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Pros and Cons of Having a Trust

A living trust is one of the most commonly used estate planning tools, but what distinguishes a trust from a will?

Rather than make a simple statement of what assets go to what parties, you fund the trust and choose a trustee to administer it according to your wishes. If you’re contemplating becoming the settlor (founder) of a living trust and want to know the advantages and disadvantages of this legal relationship, keep reading.

filling out paperwork

Pro 1: Flexibility

A living trust is the way to go if you’re seeking maximum flexibility.

Since you (and, later, your surviving trustees) will enforce the conditions of the trust, you can set aside funds that your descendants must use in a certain way. Commonly, settlors set aside funds that their beneficiaries can use for education, real estate purchases, or travel. You can also establish specific conditions that beneficiaries must meet to access the assets, like age or stage-of-life requirements. For example, you can allocate enough money to pay for a future grandchild’s first year of college or their first house after getting married. The trustee will release those funds to the grandchild once they enroll in college or after their wedding.

Depending on the type of trust you create, you may be able to change how your assets are managed while you are still alive. In a revocable living trust, you can submit amendments at any time. Irrevocable living trusts cannot change.

Pro 2: No Probate Necessary

Probate court can be a lengthy, bureaucratic, and overall painful experience for your descendants—heated arguments between family members about who gets what only add to the stress.

However, if you have a living trust, the assets in the trust will not go through probate proceedings. Rather than an executor or court administering your estate, as they would with a will, your designated trustee handles the business of managing and distributing your assets to the beneficiaries you choose.

Pro 3: Privacy

The privacy advantages of a living trust stem from the fact that assets in the trust do not go through probate court proceedings. Probate is a very public process, and in addition to family members making challenges, so can creditors and con artists seeking to take pieces of your estate for themselves. Any asset distribution under a trust will happen quickly and be invisible to the public eye.

Con 1: Control

A trust is an independent entity. You can manage it while you are alive as both the settlor and the trustee, but despite the wishes and motivations you have recorded, the trustee you designate will control your estate after you die. It will ultimately be up to them to distribute your assets the way you intended. They will determine whether beneficiaries have met the conditions that make them eligible to receive assets for which you set conditions.

Con 2: Responsibility and Paperwork

You are responsible for funding the trust while you are alive. If you don’t put your assets into the trust, your beneficiaries will not have guaranteed access to them upon your death.

Further, remember that only the items in the trust bypass probate proceedings. As such, for best results, you may have to file or refile more paperwork than you would with a will. We advise our living trust clients to ensure their real estate, vehicles, accounts, and other financial products are in the name of the trust.

Con 3: Taxes

This disadvantage depends on the type of trust you use. With a revocable trust, you have more control while you are alive. However, the items you move into and out of the trust are still tied to your taxpayer ID number, and the federal and state government can still charge you income tax, and potentially estate tax, on them.

With irrevocable trusts, you completely transfer ownership of the items from you to the trust itself. There may be gift taxes relating to the transfer, but in the long term, they may not be subject to estate taxes if your estate exceeds the value threshold.

planning a trust

Contact an Estate Planning Attorney Today

At Arenson Law Group, PC, attorney James W. Radig and his team help clients leave the legacy they desire, whether through a trust or a will. We can answer your questions in a free consultation and help you determine which option is best for your situation. Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC today at (319) 363-8199 to get started.


Why a Living Will Is an Important Part of Your Estate Plan

Estate planning is a way of relieving everyone’s mind after you are gone. You can make all your property dispositions and bequests ahead of time and give yourself the flexibility to change your mind if you choose.

Estate planning laws are always changing, as the Iowa legislature recognizes that people want to maintain maximum control over their estates. Recently, changes were made in the law allowing settlors (the people who fund trusts) to determine who could manage their trusts.

living will and trust

Iowa’s Directed Trust Statute

Prior to July 1, 2020, Iowa courts would assign corporate trustees to manage family trusts after the death of the settlor. After the passage of the Directed Trust Statute, settlors could assign family members to specific roles within the trust. Of course, not all estates are large or complex enough to need these positions. If your estate includes multiple investments or a great deal of property, and you want to ensure it remains with the family through multiple generations, you need to consider including instructions for these positions when establishing your trust.

  • Investment Trust Director. This person is responsible for advising the trustee about what parts of the estate to invest, when to buy and sell, and what assets can be sold or reserved.
  • Distribution Trust Director. You may have laid out how you want your property distributed when you die, but family dynamics change, and you may not be privy to everyone’s needs when you write your will. A distribution director can help the trustee in distributing the estate with an eye to the immediate needs of your beneficiaries.
  • Trust Protectors. If you intend your trust to last more than one lifetime, then you may want someone within the family to monitor the estate. If your beneficiaries include grandchildren or great-grandchildren yet unborn, you may consider assigning someone to monitor the growth of your estate to ensure that everyone will be taken care of down the line. The trust protector’s powers are defined by the trust code.

The Directed Trust Statute was created to help make sure that your wishes and your beneficiaries will be protected long after you’re gone. This protection is one reason that a carefully written trust is a key part of your estate plan. If you have pressing questions about your plans, contact our legal team today.

Benefits of a Living Trust

Living trusts are important to have in your estate plan for other reasons. In general, a revocable living trust gives you control over your assets even after your death. This control can be important when you have many beneficiaries or want your estate divided in particular ways.

