There was a time when trust funds were only used by wealthy Americans who wanted to secure their assets and pass them on safely to their heirs. Today, setting up a trust fund has become recommended financial planning for those who want protection from creditors, predators, and divorce.
Take for example the case of the Lumpkin siblings of Columbus, Ohio. The remainder of their deceased father’s estate has not yet been divided between the siblings 11 years after his death. There have been losses to the estate because of the unresolved feud which has escalated and caught state-wide media interest.
The law requires that all state representatives arrive at a unanimous decision on matters of the remainder of Lumpkin Jr.’s estate. Unfortunately, this is a very bad idea for this family as the siblings apparently could not see eye to eye. This drama has dragged on for years, causing significant losses to the estate and has branched out into personal conflicts and lawsuits from both sides.
Most people have heard of trusts, but they do not understand what they do and usually think they are tools for rich people. The truth is that trusts are not complicated and can be useful for virtually everyone.
There are two basic types of trusts, the revocable (living) trust (RLT) and irrevocable trusts (IRT) and depending upon your goals, you may want to use one or both types.
There are four primary purposes for forming and funding a RLT –
1. avoid probate,
2. take care of your wishes in the event you become incapacitated and cannot manage your own affairs,
3. take advantage of certain tax benefits, and
4. protect your loved ones in a way they cannot do for themselves.
Irrevocable trusts have various uses and, depending upon your specific goal(s), have various names and acronyms. For example, the Charitable Remainder Trust (CRT) is an irrevocable trust that can provide many benefits to you and your family while you are alive and take care of any charitable intent you have when you are gone.
Irrevocable trusts sound ominous because of the word “irrevocable,” but a properly structured irrevocable trust can provide for changes in the future through the use of a trust “protector.” A trust protector is someone named in your trust that you, as the “grantor,” can give the power to make specific changes in the future. The trust protector cannot be the grantor (you), the trustee or the beneficiary(ies).
You can learn more about the different kinds of trust funds in chapter 4 of The Florida Domicile Handbook.