Estate Planning with Stand-by Trusts

Some Trusts are written into a Last Will and Testament, and are designed to receive the eventual inheritance by the beneficiary of the estate. These are called “testamentary trusts.” Other Trusts are set up during the lifetime of the creator of the Trust. This latter group is called inter vivos” which is a Latin term meaning “during the lifetime.” Some inter vivos trusts are funded — the creator of the Trust may give up his/her ownership of certain assets and transfer the assets to the Trust. Other Trusts are designed to be “stand-by Trusts” which will be there in case they are needed.

Here’s an example. From time to time, I have had a client who told me that they had older relatives out of state who wanted to be able to leave some money for my client’s children, but wanted it to be held in trust for some years and didn’t want to write that Trust into their own estate plan or Will. A stand-by trust created by the clients is sometimes a good solution solution. When we write the trust document, the client can be the trustee of the trust. We would get an EIN# and the client would provide all of the relatives with the proper name and EIN# for the Trust, so that in those other Wills, the bequest could be directed to this particular Trust. In this example, the stand-by Trust may be initially funded with just the bare minimum to set up the account. If those relatives decided to make gifts during their lifetimes, the gifts could be deposited right into the Trust.

Estate planning must be individually tailored. Your needs and worries are no doubt different from your neighbor’s. Planning isn’t a cookie-cutter process; merely downloading a form and filling in the blanks isn’t “planning.”  You want your plan to address the issues that are of particular concern to you. Some typical goals of an estate plan that includes inter vivos Trusts are:

(a)  setting assets aside for other family members to avoid the risk that those assets will be spent on health care or nursing home care, (b) having a supplemental needs stand-by Trust available for benefit of a disabled family member that can be the recipient of money from other relatives such as grandparents who may make gifts (during their lifetime) or may leave a bequest (under a Will) or leave assets via a beneficiary designation to the disabled person, or (c) streamlining the estate administration process when there is out-of-state property. Of course, leaving your child’s inheritance in Trust under your Will might also be important if you are concerned that they are too immature to handle the assets, of they have debtor-creditor problems, addiction problems, or problems within a marriage or other areas of life.


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