Campbell Law Offices
1970 Broadway, Suite 625
Oakland, CA 94612-2227
(510) 832-0742
Articles
The top ten questions about trusts
Is this versatile management tool right for you and your family? When David Letterman does a Top Ten list, he's looking for laughs. Our Top Ten list has a different goal. Trusts are among the least understood financial management services. We'd like to change that–the more that people know about trusts, how they work and what their benefits are, the happier we are. Accordingly, here are some of the most frequently asked questions that we hear, and our answers.
1. How does a trust work?
A trust is a formal, legal agreement between a grantor and a trustee. The grantor establishes the trust's purpose and transfers assets to the trust. A trustee administers the trust in accordance with a trust agreement. The trustee is a fiduciary, which means that specific legal duties must be fulfilled in the course of trust administration. The most important of these is a duty of loyalty to the trust and its beneficiaries. Trust beneficiaries receive the financial benefits of the trust, through periodic distributions of income and principal.
When trusts are established by a will, they are called testamentary trusts. You also can set up a trust for yourself, operative during your life. Such an arrangement is popularly referred to as a living trust.
2. What financial benefits does a trust provide?
Among the many reasons that people create trusts, these three seem to be the most common:
•Professional management for investment assets. Sound portfolio management requires more supervision, more time and attention, than most people are able to give. An experienced, professional trustee brings specialized training and support to the task.
•Family financial protection. Trusts provide structured financial support to multiple beneficiaries over a long period of time. The plan may be as general or as specific as the grantor wishes, with provisions for contingencies.
•Potential tax savings. Some trust plans can lead to valuable tax savings, especially from those levies with fall under the heading of "death taxes."
3. How is a trust different from other financial planning tools?
One key use of a trust is to achieve durability. The trust has an independent legal existence, and it can survive the incapacity or death of its creator. The trustee will continue to manage the trust according to its stated purposes, essentially taking the place of the grantor and fulfilling the grant's wishes, for so long as the trust lasts.
4. How will trust assets be invested?
We help our clients to aim for optimum investment reward and risk through asset allocation planning, a process of disciplined diversification among and within asset classes. Such planning must take into account the mix of trust beneficiaries, the purpose of the trust, and its investment objectives. We work within the investment guidelines established by the grantor to manage trusts carefully and prudently.
5. Am I wealthy enough for a trust?
Most of our clients don't think of themselves as "rich." They do have some significant investment assets that need careful management – proceeds from the sale of a business, perhaps, a lump sum retirement distribution, an inheritance, or an investment portfolio painstakingly accumulated through a successful career. If that describes you, then you should look into how a trust might benefit you.
6. With the higher exemption, I don't think I need to worry about federal estate taxes anymore. Do I still need a trust?
If you needed a trust before the exemption increased, you probably will continue to want one afterward.
It's true that the prospect of estate tax savings has been the hot button that caused many affluent families to take a first serious look at trust planning. But the property management benefits of trusts are, for many, even more valuable than the potential for tax savings.
Don't forget that, under current law, the amount exempt from federal estate tax is scheduled to fall back to $1 million in 2011. Keep an eye on Congress for developments in this area.
7. Is a trust very expensive?
No. There are one-time attorney's fees for establishing the trust. The ongoing fees for our trust services are competitive with those of investment advisors and with mutual funds. To learn more, please ask for a copy of our fee schedule.
8. Who should be my trustee?
Experience is important–look for someone, or a financial organization such as us, who has handled 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 will be accepted by all the beneficiaries.
9. What happens to my trust if something happens to me?
Your trust goes on, in accordance with its terms. Should you become incapacitated, your trustee may assume full responsibility for your finances, avoiding the need for a conservator. At your death your trust may continue to provide financial protection for your surviving beneficiaries.
10. Can I change my mind after I create a trust?
This is the question that we hear most often. A revocable, living trust does not "tie up" assets. You can change the trust terms, change the trustee, even cancel the arrangement altogether. The purpose of having a trust is to give you more control over your life, not less. With the creation of a trust, you are delegating important financial management responsibilities to skilled professionals, leaving you with more time for the rest of life's responsibilities and opportunities.
Back to Articles
Home
Guardianships •
Probate •
Conservatorships •
Trusts •
Estate Planning •
Litigation
The Firm •
Humor •
Location and Directions
Articles •
Links