Trusts Are Not Only for the Ultra-Wealthy…Debunking a Common Misconception

By: Grant Ison of Ison Law in Powell, Ohio.

It is true that many of the wealthiest people in the world utilize trusts, whether for tax planning, maintaining generational wealth, wealth and asset protection, or simply to control their estate long after they are gone.

I recently learned about Leona Helmsley’s “Helmsley Perpetual Care Trust” which was funded with $3 Million strictly for the cleaning and maintenance of her and certain family member’s grave site. The trust requires the trustees to inspect the sites at least once every three months. Leona also created a trust for the maintenance and care of her pets after she died. The point is, trusts can be utilized for many different purposes.

Now that we know what Leona Helmsley did, lets consider the other end of the spectrum. Let’s consider Jamie, a single 30-year-old, who owns some equity in a condo, a car, a dog (Auggie), $2,000 in savings and owns some cryptocurrency. How could a trust help Jamie? To illustrate how a trust might be helpful for Jamie I will run through three scenarios. Scenario 1: Jamie dies without a will or a trust; Scenario 2: Jamie dies with only a will; Scenario 3: Jamie dies with a trust.

Scenario 1: This person dies without a will or a trust.

In Scenario 1 State Law will dictate what happens to the estate. Jamie’s family will hire an attorney who will guide them through the probate court process. Without a will dictating a personal representative for the estate, the probate court will likely name the next of kin the administrator of the estate. After assets are liquidated, creditors are paid, the attorney is paid, the probate court fees are paid, and the probate process is over. Whatever money is left in the estate is distributed to the next of kin. The estate writes a check to the next of kin and the next of kin deposit the check into their own accounts and the process is over.

Scenario 2: The person dies with a will.

In Scenario 2 Jamie dies with a will. In the will Jamie names Marge, Jamie’s Mom, as personal representative. Sadie, Jamie’s sister, is named as beneficiary of the estate. This scenario works similar to the first scenario where the estate must utilize probate court to administer the estate. Marge, as personal representative, will hire an attorney who will guide the estate through the probate court process. Once again, the assets will be liquidated, the creditors, attorney, probate court will be paid and when the process is officially over a check will be written for the Sadie to deposit into his bank account.

Scenario 3: The person sets up a trust.

In Scenario 3 Jamie dies with a trust. In the trust Jamie names Sadie as the beneficiary of the trust, and Marge as trustee. Marge will serve as trustee of the trust until Sadie turns 35, in which case Sadie can serve as her own trustee. In this scenario, assuming proper funding of the trust, there is no need for a probate court.

As trustee Marge will liquidate the necessary property (the condo and car) to pay off creditors. The proceeds from the sale of the condo and car plus the crypto and savings account will be held in trust for the benefit of Sadie and any mandated care of Auggie (the Dog). This is a huge difference from the previous two scenarios where the Sadie receives the money outright.

In this scenario the money from the estate is held in a separate account from the Sadie’s personal account. None of the Sadie’s creditors are allowed access to this money. This creates a safety net for Sadie, protecting the money from bad business, bad driving, bad marriage and any other bad creditor situation that may arise. Marge will maintain and grow this account for Sadie, allowing the Sadie access to the money for health, education, maintenance, and support until age 35 when the Sadie becomes her own trustee. After 8 years of investment and growth, Sadie can decide whether she wants to transfer those funds into her own account, or leave them protected and growing inside trust account.

By planning with a trust Jamie was able to avoid probate cost, provide asset growth and protection for Sadie and plan for his Auggie’s care. Even small estates, and young people reap benefit from trust planning. Give us a call to discuss why planning your trust now rather than later is in the best interest of you and your loved ones.

Our team at Ison Law has 40 years’ experience in business law and estate planning. We are a dedicated and knowledgeable team ready to help answer your questions and protect what’s important to you. We welcome you to contact us today!