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Conway Estate Planning Blog

Spendthrift trusts protect money and not-so-responsible heirs

You love your heirs – a daughter and son – unconditionally and want to provide for them as best as you can through an estate plan. You have no concerns about your daughter’s ability to handle money. She is reliable, mature, dependable and trustworthy. You only wish you could say the same about your son—a ne’er-do-well – who always lacked the responsibility gene and foolishly throws money around.

Despite the concerns, you want him, too, to inherit a portion of your estate. However, you remain nervous and concerned. This is where a trust with a spendthrift clause comes in handy. It not only will protect a beneficiary’s inheritance from creditors, but from themselves as well.

Deciding between revocable, irrevocable trusts is not always easy

Because so many estate planning tools are available, many Arkansas residents may face some confusion when it comes to deciding which tools are right for their plans. Though trusts can be useful planning tools for most people who want to protect assets, it can be a challenge to determine which type of trust to use. Even deciding between the basic information of whether to use a revocable or irrevocable trust can pose a challenge.

Both revocable and irrevocable trusts have their pros and cons. With revocable trusts, property owners still technically maintain ownership of the assets placed into the trust. This means that owners can manage the assets as they see fit, but it also means that any tax matters associated with the assets remain the responsibility of the owner.

The advantages and necessities of a special needs trust

You think about your special needs child every day, and the concerns never cease. He is dependent on you and your spouse. For his entire life, the caring, the feeding, the loving and the financial wherewithal rested on your lap. And you have had minimal outside help.

But you know there is a strong chance that your child outlives you, and this makes you wonder who will take your place in looking after your child. The answer really is not a “who.” It is a “village” standing on a foundation built by a special needs trust. This vehicle provides the financial structure and base needed to last up to 40 years or as long as your child remains alive.

Trust administration can put a trustee on duty for years

Many Arkansas residents are choosing to use trusts as part of their estate plans. These accounts can be useful for maintaining privacy and control over assets even after a person's passing, but they mean that someone responsible and trustworthy needs to be put in charge. Trust administration can take a lot of work, and trustees may need to address their responsibilities for years.

Though handling the distribution of assets is part of the administration process, trustees will also need to check in regularly with the court. Records about how the assets have been distributed and to which beneficiaries may be necessary as well as other information to ensure that the trust is being handled properly. The trustee will also need to check in with beneficiaries to provide reports about the performance of the trust.

Qualified personal residence trusts may help with gift taxes

Wanting to bequeath real estate to loved ones is common for individuals in Arkansas and elsewhere. However, some financial repercussions can stem from transferring such property to another individual, such as gift tax. Because most parties want to limit the amount of taxation a loved one faces when receiving a gift or bequest, qualified personal residence trusts may be useful.

A QPRT allows the grantor to remain living in the home for a certain period of time with retained interest before the ownership of the home transfers to the beneficiaries. After that time period ends, the property's interest transfers to the beneficiaries as remainder interest. This may seem complicated, but it allows the property owner to maintain a portion of the value of the home, which means that the gift value becomes lower than its fair market value. This in turn can result in lower gift tax for beneficiaries.

Trusts can add privacy and provide control

Before deciding which tools to use in their estate plans, Arkansas residents may want to gain more information. Though they may already know that a will is a useful document, they may hesitate when it comes to using trusts. However, this planning tool can provide important benefits for anyone creating an estate plan.

First, a trust can provide additional privacy, which is important to most people. With just a will, the remaining estate will go through probate proceedings that become part of the public record. As a result, any interested party could look into the estate's final affairs. If individuals would rather their personal business remain out of the public eye, using a trust to transfer assets can help. Assets in a trust do not go through probate proceedings and instead pass directly to the named beneficiaries, better ensuring that potentially sensitive information remains private.

Should adult children have the estate planning talk with parents?

Children obviously need to be looked after by their parents. Those tables can turn and in some circumstances, adult children in Arkansas have to suggest to their parents that it might be time to look into some estate planning, which can include important issues like long term care. Having something on paper is especially prudent should the unforeseen happen -- like the onset of early dementia.

Some adult children might have trouble initiating the estate planning conversation with their parents. But it is a conversation that can be brought up without creating a lot of angst -- perhaps simply by asking parents what they see their retirement years looking like. It can be done in a way that doesn't threaten a parent's role as a helper and guider for their children. Children might bring themselves into the conversation by suggesting they're beginning to plan their estates and were wondering how their parents handled it.

Trusts can be named as IRA beneficiaries

Many people utilize individual retirement accounts to save money. An IRA is an important account, and no Arkansas resident wants the funds to go to just anyone in the event that the account holder cannot collect the funds him or herself. Though retirement accounts are typically payable-on-death accounts, rather than naming a person as a beneficiary, some parties may want to use trusts.

It is not uncommon for trusts to act as beneficiaries of retirement accounts. Using this tool could allow account holders to ensure that the funds go to the intended person, but the account holder still has some control over the use of the funds. However, because the Secure Act categorizes beneficiaries and the amount of time designated to withdraw the funds, it can be more complicated. When it comes to using a trust, the beneficiary or beneficiaries of the trust will determine which category is used.

What specific ways could trusts be used for estate planning?

For too long, many people have believed the misconception that only wealthy individuals should utilize certain estate planning tools. In particular, numerous Arkansas residents may have believed that trusts are only used by individuals with a considerable amount of money to pass on to their loved ones. However, this planning tool could actually benefit those at any income level and for various reasons.

Trusts are versatile planning tools. Individuals can create a trust for a specific purpose often in efforts to help loved ones in the future. For example, people with special needs loved ones may wish to create special needs trusts. This type of trust can allow the loved one with special needs to receive his or her inheritance without jeopardizing the chances of qualifying for needed government benefits. Because most benefits are based on financial circumstances, including income, a sudden windfall could negatively affect the chances of receiving benefits unless they are kept separate, which a trust can do.

During estate planning, trust beneficiaries may have questions

When thinking about end-of-life wishes and property distribution, many Arkansas residents may find it helpful to include family members in the conversation. Often, estate planning affects various members of the family, and it can be wise to allow those individuals to have the opportunity to ask questions. In particular, parties who will be trust beneficiaries may need specific information.

Some beneficiaries may wonder why assets are being placed into a trust and not simply bequeathed in a will. This can happen because grantors want to better protect assets from outside parties or even to ensure that assets are used for a specific purpose. Explaining the intention and purpose of a trust to beneficiaries could help them understand its benefits and why the grantor chose to take this route.

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