Spendthrift trust attorney O’Fallon, Missouri

What is a trust?

A trust is a written agreement between three parties, whereby a trustmaker, sometimes referred to as a settlor or trustor (first party) names a trustee or trustees (second party) to hold assets on behalf of a beneficiary or beneficiaries (third party), who are intended to receive the benefit of the assets.  

What is the difference between a revocable trust and an irrevocable trust?

A revocable trust can be amended, revoked or deleted at any time as long as the trustor is alive and has capacity.  Often the trustor, trustee and beneficiary of a revocable trust in Missouri are the same parties, at least while they are alive.  Example: Jane and John create a revocable trust in 2018. They are the trustors, the co-trustees and the beneficiaries of the trust during their lives.  Once they are both deceased, their only child, Jack becomes the successor trustee in their place and the beneficiary of the remaining assets that were not used during the lives of Jane and John.  

An irrevocable trust usually cannot be amended or revoked after its creation by the trustor.  Property transferred into an irrevocable trust cannot be reclaimed by the trustor. Why would anyone want to do this?  Often to reduce the value of a person’s estate for estate tax purposes. Example: Joan is a widow and when her husband John died in 2008, the value of the trust assets now owned by her as beneficiary was $6.5 million dollars.  Joan is not in great health but has a problem: The estate tax exemption is only $2.0 million dollars, meaning if Joan dies with $6.5 million, her estate could have a $4.5 million estate tax liability, taxed in 2008 at 45% or $2.025 million dollars.  

Joan can create an irrevocable trust with as much money as she can gift over her lifetime to her irrevocable trust.  That assures that the value of her trust estate is lowered and the money that would go for taxes is instead held by the irrevocable trust which names her children as equal beneficiaries.  She no longer can access those funds but because she has plenty of other funds available, that’s not a problem.

In Joan’s case, she’ll likely have both a revocable living trust and an irrevocable trust.  

What are similarities between a revocable trust and an irrevocable trust?

They both can easily help a person’s estate avoid probate, which is a major goal in estate planning.  By creating a trust and naming beneficiaries during life, a person’s estate can avoid probate because when they die, their trusts own everything and the probate process, designed to figure out who inherits what from a person’s estate, is not necessary…it’s already been done.

What are other types of trusts?

A special needs trust is created to provide for a disabled beneficiary in a way that does not disqualify them from Social Security and/or Medicaid benefits, which are means tested and not received by someone who has even a small amount of assets.  

Testamentary trusts are trusts created in a will and go into effect after the probate process has been completed.  Because these types of trusts require probate, they are not generally advisable because they are generally more difficult to administer, at least at the beginning, because they are much rarer than living trusts and banks / financial firms often struggle to understand how they work.   The advantage is that they are a somewhat cheaper to create upfront than living trusts.

An irrevocable life insurance trust, also known as an ILIT, is a very specific type of trust wherein the sole asset in the trust is a life insurance policy on the trustor’s life.  These were much more prevalent in the past when the estate tax exemption was much lower. Now because that is no longer the case, this type of trust is much less common.

Spendthrift trusts allows a trustee to hold assets for a beneficiary and to decide when and how to make distributions to a beneficiary (or beneficiaries in some cases) who are not financially responsible.  The goal of a spendthrift trust is to safeguard principal from an irresponsible beneficiary. As a spendthrift trust attorney O’Fallon, Missouri, I have created these types of trusts, however, for a variety of reasons, not just irresponsible beneficiaries.  

• Drug / Alcohol / Gambling Problems:  Clients who have a child with substance abuse problems are often worried about leaving a substantial amount of money to that child for obvious reasons.  That could in fact be deadly.
• Asset Protection:  Some clients are worried that a child who has a lot of debt might file bankruptcy or that their inheritance will just end up in the hands of their creditors.  With the spendthrift trust in place, that child’s creditors cannot reach those funds because they are not reachable by the child. The trust makes clear that any distributions to that child from the trust are not mandatory and the trustee has absolute discretion to make or not make, distributions to the child.
• Worries About Controlling In-Laws:  A few clients have been worried about controlling in-laws that are money hungry.  This can be a difficult situation because the child may not be bad with money but instead completely manipulated by the controlling in-law.  In other words, giving money to the child is giving money to the in-law, who may be bad with money or who will waste the money on themselves.  With the spendthrift trust in place, bills can be paid for directly by the trustee, as the trustee decides, watching out for control by the in-law in that process the whole time.

