Using a Trust to protect your family and assets in Maine.
South Portland Trust Attorneys
Along with wills, trusts are one of the most common elements of estate planning. For most people, a trust is not necessary. But for people with significant assets and property, a trust is almost always the best way to organize your estate. The primary benefit of setting up a trust is to avoid a lengthy, public, and complicated probate proceeding. Any assets you have in trusts can pass directly to their intended beneficiary without going through this extra and sometimes costly legal process.
How a Trust Protects You in Maine
What is a trust
A trust is a legal relationship created between a trustor, who transfers assets they own to a trustee, who in turn, manages the assets for the benefit of a beneficiary. In some cases, the trustor may also be the beneficiary of the trust. A trust may be either revocable or irrevocable. With a revocable trust, the trustor can cancel the agreement at any time and retake possession of their property. But an irrevocable trust can only be broken through a court proceeding.
The trustee may be a person, a public entity, or a business such as a bank or a law firm. The trustee will have legal title to the property and assets, but they have a fiduciary duty to manage them for the benefit of the beneficiaries. A failure to breach this duty entails serious consequences.
When would I need a trust in Maine?
The main reason many people set up trusts is to avoid the expense and hassle of probate. But in Maine, the process is inexpensive and straightforward. So avoiding probate is generally only a concern if you own property or assets outside of Maine, where they may need to go through probate.
Another reason people like trusts is privacy. A probateproceeding is public, and anyone can find out how much money or property you had, and who is getting it after you die. Setting up a trust allows you and your family to retain your privacy.
There are many different kinds of trusts–and they are not all about transferring property after a person’s death. Sometimes, you may want to set up a trust to provide for the support of a family member. Other times, it’s a combination of both. One common use of trusts is to create a trust for the benefit of your spouse upon your death. The trustee will manage the trust assets and provide for the care of your spouse, but once they pass away, the trust is dissolved and the assets get distributed to other beneficiaries.
What’s a revocable trust in Maine?
This is the kind of trust that most often substitutes for a will in the estate plan. The fact that it is revocable means that you, the trustor, can modify it or revoke it during your lifetime. This provides you with the flexibility you need to actively manage your estate plan up until the end of your life. Once you die, your revocable trust becomes irrevocable.
I have heirs who will waste money they inherit, what can I do?
https://youtu.be/N4qpjTZLqEMThis is a great example of where a trust can be the optimal estate planning tool. Unlike with a will, where your assets transfer directly to your beneficiaries, a trust allows you more control. If you are worried about your heirs wasting the money that you leave them, you can place your assets into a trust that gives them a monthly or yearly disbursement. As long as your trust is in the hands of a competent trustee, this arrangement can provide your heirs with financial security without running the risk of them becoming flush with cash and behaving unreasonably.
We have a family camp that I want to leave to my kids, what do I need to do?
When you leave real property to your children, things can get messy. Some may want to sell their share of the property while others might want to hang on. In the worst of cases, families get bogged down in bitter legal battles instead of enjoying what their parents left them. A trust can help you avoid this situation. If you place the family camp in trust, your children will not own it outright, but they can continue using it. If you don’t want your children to sell the property you leave them, or you want to avoid potential ownership conflicts, a trust may be the answer. We’ve also helped Maine families set up Limited Liability Corporations for the ownership and management of a camp or property.
I’m in a second marriage–how can I make sure my children get assets?
If you want to provide for your current spouse during their lifetime but thereafter want your assets to go to your children from a prior relationship, a trust can do this for you. Depending on your wishes, you could set up a trust of which your wife would be the beneficiary until she passes away or remarried. At this point, your children would become the trust beneficiaries. Alternatively, you can split the assets and property between your wife and your children immediately upon your passing. A trust gives you ultimate flexibility in this area.
Can I use a trust to provide for my special needs child?
Trusts are an excellent vehicle for providing for a special needs person in your life, whether they’re your child or anyone else you care about. Special Needs Trusts hold assets for the benefit of a special needs beneficiary while allowing the beneficiary to continue to receive income or asset-based governmental assistance.
Can a trust help me avoid death taxes?
