Oklahoma City Trust Attorneys
The Power & Utility of Trusts
Trusts are probably the most powerful estate planning tool you have available. While simple in form – your trust is just a type of contract – they have almost limitless use and flexibility. Your trust is used to take care of affairs if you were to die OR if you became incapacitated/incompetent due to an illness or injury. Trusts allow you to avoid probate, guardianship, family squabbles, and many other problems. This tool need not be expensive or complex – it works great for large, medium, and even small size estates.
Contact our Oklahoma City trust lawyers to create your trust today.
Want to know more? Read on!
Why a Trust?
Trusts are one of the oldest and the most powerful legal tools that we have at our disposal to solve a large number of problems in your estate. For some estates, a trust is the single most important legal tool in the entire estate plan.
Some people mistakenly believe that trusts are only for “rich people” or that they are far too expensive to include in their plan. They form these opinions without really understanding the benefits or the relative costs of this legal tool.
Frequently, the benefits of your trust – in saving time, hassle, and money – far outweigh the modest cost of including this tool in your plan. Only an experienced estate planning attorney can determine if a trust is the right choice to include in your complete estate plan.
What Exactly is a Trust?
A trust is just a contract – it’s as simple as that. It’s a legal agreement where one person entrusts some items to a second person, who in turn, promises to use those items for a third person.
The first person – the owner of some property such as a house, car, bank accounts, etc. - is the one who sets up the trust. This person is called the settlor (because they “settle” the trust or set it up). The settlor transfers this property to a trusted person – called, sensibly enough, the trustee.
The trustee agrees to use the property he/she/it holds for use of a third party – called the beneficiary. The trustee is not allowed to use the property (the “trust assets”) for anyone other than the trustee.
Now here comes the important part: even if the settlor were to get sick or die, the trustee can continue on using the trust assets for the benefit of the beneficiary. What’s more, if the trustee were to get sick or die, then the trust (usually) names a back-up trustee (called a “successor trustee”).
Trusts in Estate Planning
Trusts are very old, having come to us in the present form from all the way back in the time of Henry VIII in England. So how do trusts benefit us today, particularly in estate planning? Well, they help in much the same way that they did in Medieval England. Trusts are a very effective and reliable way to pass your land (and most every other asset) along to your family.
One reason that trusts work so well as an estate planning tool is that they are tremendously flexible – more so than many other legal instruments (such as wills or powers of attorney, which do still have important roles). One important example of that flexibility is that a trust may have more than one settlor. And more than one trustee. And more than one beneficiary, too!
We take advantage of these characteristics when using trusts in estate planning. Here’s how: it’s perfectly allowable for the same person to set up their own trust (as settlor), select his or herself as the trustee, and be the sole beneficiary of that trust.
If one person serves in all three roles – as Settlor, Trustee, and Beneficiary – that person remains in full and complete control of all assets they own inside their new trust. That person will place most everything into the trust in order to protect those assets.
It’s possible for a husband and wife to be co-settlors of a single trust. They can also be co-trustees, as well as co-beneficiaries. Using this technique, a husband and wife can co-own all of their assets in a safe and effective way.
If you set up a trust, then place your assets into it, you can (and should!) pick someone to take care of things if you were ever to get very sick or were to die. That backup person is called a successor trustee.
The successor trustee can be any person that you, as settlor, trust to handle things for you. The successor trustee will take care of paying, bills, buying and selling assets if necessary, and using everything in the trust for only the beneficiary (you, while you are alive).
The successor trustee cannot use any money or other items in the trust for anyone other than the named beneficiary. The trustee is bound by law to do so. Still, it is wise to select a successor trustee that you trust. Often, the settlor of the trust will make a list of successor trustees. That way, if the first person name were to get sick, die, or otherwise couldn’t serve, then the next-named successor trustee will automatically take over.
Likewise, the settlor will make a list of beneficiaries who will receive the items in the trust. The settlor can decide not only who will be on the list of beneficiaries but can designate when and how each named person will get their inheritance. This is a very powerful feature of trusts.
You could, for example, require that your trustee takes care of your minor children – pay for school, housing, medical needs, etc. But, you can require that each child must reach a certain age before having direct access to his or her inheritance from you. You get to pick the age – probably, you will require that they be older than the legal minimum of age 18.
This is only one clever and powerful requirement that you and our attorneys will include in your trust. There are many more elections that you can add to your trust. Our attorneys have many great ideas that we can custom fit to you and your family.
Why Not Use Co-Ownership?
Let’s say a husband a wife own the usual suspects: a house, two cars, bank accounts, maybe a small business. This couple’s attorney explains to them that they are not as safe as they think they are.
