and preserved for this purpose, the revocable living trust can provide infinite possibilities to secure your legacy.

About the author

Lee is an attorney at the California office of Kyler Kohler Ostermiller & Sorensen located in Irvine, California. Lee focuses his practice on real estate and business transactional/ litigation, debtor/creditor law, IRS negotiations, business planning, asset protection and estate planning. Lee’s practice includes advising clients on the formation of business entities, partnerships, and general tax planning relating to business entity formations. Lee also provides advice on structuring real estate investment deals and asset protection issues arising from investments in real estate. He also regularly advises and assists clients in IRS matters including audits, collections, installment agreements and offers in compromise.