Estate taxes kick in at $11.4 million. If your assets are worth more than this, Attorney Jackson can help you avoid estate taxes by forming a tax shelter trust, also known as a credit shelter trust for your spouse. With this setup, your assets remain in trust for the benefit of your spouse until she passes, at which point your children become the beneficiaries. This allows your assets to go to the next generation while avoiding the federal estate tax.
Beneficiary Designations
It’s not always easy to make beneficiary designations for life insurance, annuities, individual retirement accounts, pensions and securities beneficiary registrations. Harder still is to ensure that these choices are compatible with the rest of your estate plan. At Jackson & MacNichol, we can help you make beneficiary designations for your non-probate assets in a way that is fair to your heirs and that provides the best tax benefits.
Who should I list as the beneficiary of my retirement fund?
It is easier to tell you who not to name: we generally recommend that you do not name your estate or a trust, unless the trust was specifically written for this purpose. People generally receive more tax benefits when they are named as retirement beneficiaries than entities, such as estates or trusts. A surviving spouse is the most common beneficiary.
Children are a good choice because they are younger and so can stretch out the tax benefits for a longer time. Charities also a good choice – payouts to charities from IRAs are not subject to tax. Attorney Jackson recommends naming contingent (alternate) beneficiaries as well, and reminds recently divorced clients to change their beneficiary designation from their former spouse unless they would like their ex to receive their retirement funds.
Should I list my estate as my IRA/401k beneficiary?
It’s generally not advisable to list your estate as an IRA/401k beneficiary. This is because IRS rules do not consider an estate as a “designated beneficiary” that can take advantage of the “stretch IRA” concept. If you die before your required beginning date–which is generally 70 to 71 years of age–your IRA must be paid out to your estate within five years. If you die after that date, your IRA gets paid out throughout your single life expectancy.
Because of these early disbursements, the beneficiaries of your estate will not enjoy the tax advantages of your IRA. If you name them as beneficiaries directly, on the other hand, they may take over the IRA account and stretch out its tax-deferred growth for a longer period. Another disadvantage of naming the estate as the beneficiary of your IRA account is that it will be included in probate, where your creditors can potentially get a hold of the funds.
If you don’t want to designate your heirs as beneficiaries, you can set up a trust as the beneficiary of your IRA. The trust cannot use the stretch IRA concept, but it will be more flexible than your estate in providing long-term, limited disbursements to your beneficiaries. Your trust also avoids the problem of your IRA account going through probate.
Should I list my estate as the beneficiary of my life insurance policy?
As with an IRA/401k, a life insurance policy whose beneficiary is your estate will need to go through probate, where the funds may be obtained by your creditors. You can avoid this problem by designating your beneficiaries directly, or if they are too young or immature to receive large sums of money, you can designate a trust as the beneficiary. The trust will keep the funds and disburse them gradually to the beneficiaries as you see fit.
Who should I name as the beneficiary of my life insurance policy?
Unless you are required to name a former spouse due to a divorce order, this question is wide open. Naming your estate is fine, in which case your will would determine who receives these funds ultimately. The exception to this rule is if you have lots of debt, in which case you would not want this money going into your estate where creditors might have priority over your beneficiaries.
You can name your children, your spouse, another relative, a friend, or even a charity. No matter what you choose, Attorney Jackson generally recommends naming alternate beneficiaries as well. And if you have been divorced, you should remember to change your beneficiary designation to someone else because the divorce decree does not do this on its own.
When Do I Need a Trust Attorney?
A trust should be created or reviewed by a trust attorney. Here are several reasons to establish a trust:
- You don’t want probate for your family.
- You want to save on estate taxes.
- No minor guardian or final wishes are required (for these, you need to create a will)
- You wish to control your beneficiaries’ inheritance.
Do you have questions about forming a trust in Maine? Talk to one of our estate planning attorneys today!
At Jackson & MacNichol, we understand that estate planning can be a complicated and emotional process that quite literally will define your family’s future. That’s why we strive to focus on our individual clients’ needs, and are prepared to assist with every aspect of planning or settling an estate. We are always just one phone call away. For a free consultation about the estate planning process, call us today at 207-360-8889.
