One of the most compelling reasons to work with a lawyer to develop your estate plan is the fact that your attorney will explain the options that are available to you. There are many different trusts that can be used, and you may be surprised by some of them.
A secret trust is usually not recommended by estate planning lawyers, but it is an interesting device that has been used. The best way to explain is through the utilization of a hypothetical example.
John is a married man with three children from his only marriage, but he is living a double life. He has had a paramour for many years, and he wants to provide for her in his estate plan without revealing the affair to his family members.
He knows that he can confide in his brother, Rob, and he asks his brother to do him a favor. John will make Rob the beneficiary of an inheritance through the terms of his will, and his family will not think there is anything unusual about it.
However, Rob will not pocket the money. He will use the assets to fund a trust for the benefit of John’s significant other.
The secret trust is a lawsuit waiting to happen, because family members can file an action to contest the terms if they find out about the existence of the arrangement. This is the reason why they are rarely utilized.
Someone that is in John’s position could use a Totten trust to satisfy his secrecy objective. This is a payable on death account that can be started at a bank or a brokerage.
If you create this type of account, you name a beneficiary, and they would not have access to the resources while you are alive. After your passing, the beneficiary would obtain a death certificate and present it to the institution, and the assets would be released.
The transfer to the beneficiary would not be subject to probate. This is a court proceeding that is public, so the records are available to anyone that is interested. No one would have the right to find out about a transfer that is facilitated through the use of a Totten trust.
Why would a trust be specifically designed for a rabbi? This is a good question, but the name of the trust came about because the first beneficiary of this type of trust was in fact a rabbi.
A rabbi trust can be used to compensate an executive. The company conveys assets into the trust for the benefit of the employee, and there is a tax deferral benefit, because the distributions can be taken when the beneficiary is in a lower tax bracket.
In some cases, an executive that is bound by securities regulations will have concerns about conflicts of interest. They could convey assets into a blind trust that is managed by an independent trustee that would have limited contact with the grantor.
Some people that hold political offices use these trusts because they will be voting on legislation that can impact stock values.
The last type of trust that we will look at here is the funeral trust. If you want to pay your final expenses in advance, you could establish this type of trust with a funeral home that offers this option.
You contribute into the trust while you are living, and after your death, the assets would be used to pay for your funeral expenses.
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