Clients use marital trusts for multiple benefits in their estate plans, including asset allocation, planning for blended families, creditor protection and tax benefits. If you are married, marital trusts are worth considering in your estate plan.
Forbes’ recent article entitled “Guide To Marital Trusts” says that a marital trust is an irrevocable trust that allows you to transfer a deceased spouse’s assets to the surviving spouse at death in a tax efficient manner. When the surviving spouse dies, the assets in the trust aren’t necessarily part of their estate. That may keep the taxes on their estate lower.
A marital trust is created by one spouse in their trust or wife, and it holds property for the benefit of the surviving spouse. The trustee of the marital trust can be the surviving spouse, or another person chosen by the creator.
All of the income of the trust is paid to the spouse during their lifetime. This basically means if the trust is producing money such as dividends, rent and so on, it pays out to the surviving spouse. This is often a good way to provide an income stream for the surviving spouse without giving them unfettered access to all of the assets.
At the death of the surviving spouse, the remaining trust property can go to the beneficiaries the first spouse designated. This is especially helpful in blended families where one spouse wants to provide for their spouse, but wants what remains to go to their children.
The trust may also protect assets from creditors and future spouses that the surviving spouse may encounter. It accomplishes this by keeping the assets within the trust and prevents them from freely being taken out by a creditor or predator.
If keeping wealth within your family after you die is important, then a marital trust is an estate planning tool that may help
Guardianship is the court process by which a Judge appoints a person to make decisions on behalf of someone who cannot make them for themselves. Guardianship is a very involved process which removes or reduces the legal autonomy of the individual and appoints a decision maker for that person. Guardianship can be invasive, time-consuming and costly. Although guardianship is sometimes necessary and beneficiary to the individual, many clients seek to avoid guardianship and, in fact, Texas (and virtually every state’s) law directs you to use less restricting guardianship alternatives where available. The best options require preplanning however, so if you want to avoid the need for guardianship, you should consider some of the following guardianship alternatives. See the article entitled “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First” from Kiplinger for more.
Durable Financial Powers of Attorney
Guardianship often is necessary when an elderly individual loses legal capacity due to dementia, Alzheimer’s or other conditions leading to cognitive decline. In that case, the person cannot make their own financial decisions anymore, so a guardian would need to be appointed to manage their assets.
However, if an individual has a durable financial power of attorney (POA) in place, then this may not be necessary. The POA names an individual to take financial action for you if you can’t yourself. It is usually much better than guardianship as you are the person choosing who will act and you can set the rules as you want. It is also substantially cheaper than guardianship litigation. It is also one of the most important estate planning documents for this reason.
Trusts are more than just will substitutes. In this context, the trustee of the trust can control the assets owned by the trust. So, if the person who created the trust becomes incapacitated, the successor trustee (again a person you choose) can take over and start controlling the assets. This is often a major reason for clients who create revocable trusts later in life or who have concerns about long-term care or management of their assets.
Medical Powers of Attorney
This echoes the issues of the financial POA, namely that you can appoint a person to make medical decisions for you. Now, the law does provide default decision makers for medical decisions makers, so this isn’t typically the reason for a guardian. However, it too is a critical document for several reasons. Among them, you may not want the default to be your decision-maker, it provides clarity of responsibility and lets the decision-maker know in advance what’s expected of them, and finally, avoids delay in a medical crisis when the documents have to figure out your family history to determine who a default decision-maker is.
Naming Fiduciaries for Minors
Another common guardianship scenario is leaving property to minors. Although there are multiple state-based alternatives which might be helpful, such as creating UTMA/UGMA accounts (Uniform Trusts for Minors Act/Uniform Gifts to Minors Act), paying to a court registry or possibly to a parent of that child depending on the circumstance. However, if these alternatives don’t work, you may need a guardian for the minor.
In any case where leaving property is intentional, such as in a will or trust, an easy solution is to establish a trust for the minor within your own documents. This accomplishes several goals, but here, allows for an adult to hold the property for the child. They can then spend the assets on their behalf, such as on education, daily living and so on,
Now, the above are mostly proactive steps, so these are what you can do now to avoid guardianship later. However, if you or a loved one find yourself without sufficiently covering these concerns and contemplating guardianship, there are still some alternatives that might help or help reduce the scope of the guardianship.
This a blog unto itself so this will be brief, but guardianship can be limited in nature. Essentially, the powers of the guardian are limited so that the least autonomy is taking from the individual as possible. This could mean that only assets are under the control of the guardian, or perhaps only to control some personal decisions such as medical decisions.
Some families take the step of making a family member a joint owner on a bank or other assets. Now, I didn’t include this as a proactive measure because joint ownership has a litany of difficulties. It includes the risk of creditor issues, potential concerns over gift making, disruption of the estate, plan, tax implications and lends to family disputes. However, should you find yourself with the need for guardianship, this can be a less restrictive guardianship alternative.
Social Security Representative Payees
Social Security pays to an account with a designated rep payee for beneficiaries who can’t act for themselves. So, on this particular account, the rep payee, which is typically a close family member, but could be someone else, is already authorized to control that particular asset. So, this doesn’t typically completely avoid the need for a guardianship, but does mean that one account receiving income can be accessed and utilized for an individual without the intervention of a guardian.
Community Property Administration by a Spouse
This is distinctly a Texas solution, but we have community and separate property. Community property is owned by the marriage, as opposed to the individual. So, depending on the assets of the individual, her marital status and suitability of the spouse to do this, community administration might be a helpful guardianship alternative.
Although this isn’t a guardianship alternative, I’d be remiss if I didn’t mention it. You have the power to name the person who you would want to be a guardian for you if guardianship is necessary. We routinely prepare these for clients so that should guardianship be necessary, you’ve told the court who should do it. They are very seldom necessary due to the estate planning we put in place, but it serves a belt and suspenders approach to ensure you have as much control over a guardianship process as possible.
There are other guardianship alternatives beyond what I included here, but key factor is that preplanning is the best guardianship alternative. Talk with an experienced estate planning attorney to protect yourself or loved ones from having to pursue guardianship.