Who Do You Trust?

Early in his career, Johnny Carson emceed an afternoon game show on ABC from which today’s article borrows its title. Carson generally allowed more time for talking with the contestants than for playing the game which may be the reason he was later selected to host the Tonight Show. When contestants were eventually allowed to start playing, one of them had to decide whether to answer a question in a particular category or trust a partner to do so.

Those words ran through my mind recently when a friend asked for advice. She wondered if she’d been suitably responsive to her parents’ needs when she questioned whether or not they should set up a trust. Everyone reading this knows that I’m not an attorney and don’t give legal advice. However, I’ve worked with clients and their trusts for more than twenty years and do have some thoughts to share.

From my perspective, a trust is basically a contract which makes sure certain things happen (or don’t happen) under certain circumstances. Trusts have no magical powers; they are more the means to an end than an end in itself. In my friend’s situation, I suggested she begin by helping her parents establish some goals, then see if a trust would be the best way to achieve them. Here are some of the points I thought she should consider.

Prior to 2001, federal estate taxes were imposed on individuals whose assets were greater than $675,000 at the time of death. Many members of the middle class were worth that or more and, without planning, were likely to incur the tax. Utilizing a credit shelter trust to split the estate of the first to die between the survivor and the other heirs (usually the children) cut the likelihood of family assets being subject to estate taxes in half. Since 2001, however, the estate tax exemption has been rising. At the current $5,000,000 per person, many such trusts are no longer necessary. If you currently have an “A/B” or “credit shelter” trust in force, you should contact your attorney to see if it is still appropriate.

Even though trusts are not as important as they once were in the realm of estate taxation, they are still extremely valuable for other estate planning purposes. Any family which includes minor children should consider a trust very carefully. The death of a parent is always devastating but it can leave a family’s long term plans undone, possibly irretrievably. Establishing a trust will help ensure that insurance and other assets are used appropriately to help achieve established goals. The first step is naming someone (or a couple) as guardian, meaning that’s who will raise the children. Since parenting skills and financial aptitude are not always found in the same household, a different person is often chosen as trustee – the decision maker regarding the trust. Neither of these caretakers must be related to the children so parents are free to choose the person(s) they feel will do the best job in each role. We do suggest that an institution be named as eventual trustee in case the family member or friend is unable to serve when called upon. In Columbus, as in other communities, we have seen that banks don’t necessarily live forever but trust departments do. When a bank is taken over, trust services remain – often with no change in the professional staff.

In the case of a non-married couple or second marriage, there are often children of one parent who are not related to the other. That’s an ideal situation in which to consider establishing a trust so that everyone’s wishes are understood and honored. Trusts are also valuable when dealing with the issues specific to non-married partners. Since the law is quite liberal on asset transfers within marriage and quite silent about them outside of marriage, appropriate trust language can ensure that everyone’s wishes are respected.

A trust is probably the best way to assure that a special needs child will receive appropriate care following his or her parents’ death. Conversely, a child who might exhibit poor financial judgment if presented with a significant inheritance can be “guided from the grave” if suitable language is part of a trust document.

Lots of people have come to believe that pretty much everything is available on the internet for free. While libraries & the web do offer trust resources, I believe this is one of the situations when legal advice is absolutely necessary. Local attorneys can draft these documents, often along with will updates, for a few hundred dollars. A free trust document which doesn’t do the job is not only worthless but it could easily result in heartache, unnecessary expenses or both.

Providing advice is our job and Jalene or I will be glad to offer some related to your specific situation. Please feel free to give us a call.