What is the difference between living trusts, revocable trusts and inter-vivos trusts in Missouri?

They are all the same thing.  Like many things in the law, they are three different names for the same exact thing.  Depending on who you talk to, they may use one or more of the same terms, but rest assured they are talking about the same thing.

Who should I name as my trustee?

That depends solely on your circumstances.  Ideally, if you have adult children, they are mature enough to manage the trust if you become incapacitated or when you pass away.  You can name more than one of your children as successor co-trustees, but I don’t recommend this do to the chance there may be disagreement about how to proceed.  Using the oldest child as a default can also be a bad decision. What is they’re not the right choice versus younger children? You need to make trustee choices that will give you peace of mind.  Keep in mind that your ideal choice may not be ideal if they can’t perform as a trustee. If your first choice lives far away or has little spare time, they may not be a good choice just because of those limitations.  In that situation, the second choice who lives closer and is more likely to be able to carry out the functions of a trustee is the better decision, at least for first successor trustee. You’ll want to name alternate successor trustees as well.

What is a corporate trustee?

A corporate trustee is bank or trust company who will serve as successor trustee if you have a living trust (or immediate trustee if you have an irrevocable trust).  They are a good fit for larger estates (probably over $1 million) where the person creating the trust does not have a good option for successor trustee. It’s also usually an all in one trustee as well, meaning they will administer the trust, invest the principal, handle any legal issues and perform accounting functions.  The bad news is that their fees can be high versus an individual trustee. They are, however, a great fit in the right situation.

What are some other advantages of trusts other than probate avoidance?

• They offer privacy.  If you create a living trust, the only people that typically will have knowledge of who the beneficiaries are and the terms of the trust will be you, your trustees / successor trustees and beneficiaries.  
• They are harder to contest.  Because they are private documents, a non-beneficiary, say someone who thought they would be a beneficiary but never received confirmation that they were, has no right to see the trust.  That means they’ll be seeking legal counsel without usually having the document for the lawyer to review.
• They are cheaper to administer than wills.  If probate is avoided when a person passes away, that’s not only a cost savings, but a time and complexity savings as well.  Too often people don’t want to create a living trust because they believe it will make things complex when they die and they also want to save a few bucks with a will instead.  Then they pass away, things are much much more complex in probate and much more expensive as well. Creating a living trust from the get go can be a very wise financial investment.

How exactly does a living trust help you avoid probate?

This is an excellent question.  The answer is that your living trust must be properly “funded” with all of your assets.

Think of your trust when it’s initially created as an empty box.  You’re the trustee and so you are in control of that box during your life or while you have capacity.  

All of your personal property is assigned to the trust on the day you sign it at your office.  Our firm creates a beneficiary deed for your home so that your home is owned by your trust when you pass and avoids probate.  

We’ll review a Funding Memorandum, which is a set of instructions about how to fund your different types of assets into your living trust after it’s been created and so everything you own will avoid probate when you pass away.

If you think about it, the average person might or might not have a lot of assets in terms of value but almost everyone has the same categories of assets.  

The categories of investments are typically (and what we’re concerned about funding into the trust)

• Personal Property:  everything you own that doesn’t have a title, so furniture, sporting goods, clothing, china, personal effects like picture albums, jewelry.  All of this is your “stuff”.
• Real Property:  Your home, land, a lake lot, a timeshare, a vacation home, etc.
• Business:  Do you own a sole proprietorship, an LLC, an S-Corporation or a partial interest in a business?  
• Life Insurance:  Term life and whole life policies, employer-provided life insurance (usually a multiple of your salary for a policy value).  
• Bank Accounts:  Checking, savings, money market accounts.
• Investment Accounts:  401K, IRA, non-qualified accounts, stock share accounts, Scottrade / E-Trade personal investment accounts, 529 accounts
• Vehicles:  Cars, trucks, boats, trailers.  

The above titled assets must be funded in you trust.  The Funding Memo explains how this is done. We’ve helped thousands of trust clients to fund their trust.  The only feedback I’ve ever received from past clients about the Funding Memo has been overwhelmingly positive and it made the entire funding process easy.  

