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Friday, April 1, 2016

Do I Need a Revocable Living Trust?

New clients often believe that they do not need a trust because they don’t have multi-million dollar estates. Yet, nowadays, trusts are not only for the rich and famous.  Why?  Because it’s less about avoiding estate taxes and more about the cost savings and protections that trusts can provide.  A properly drafted and funded trust avoids the expense, delay, and loss of privacy that a probate administration would cause.

 The following scenarios help my clients understand why a trust may be worth considering.

 Meet our hypothetical family, George and Jenny, happily married for 25 years with three children, Jessica, age 20, Josh age 15, and Jonathan, age 12.  Both George and Jenny have created wills, leaving everything to each other.  After they are both gone, their wills leave it all to their children.  Sounds like a logical plan?  Maybe not.

 Tragically, George dies suddenly and, according to his will, all of his property transfers to Jenny.  The following year, while rushing to an appointment on a rainy morning, Jenny loses control of her car and rear ends a school bus full of trial attorneys heading to the annual Ft. Lauderdale “I’ll See You in Court!” Convention.  Several of the attorneys are injured and predictably lawsuits follow.  Now what happens to Jenny’s inheritance from George?  It’s likely all gone to creditors.  What is left to raise her children?   Perhaps nothing.  If George and Jenny had used a trust in their estate plan, the final outcome may have been different. While Jenny’s property would still be subject to creditor claims, her inheritance from George inside a trust would be safe for her and their children.

 In another sad scenario, imagine that Jenny dies first.   George later remarries Susan, a woman with four adult children from several previous marriages.  What happens when George passes?  His property, including what he inherited from Jenny, may go to Susan and eventually to Susan’s children.  George and Jenny’s children could be completely disinherited! With a properly drawn trust, George and Jenny can rest assured that even if the surviving spouse remarries, their money will go to their children.

Finally, think of George and Jenny happily enjoying retirement and grandchildren, but unfortunately not too fond of Jessica’s husband, Robert.  Jenny fears that their son-in-law will never earn a decent living, and be dependent on their daughter Jessica to support him for the rest of his life.  George worries that if they leave an inheritance to Jessica and she ultimately divorces Robert, a substantial portion of Jessica’s inheritance could be lost to her “no good husband.”   If George and Jenny leave the inheritances to their children in a trust, these assets will not be commingled with marital property. Therefore, in the event of a divorce, daughter Jessica’s inheritance will not be the subject of division and distribution.


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