They learn that just because they are married and both names are on many of their assets it would be a HUGE mistake not to create a fully comprehensive estate plan. Why? Many reasons, here’s just one:
The husband and wife of our example own their home in Joint Tenancy with Right of Survivorship – a very common form to own a home. They are aware that if one of them were to die the other will get the home because of the concept of Right of Survivorship. They wrongly assume that, as far as their home is concerned, all is well, nothing else need be done.
The problems are myriad – what if one of them becomes incompetent or incapacitated (unable to take care of their own legal affairs any longer)? The other spouse (the one who is not sick) can just handle everything, right? Wrong! The healthy spouse cannot sell the house, refinance it, or take virtually any action regarding it. This is because both spouses must act together, BOTH must sign legal documents.
Sadly, if the healthy spouse needs to take some action regarding the home, they cannot do so. Often the healthy spouse must go to court (in a guardianship proceeding) just to obtain legal authority to take care of the house (and the other legal needs of the sick spouse).
Let’s say that this same couple, created a trust prior to anyone getting sick. They place their house in the trust, then if either of them became ill, the other spouse (as trustee) can do whatever is needed with the house! Using the trust saves them from an expensive, time-consuming, and embarrassing guardianship.
Could some of these problems relating to incapacity/incompetency be addressed using a power of attorney? Sure, but the problem is that powers of attorney come with an inherent short-coming: They stop working if you (the principal) were to die! This is not the case with a trust, they work while you’re alive and even after you have passed away.
There exists another huge benefit to using a trust. It can shield you and your family from having to endure a probate. This is a very significant benefit of trusts because probates – the legal proceeding where your affairs are settled after you have died – can be expensive. Sometimes VERY expensive.
Probates can also be slow (often lasting several months or even several years), are not at all private, and can become the scene of fights amongst the heirs. Probate is the default legal process for people who die without having an adequate estate plan.
Unfortunately, if you create a will (your Last Will and Testament), it doesn’t allow you to avoid probate. In fact, it does quite the opposite. Wills in Oklahoma are not self-activating. They must be probated (“Admitted to Probate”) in order to activate them.
The same is not true for trusts. If you were to die, your trust keeps right on operating. It does not need any sort of court proceeding, attorneys, judges, etc., in order for it to function. It does so automatically – if it is properly drafted.
Other Benefits of Trusts
Trusts offer lots of other important benefits to you and your family. In your trust, you can divide your estate among your family members in any way that you wish. You can be sure that minors or disabled children have their needs met. The trustee can pay for school, housing, medical bills, etc. for your family members.
Think age 18 is too young for your child to get their inheritance outright? You can designate in the trust the age (or other criteria, such as the child must graduate from school) at which time the inheritance may be taken out of the trust, handed over to your child, and is no longer supervised and spent on them by your trustee.
Because trusts are not generally administered in open court, the settlement of the deceased person’s estate is far more private and confidential. The trust also reduces the risk of family squabbles and speeds the settlement process. And, again, it is often profoundly cheaper using a trust versus using a standard will.
Disbanding Misconceptions About Trusts
Some people harbor some rather unfortunate misconceptions about trusts. Let’s dispel a few – or perhaps more than a few.
“Trusts are only for rich people.” Not true, in fact quite the opposite is true. Rich people can just throw money at their estate planning problems. Certainly, by contrast, a very small estate may not require a lot of estate planning. It turns out that middle-income families benefit the most from using trusts.
“Trusts are too complicated. I prefer just a simple will.” While using a trust means that a family’s estate plan may be a bit more involved, it need not be especially complicated. Wills are not necessarily less complicated, they are just a different tool.
“I don’t need a trust, I have all my stuff co-owned with my spouse.” A common misconception of the dangerously misinformed. While co-ownership is a helpful strategy, it is by no means a fix to all problems. It doesn’t help if one or both spouses become incapacitated or were to die in a common accident. Spouses co-owning items just means that maybe only the first probate is avoided – but does nothing to help when the other spouse dies.
“Trusts are too expensive.” In most cases, trusts are a small fraction of the cost a family will expend if they don’t have one. The cost of a comprehensive and complete estate plan that includes a trust at McBride & Associates are always very fair and reasonable.
“If I put my stuff in a trust, I will lose control of everything.” The exact opposite is true – you will actually have more control than ever after placing your assets into a standard family trust. This is because you can control what happens to your assets even if you were to get very sick or were to die.
How to Get Started with Your Trust in Oklahoma City or Edmond
To learn how to use a trust in your estate plan, give us a call. We can schedule a free initial consultation and explore with you all of your options.
Call (405) 896-3615 today for a free case evaluation with our skilled Oklahoma City estate planning lawyer.