I have very young children, how can a revocable trust help them?

This is yet another important reason to create a trust, having young children.  That’s because with a trust in place, you can dictate when those young children inherit.  Example: John and Joan have three young children: Jack (6), Jill (8) and Julie (2). If John and Joan were to pass away, their children would not be able to legally inherit because they are too young.  However, they were very smart with their estate planning and established a revocable trust before they passed away. They leave behind $3 million in their trust and name Uncle Jerry as successor trustee to manage the trust for the benefit of the three children until they reach certain ages.  

Let’s see how that works:

• The trust states that upon John and Joan passing, their trust estate is distributed 1/3 to Jack, 1/3 to Jill and 1/3 to Julie and that the successor trustee is Uncle Jerry.  They also name Uncle Jerry in their wills as guardian of the three children until they are 18.
• The trust mandates that Uncle Jerry create three separate trust accounts for each child and Uncle Jerry opens three separate brokerage accounts with $1 million each with ABC Financial.  
• The trust terms states that Uncle Jerry should provide for each of the children’s health, education, maintenance and support until they are 35.  
• The trust terms also state that at 25, each child receives 1/3 of their inheritance, that they receive another 1/3 at age 30 and the final 1/3 distribution at age 35.  
• By having the money invested over time, you’re increasing the likelihood that the money will grow and ultimately the distributions are offset by the gains in the value.  This is much preferable to having the money just sitting in an account, gaining minimal value through interest.

What if I want to change my living trust down the road?

That’s not a problem as long as you have capacity to do so.  Depending on the type of change or how in depth it is, the process is usually very easy and much simpler than creating a living trust from scratch, which is not necessary.

What if I move out of state, does having a living trust help with that?

Yes and here’s why.  All 50 states allow for living trusts, but you want to make sure that if you created one in Missouri but moved to say, Florida, that you amend your trust to reflect that the governing law provision (which will be Missouri law if you created a Missouri revocable trust) is changed to reflect that Florida law controls.  That’s an easy process. Once you move down there (or possibly before if you can), you’ll hire a Florida lawyer to amend the trust to note that you now live in Florida and that Florida law controls the trust. That’s it and you’re done.

I own property out of state, do I have to create a separate trust for that out of state property?

No.  Say you own a condo in Destin, Florida (I like Florida a lot) but you live most of the year in Missouri.  Under the law, you’re still a Missourian. BUT, and this is important, you can still ensure your Florida property is owned by your Missouri trust by transferring the property to your trust with the help of a Florida lawyer creating a deed to accomplish this.  This is crucial because if a person passes away in one state but owns property in another and that out of state property ends up in probate, you have to open a probate in Missouri and what’s called an “ancillary probate” in the other state where the out of state property is located.  If this sounds like a mess, that’s because it is. Simple solution: Transfer the out of state property to your trust while you’re living and it’s done.    

I was told I needed to have my trust reviewed every year after it’s created.  Is that true?

You certainly can have it reviewed every year but I don’t recommend it.  I recommend that you review your trust every so often (maybe every five years) or whenever you have a major life event occur, which would be a death in the family, divorce, acquiring significant assets, change in relationship with your trustee.  Those are just a few alarms that might go off if you need to have your trust reviewed.

But every year?  No.

How does your firm handle trust reviews?  What does it cost?

In a typical situation, a client will call and my office will set up a quick phone call to discuss any trust review issues.  There is typically no cost for the call and to diagnose whether changes need to be made and what they are. If changes need to be made, that depends on what the changes are and how extensive they are.  Our firm takes a lot of pride in not being ticky-tack with fees. In other words, we don’t bill by the minute when a new or former client calls and it’s relatively pain free to figure something out without incurring a bill.  If we perform work after the call, there is a charge, but its commensurate with the work being completed.

What are some benefits of having Legacy Law Center draft my living trust?

• We’ve helped thousands of clients in the St. Charles County area to create living trusts, wills, powers of attorney and other estate planning documents.
• We ensure that your estate plan, including your living trust is tailored to your specific needs.  Not everyone has the same goals, the same family situation and the same financial position. Your plan is tailored to your needs.
• Check out our reviews on Google and Avvo.  We take care of our clients and it shows. Our office prides itself on creating tremendous client relationships, on setting expectations and meeting or exceeding them every time.