We provide explanations of the many different estate planning devices that can be used in some of our posts because it is important to understand your options. In this one, we will look at five interesting trusts that tend to fly under the radar.
People have sometimes used so-called “secret trusts” to facilitate confidential transfers. Why would you do such a thing? You may never have the need, but individuals with clandestine paramours or out of wedlock children may be in this position.
To explain through the use of an example, let’s say that Charlie has a secret child that his wife and their children do not know about. He wants to provide for the child in his estate plan, but he wants to keep it on the down low.
Charlie has a close relationship with his brother, Bill, and he gets Bill to go along with the plan. Charlie names Bill in his will as an inheritor, and the family will think nothing of it.
Unbeknownst to them, Bill will use the money to fund a trust for the benefit of Charlie’s child.
These trusts are not recommended by estate planning lawyers because the secret is not always airtight. In the news gets out, complicated and contentious estate litigation can be initiated by the family that was left out of the loop.
Someone like Charlie could satisfy his objective through the utilization of a Totten trust.
When you open an account at a brokerage or bank, you can name a beneficiary that would inherit the assets after your passing. This is called a Totten trust or payable on death account.
After the death of the original account holder, the beneficiary would obtain a death certificate and show it to the financial institution and the funds would be released.
A will is admitted to probate, which is a legal process that takes place under the supervision of a court. It is a public proceeding, so anyone that is interested can find out how the assets were distributed.
Transfers that are facilitated through a Totten trust are not subject to probate, so no one has to know about the existence of the account or the identity of the beneficiary.
If you are an executive in a company that is bound by securities regulations, you may have concerns about insider trading allegations. As a response, you could convey assets into a blind trust. This would also be a solution for someone that is holding a political office.
The trustee would manage the assets in the trust, and the grantor would have no knowledge of the specific actions of the trustee with regard to the investments that are being made.
If you want to make sure that your family will not have to pick up the tab for your funeral, you can establish a funeral trust.
You make an arrangement with a funeral home that offers this option, and you fund the trust while you are living. After your passing, the assets in the trust would be utilized to pay your final expenses.
The last type of trust that we will look at here is the rabbi trust. Companies will sometimes compensate executives by conveying assets into this type of trust. There is a tax advantage, because the resources would accumulate in a tax-deferred manner.
Why is the trust called a rabbi trust when it has nothing to do with religion? When the first trust of this nature was utilized, a rabbi was the beneficiary, and the name has been used ever since then.
We Are Here to Help!
As you can see, there are many different ways to proceed when you are planning your estate. The right choice will depend on the circumstances, and this is why you should discuss your options with a Naperville, Illinois estate planning lawyer.
If you are ready to do just that, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 630-568-8611.