Tools for Your Legacy: Truths About Trusts

Wednesday, April 09 at 10:05 AM
Category: Personal Finance

Estate plans, despite a name that might conjure images of great wealth or affluence, actually are important tools almost everyone can benefit from establishing.

If you have a bank account, own a home, have a family, or simply want to make sure your health-care wishes are carried out, an estate plan can help. Most estate plans include a will, the designation of power of attorney and a living will, which defines your end-of-life wishes.

Many people are familiar with these elements, but might not be as familiar with another component of some estate plans, a trust. Frankly, for many people, trusts are mysterious.

Arvest Bank Trust Division would like to change that, to help people understand trusts and their benefits. Defined very simply, trusts are legal mechanisms that allow you to place conditions on how and when your assets will be distributed when you die or be managed if you become incapacitated. They also can help reduce estate taxes, avoid probate, and to distribute assets without the time, cost and publicity often associated with wills.

To learn more about trusts, in fact, it might be helpful to address some of the most common misconceptions about them. Those include:

  • Trusts are just for the very rich. Although most very rich families do employ trusts as part of their financial planning and wealth management, these families constitute a minority of trust customers. Most of our clients are not multimillionaires, and most don’t think of themselves as “rich.” They do have some assets – perhaps proceeds from the sale of a business, a lump sum retirement distribution, an inheritance or an investment portfolio painstakingly accumulated through a successful career – they want to protect, manage carefully and use wisely.
  • Trusts are expensive. The trust documents must be drafted by a lawyer, who will charge a fee for supervision of the creation process. But a trust costs more because it does more. The cost also can be minimal compared to the probate process, which a trust generally avoids. To learn the specifics, contact an Arvest trust specialist.
  • Trusts are for saving taxes. While trusts can help wealthy individuals avoid or minimize estate taxes, trusts are a vehicle that help to ensure the creator’s wishes are carried out at death or incapacity. They provide for professional investment supervision, potential probate avoidance, and the chance for the creator to determine how the assets in the trust will be passed along to the heirs. This can either be outright or with conditions attached to help protect a beneficiary from poor financial management or negative outside influences. 
  • Assets get “tied up” in a trust. Another term for “tied up” might be “asset protection.” Stated that way, the restrictions imposed by a trust might be seen as a benefit, not a detriment. For example, an inheritance trust might be designed to limit access by the beneficiaries’ creditors, preserving trust assets for longer-term financial protection. If you create a revocable trust for yourself, on the other hand, nothing will be “tied up.” You will be free to amend the trust, change trustees or cancel the arrangement altogether as long as you have capacity. In fact, one purpose of having a living trust is to have more control.
  • Trusts must be funded with publicly traded stocks, bonds or other investment securities. Although investment portfolios are likely the lion’s share of trust assets overall, trusts may own any sort of property, including real estate and shares of closely held companies.
  • Trusts are invested conservatively, with low return potential. At one time, trustees tended to be very risk averse with trust assets, which did lead in many cases to conservative investment policies. In recent years, however, the laws governing the investment of trust assets have been reformed in most states and now allow for a robust diversified investment allocation.
  • Anybody can be my trustee. There are few legal limits as to who can be a trustee, but the better question is who should be your trustee. Your trustee needs to have financial strength as well as professional investment capabilities. Look for someone like us, who has handled all types of trusts in every kind of market for diverse sorts of families. You’ll also want a trustee who can be fair and impartial in administering the trust, one whose judgment all the beneficiaries will be able to accept.

Now that we’ve debunked these misconceptions, we’d like to review the potential advantages a trust can offer. In future articles, we will look at advantages such as:

  • With an institution such as ours as trustee, you benefit from objective, personalized investment management.
  • You may authorize the trustee to provide full personal financial management in the event of your disability or prolonged illness, eliminating the possible need for a court-appointed guardian or conservator.
  • The assets held in your trust will avoid the delays and some expenses of probate at your death.
  • Life insurance proceeds and other non-probate assets may be made payable to the living trust, to be invested and managed for your beneficiaries according to your wishes.
  • The terms of a living trust agreement generally remain private, unlike the terms of a probated will, which become a matter of public record.
  • Additionally, a corporate trustee like Arvest has years of experience in administering trusts and has systems and networks in place to efficiently handle the issues that arise.
Tags: Financial Education
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