What Makes a Good Trust?
A Revocable Living Trust is a cornerstone of many modern estate plans. It offers flexibility that a simple will cannot, providing a detailed roadmap for how your assets should be managed during your lifetime and after you’re gone. But not all trusts are created equal. A generic, boilerplate document often fails to provide the real protection and control that families need.
So, what are the key ingredients of a truly effective trust?
It Starts with Control: The Grantor Trust
The most effective and flexible trusts are typically structured as “Grantor Trusts.” In this setup, you (the Grantor) initially act as both the Trustee (the manager) and the Beneficiary. This structure is seamless. You transfer your assets into the trust, but you continue to manage them exactly as you did before—buying, selling, and investing with complete control. For tax purposes, the trust simply uses your Social Security number, and no separate tax return is needed, avoiding unnecessary complexity.
It Includes a Detailed Plan for Disability
A good trust is more than a plan for after your death; it’s a critical plan for your own potential disability. Your trust should contain specific instructions for your care. Do you want to remain at home for as long as possible? What standard of living do you want to maintain? A well-drafted trust gives your successor Trustee a legal duty to follow these wishes.
Crucially, it should also include provisions for long-term care planning. If there is a possibility you may need Medicaid to help pay for nursing home care, the trust should explicitly authorize your Trustee to consult with an experienced elder law attorney to engage in asset protection strategies.
It Protects Your Beneficiaries from Life’s “What Ifs”
Your trust should act as a shield for the inheritance you leave behind. After you’re gone, your beneficiaries could face unforeseen challenges like a lawsuit, divorce, bankruptcy, or a disability of their own. A poorly written trust could leave their inheritance vulnerable to these outside threats.
Modern trusts can be drafted to provide robust asset protection, ensuring that the funds are used for your beneficiaries’ benefit as you intended, shielded from their potential creditors.
It Adapts to Changing Laws (Like the SECURE Act)
Tax laws, especially those concerning retirement accounts, are constantly changing. The SECURE Act, for example, fundamentally changed how most beneficiaries inherit IRAs, eliminating the “stretch IRA” and often requiring a full payout within 10 years. A good trust is drafted with the flexibility to account for these changes. It should give your Trustee the discretion to manage distributions from retirement accounts in the most tax-efficient way for each beneficiary, rather than being locked into a rigid, outdated plan.
It Includes a Trust Advisor or Protector
One of the most valuable features of a modern trust is the inclusion of a “Trust Advisor” or “Trust Protector.” This is an independent person or institution given the power to make certain changes to the trust without the expense and delay of going to court. For example, a Trust Advisor can be given the power to remove a problematic Trustee or amend the trust to adapt to new laws, all while being legally required to uphold your original intentions.
Is Your Trust Working for You?
Many older trusts were designed only to avoid probate or address estate tax issues that are no longer relevant for most families. A trust is not a “set it and forget it” document. If you are concerned your trust is missing these critical components, or if it has not been reviewed in several years, it is wise to have it examined.
Our attorneys can review your existing documents or help you create a new estate plan that provides true protection for you and your family. Call our office at (919) 256-7000 to schedule a consultation.