We often use trusts in estate planning to avoid probate, provide effective management of assets, and to make controlled gifts to children or other family members. Trusts are most effective when they are personalized, and the maker can give certain powers to the beneficiary or even persons outside the trust to achieve maximum flexibility. We describe below two of these powers – appointment of a “trust protector” and a “power of appointment” for the beneficiary.
The reasons to use trusts vary. A revocable “living” trust can allow a person or couple to maintain control of their assets while they are living and avoid the necessity of a court-supervised probate at their deaths. Parents of a child or grandchild with a disability and benefits such as Medicaid or SSI may choose to have a “special needs trust” hold any inheritance or gifts for that child, to be administered in a way that will effectively manage the assets in a way that will not disqualify the child for public assistance. A “spendthrift trust” can be established for an adult child who has creditor problems or poor money management skills, in order to protect the trust funds for the child’s needs while insulating them from creditors and predators. Some older adults may decide to place some of their assets in an irrevocable trust in order to reduce their assets and qualify for Medicaid or VA benefits, while passing the assets to their children or other family.
Trust Protector.
Every trust must have a trustee to hold and administer the funds for the beneficiary’s needs according to the trust terms. Sometimes, the best trustee may not have personal knowledge or familiarity with the beneficiary, such as when a corporate trustee is used. In such case the trust maker may wish to give another person authority to make recommendations to the trustee for disbursements. Or, the trust maker may feel that a family member trustee should have someone else monitor and oversee their actions. Such a third party is called a “trust protector” or “trust advisor.” It may be a single person or a committee. The trust protector may be given the power to receive trust bank account statements, make recommendations about payments for the beneficiary’s care needs, make amendments to the trust to keep in compliance with changing laws or circumstances, and even fire and hire replacement trustees. In this way, the trustee remains accountable for its actions, and someone who is intimately familiar with the beneficiary can be involved in the use of the trust funds to pay for care.
Power of Appointment.
While the beneficiary of a trust has the rights to the benefits prescribed in the document (income, education payments, medical care, etc.), the trust maker retains the right to say who will receive any of the trust assets remaining at the beneficiary’s death. But consider the situation where part of your estate will be left outright to certain children (who can then leave it to whoever they choose) while another portion will be left in trust for the benefit of another child. You may ask “Why doesn’t the trust beneficiary-child have the same right to dispose of his or her share at death?” Well, you can give the beneficiary that right. We can draft into your trust a “limited power of appointment” that will give the beneficiary the power to state, in his or her last will and testament, who will receive the balance remaining in the trust at the beneficiary’s death. This would enable the beneficiary to direct those assets to a spouse, children or charities as the beneficiary may select. Note, however, that if you believe the beneficiary would make poor choices in this respect, the power of appointment can be omitted and the trust maker can designate the ultimate recipients of the trust.Call us today at 601-987-3000 for help designing and implementing your personalized trusts for family security.