When asked to whom he intended to leave his assets at his death, one of our clients responded, “I plan on spending my last few thousand dollars on my casket.” Another client quipped, “If I have a nickel left over, then I miscalculated!” Despite the occasional one-liner about spending their children’s inheritance, however, most people tend to have a desire to leave behind some funds for future generations. They frequently express a hope to benefit others through a bequest of their residual wealth that represents a lifetime of work and saving. Unfortunately, grantors also express concerns about leaving too much money to heirs too young to handle it wisely; concerns about heirs with blended families and spendthrift spouses; concerns about making provisions for heirs that haven’t been born yet; and other concerns about who may eventually receive the inheritance and whether they will honor the distribution or blow it. A trust account is one way to ensure that the grantor’s desires regarding the distribution of his or her assets are followed after the grantor has passed away or, in some cases, during the grantor’s lifetime.
In its simplest form, a trust is an investment account that is governed by a legal document which stipulates how the account will be administered and how distributions from the account will be made. Establishing the trust may impart income tax or estate tax relief to the grantor or his or her estate. The major parties involved in the trust are the grantor who contributes the funds to the trust and determines its major provisions; an attorney who drafts the document according to the grantor’s objectives; a trustee who manages the trust after (and in some cases, before) the grantor’s death; and beneficiaries, who will receive the proceeds of the trust at some stipulated point, either all at once or over time, depending on the grantor’s stated wishes. The term of the trust may be multi-generational or it may end at a stated time – when a beneficiary turns thirty years old, for example. The beneficiary need not be a person, either. It may be a charitable organization, school or other entity for which the grantor wants to provide.
We’ve even witnessed trusts set up to provide for the grantor’s pets after his death!
Generally, during the tenure of the trust, the grantor states the purposes for which distributions may be made. Frequently, these provisions state that the trust may meet the “health, education, or welfare” needs of the beneficiary and leave it up to the trustee to evaluate each request from the beneficiary, but others are much more prescriptive regarding allowed expenses. Trusts provide the flexibility the grantor requires to structure the account to meet his or her particular desires.
Another participant in the function of a trust is the corporate trustee whom a grantor may designate to administer the trust during his lifetime or after his death. One benefit appointing a corporate trustee is the assurance that a trained trust advisor with a fiduciary responsibility to act in strict accordance with the trust’s provisions is providing professional guidance in the establishment and continued administration of the trust. Another benefit to appointing a corporate trustee is that it may aid in maintaining family harmony. For example, in cases where a trustee is concerned that family members may turn on one another when money becomes a factor in their relationship, having a corporate trustee making decisions based strictly on the grantor’s stated guidance can help prevent family in-fighting.
The costs of trusts vary by provider, but some charge no more than the amounts they do for any other type of investment account. In other cases, there may be a small up-charge or a cafeteria style cost structure for the particular services provided on behalf of the trust. For example, there may be an additional monthly fee for paying recurring bills on behalf of the beneficiary. Generally, though, the most common structure is a “wrap” annual fee that covers most of the regular costs of managing the trusts and provisions for additional one-time charges for unusual, labor-intensive functions, like settling the estate upon the grantor’s death.
This year our legislature and governor passed the Mississippi Qualified Disposition in Trust Act which, among other provisions, allows persons to establish trusts, access the funds during their lifetime, and receive creditor protection for the trust assets. These are protections that have been afforded to persons in a few other states for some time, but they are new in Mississippi. Existing trusts will need to be rewritten to take advantage of these new asset protection provisions. New trusts need to comply with each of the requirements of the new legislation, but doing so allows the grantor to gain significant advantages over past trust provisions.
It is still true that “you can’t take it with you,” but a trust relationship may provide you a way to manage the distribution of your estate according to your unique needs and desires. Trust accounts provide heirs with capital to help fund educations, first homes, and daily living expenses, among other financial needs. And, perhaps most importantly, they provide grantors the peace of mind that comes with knowing that their loved ones are provided for after the grantor’s death.
» Mark Blackwell is the Mississippi Area Executive for Regions Private Wealth Management. He can be reached at firstname.lastname@example.org.