  • Distribution can be delayed or made conditional upon events. If you want to wait until a child graduates or resolves credit issues before you give them any of your assets, it can be done with a living trust. Minor children are more easily provided for since the trustee simply carries on with the trust distribution until they reach adulthood.
  • Special situations can be provided for. Wills and intestacy cannot always include provisions for unforeseen circumstances, but a trustee can usually be appointed for every situation. For instance, if a settlor dies leaving a seriously impaired spouse, a will would simply give the spouse the inheritance. A trust could provide for a trustee, a guardian, and an income.
  • Your heirs can avoid probate. There are pros and cons to this. The costs of setting up a living trust can be high, especially if you have a great deal of property. On the other hand, the benefits will be realized at the other end of the process when there is no probate to cope with. A trust will not spare your heirs all inheritance taxes but can avoid some of the highest ones.
  • Trusts are much harder to challenge in court. Iowa courts give great weight to the language and intent of the trust, so unless there is clear evidence of a reason to do so. The courts seldom grant modifications to trusts after the settlor’s death.

When you are deciding how to distribute your estate after your death, a living trust is the most flexible of your alternatives. You should discuss your options carefully with your attorney before making any final decisions about your estate.

older couple

Contact Us

You should consult a knowledgeable attorney from Arenson Law Group, PC when considering how best to manage your estate. Our Cedar Rapids estate planning attorneys can help you decide the best way to plan your trust in accordance with Iowa statutes. Call us at (319) 363-8199 for a consultation about your estate plans, or contact us online, and we’ll be in touch right away. Let us help you put your mind at ease.

 


What You Didn’t Know About An Irrevocable Trust

You may have heard people discussing “revocable,” “irrevocable,” and “living” trusts interchangeably. Trusts can be a good way to transfer your property after your death and let your heirs avoid the probate process. Trusts may also add unnecessary layers to small estates that would not have been probated anyway.

When it’s time to discuss establishing a trust with your attorney, one of the first things to do is make sure you clarify the difference between “revocable” and “irrevocable” trusts. The distinction is important for the settlor—you—to understand before beginning the process.

irrevocable trust

Types of Trusts

The testamentary trust, as the name implies, is created when the will is written and executed. It only becomes effective when the settlor dies. The most common type of testamentary trust is one that provides for minor children when their parents die.

More common today is the inter vivos or living trust. This trust is created while the settlor is alive and allows the settlor to establish what will and will not be placed in the trust. There are two subtypes of a living trust.

  • Revocable trusts can be altered or amended by the settlor during their lifetime. The settlor is usually also the trustee and may be a beneficiary of the trust. If the settlor chooses, a revocable trust can be terminated before the settlor’s death.
  • Irrevocable trusts may not be altered by the settlor or anyone else. Once property is transferred into an irrevocable trust, the settlor no longer has direct control over it, although the settlor may be the trustee of the trust. Revocable trusts become irrevocable upon the death of the settlor.

In Iowa, great deference is given to the language of the trust and the intent of the settlor. The Iowa Trust Code provides that the terms of the trust shall always control, even if the language of the Code differs. If you have pressing questions about your will or trusts, don’t hesitate to contact our experienced legal team today.

Terminating an Irrevocable Trust

Once an irrevocable trust has been created, terminating or modifying it becomes difficult.

Because the language of the trust always controls, terminating or modifying a trust is not as straightforward as it seems. The Iowa Supreme Court ruled this year that if one settlor has died, the survivor may not amend the resulting irrevocable trust unless the trust itself so states.

In Little v. Davis, No. 21-0953 (Iowa Sup. Ct. May 6, 2022), the spouses had placed the husband’s separate farmland property in a revocable trust to protect it for his children in the event he predeceased his wife. The trust stated that when the first spouse died, “the surviving settlor “shall not have the power to amend, revoke and/or terminate the [trust].”

The wife predeceased her husband. The husband decided, with the consent of all four beneficiary children, to amend the trust following her death. The husband died the next year, and one of the wife’s children sued, claiming the amendment should not have been allowed. The Supreme Court ultimately agreed, citing the Iowa Trust Code that required all settlors to agree to an amendment. Since the deceased spouse could not agree, a court order was required to amend the trust.

Had the husband gone to the court to request an order permitting the amendment, it might have been granted; however, this was not the case. Reach out to Arenson Law Group, PC today.

Implications for Your Estate Planning

This should not deter anyone from establishing a revocable or irrevocable trust if they feel it is necessary to protect their property. In the above case, both parties agreed that the husband’s property should be reserved in trust for his own children. The language used when drafting a trust is of critical importance.

Be sure that your intentions are clear. The court will always defer to the language of the trust since you won’t be here to explain what you wanted. In the above case, the spouses could have saved everyone a lot of litigation if they had said, “we want the husband’s separate property to go only to his children no matter who dies first.”

will/trusts law books

Contact Us

You should discuss your plans with an experienced estate planning attorney before committing anything to writing. At Arenson Law Group, PC, we will review the options with you and make sure we understand exactly what you want to happen upon your death. That way, when we draft your trust, no mistakes will be made.

Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC at (319) 363-8199 for a consultation about your estate plan. We will review your finances and property with you so that you can be sure your final wishes will be carried out as you intend.


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