Trusts helpful, regardless of tax implications

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The preceding article was provided by Troy E. Kennedy, senior vice president & shareholder with Springfield Trust Company.|ret||ret||tab|

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Would eliminating federal gift and estate taxes or greatly reducing their bite also eliminate the need for trusts within a well-planned estate? |ret||ret||tab|

If federal gift and estate taxes disappeared tomorrow, trusts would still have a valuable role to play in protecting estates and families. Ask yourself, for example, whether at age 21, your children will be any better prepared to manage a seven-figure inheritance simply because it is tax-free or not heavily taxed. Or consider whether your spouse would be ready to manage the assets you leave behind without assistance, just because the danger of owing estate taxes is past. |ret||ret||tab|

Under any tax scenario, establishing a trust in your will would continue to be an effective strategy to deal with these and other issues. |ret||ret||tab|

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Many uses|ret||ret||tab|

The ways a well-structured trust can serve your family include:|ret||ret||tab|

ensuring professional management for your assets;|ret||ret||tab|

providing for the financial needs of your minor children in the absence of you and your spouse;|ret||ret||tab|

ensuring that your heirs will not irresponsibly deplete their inheritances;|ret||ret||tab|

guaranteeing the inheritances of your children from a first marriage;|ret||ret||tab|

protecting your assets from creditors; and|ret||ret||tab|

removing assets from your probate estate.|ret||ret||tab|

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A trustee's responsibilities|ret||ret||tab|

Each of these strategies is effective because placing assets in a trust allows a person to shift the legal responsibility for those assets to the trustee you choose. When you create a trust, you define the terms and conditions of the trustee's stewardship, fitting them specifically to the purposes you want the trust to accomplish.|ret||ret||tab|

For example, you could name your young adult children as the trust's beneficiaries and, in your trust agreement, instruct the trustee to withhold all or part of their inheritances until they reached a more mature age, completed their education or met some other condition. Because of the trust, you would gain the assurance that your wishes would be followed prudently and responsibly. And, in the interim period before the final distribution of the trust assets to your beneficiaries, you could be confident the trustee would manage the trust's assets according to the guidelines you provided in the trust agreement and a trustee's general responsibilities under the law. |ret||ret||tab|

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Selecting a trustee|ret||ret||tab|

Now that you have established a trust, how do you select a trustee to administer it? Trustees must collect, administer and invest the assets in the trust. They don't have to be knowledgeable investment professionals themselves, since they may delegate the actual investment decisions to professionals. However, they are ultimately responsible for seeing to it that the trust's assets are properly diversified.|ret||ret||tab|

Trustees also have the responsibility of balancing competing interest. For instance, your spouse is to receive income from your trust during her lifetime, with the balance going to your children after her death. Within the "total return" concept, your spouse may want investments to provide maximum income while your children are looking for long-term growth. This type of situation can put the family member serving as trustee under pressure.|ret||ret||tab|

Although appointing a family member or long-time friend may sound desirable, here are some examples that can create problems:|ret||ret||tab|

You've named an adult child as trustee of a trust for his mother's benefit. What if the children are not very generous about giving what they think of as their money to their mother?|ret||ret||tab|

Joe, your long-time friend and neighbor, has agreed to serve as your trustee. You contact your attorney and ask that your previous trustee (who passed away last month) be replaced with Joe. The following year, Joe is killed in an automobile accident.|ret||ret||tab|

An alternative to avoid the above situations is naming an institution as a trustee. Better yet, to keep someone in the picture with the family's interests at heart, use a bank or trust company as a co-trustee with a family member.|ret||ret||tab|

If you decide to go this route, make sure you ask the following questions:|ret||ret||tab|

What types of fees do they charge and how are they collected? Are there fees for closing an account?|ret||ret||tab|

On average, how long do trust officers stay with the organization?|ret||ret||tab|

How many accounts does each trust officer handle?|ret||ret||tab|

What is your investment performance for trusts with similar objectives?|ret||ret||tab|

How often does the trust issue statements, and does it report performance of the trust assets?|ret||ret||tab|

Also make sure your trust document allows beneficiaries the right to terminate the corporate trustee relationship and hire another corporate trustee should they become unhappy with service and/or investment performance.|ret||ret||tab|

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