- Most people need the same type of basic estate planning documents—usually 9 to 10 documents per individual—to form the foundation of their estate plan. Some people need additional documents, depending on the complexity of their estate.
- Some of these additional estate planning devices—like “predator and creditor” trusts, which do not give beneficiaries instant access to the principal—can be useful to many different types of people.
- Putting money in a revocable living trust does not guarantee that the money will be safe from creditors. This is a common misconception.
In estate planning, many aspects are similar for many types of people, though there are some different aspects that arise depending on the person or couple.
For example, many aspects of estate planning are the same for all couples, no matter what age they are—while other things differ. The needs of a couple with younger children will differ from the needs of a couple with grown children (and will differ also from the needs of a couple with no children), but all of those couples will need documents like living wills and medical powers of attorney.
Sometimes, the way a person or couple has lived their life becomes especially salient when I am helping them make their estate plan. This is especially true, for example, in situations where the man in a couple has controlled the couple’s business and finances. In these cases, it is important for the other trustor or the creator of the trust (i.e., the wife) to understand the scope and the nature of the assets and where they are.
I am thinking of clients I have had to whom this descriptor applies. They came of age in a time when things were a bit more traditional financially, and the man was out working and the woman stayed at home to raise the children. In these couples, the woman often did not have any knowledge or access to the overall view of the business or estate and/or the financial aspects of the business or estate. With an estate plan, for a couple like that, my job is to identify where all the assets are, where all the bank accounts are, and begin the education process for a woman who may not have had earlier financial access to things. Now, because we have consolidated everything into the estate plan, we know where everything is, and the wife begins to educate herself about what’s going to happen if her husband dies before she does.
Outside of this unique example, we can speak further about a few scenarios with regard to estate plans. Typically for any couple, there are about 21 separate documents in an estate plan. You can see some of those documents on our website. Typically, the average individual within a couple (and in general) has at least 9 to 10 separate documents in an estate plan. For a young couple with no children, who are likely to still have a relatively uncomplicated estate, we will likely still only have 9-10 documents, because we’re covering the basic issues.
Certain scenarios necessitate additional documents. For example, when people come in with an inheritance, which they want to maintain as their separate property, then we have additional documents to make sure that the inheritance is kept separate. If you have a special needs trust, that also necessitates separate documents.
Blended families are another situation where additional documents will be necessary. If you have a blended family, then we have to make sure that all the children are provided for and taken care of appropriately.
For example, let’s say there’s a blended family where one spouse had two kids from a previous marriage, and then had two kids within the marriage. If that spouse dies, then we have to make sure that their two children from a previous relationship are taken care of in the estate planning documents for that spouse (aka the biological parent of the children in question). That is very important.
In cases where couples have adult children or have a new marriage, I’m a very strong advocate for what we call the creditor and predator trust. I mentioned this trust before, it’s a sub-trust, that you create within your living trust for a person or group of people. They’re entitled to the income from that trust—a certain income based upon the terms of the trust. However, they are not entitled to the assets and the principal within that trust. Only at a later time, will that beneficiary have access to the principal of the trust.
In other words, the beneficiaries are not entitled to go in and get the principal out. They get a certain percentage—or, at the discretion of the trustee—a certain amount of income every year, based upon the investment of the assets.
Why is that a good thing? Number one, because that person doesn’t own those assets then they’re not subject to any sort of divorce settlement. Since those assets were never officially that person’s property, they can’t be a part of community property in the State of California, so there’s no spousal claim. The other reason is that because the beneficiary doesn’t own those assets, no creditor of the beneficiary can come after the sub-trust.
This brings me to the misconceptions about living trusts. People think that if they put their money into a revocable living trust, then the money will be protected from creditors. This is absolutely not true. The trust is revocable: it’s created using the social security number of one of the spouses, usually of the primary breadwinner in the relationship. It is not an asset protection vehicle.
There are other types of trusts, what we call irrevocable or unchangeable trusts, that can provide some asset protection. However, those are not within the scope of the traditional revocable living trust estate planning scenario. Those are usually special areas which have their own limitations and requirements and are well beyond the scope of this discussion today. Still, the takeaway here should be: just because you put your money in a revocable living trust does not mean that it is safe.
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