In its most simplistic form, a Trust is a separate legal entity that owns assets for the benefit of another person or entity. As part of your estate plan, a properly drafted Trust is a very effective asset management tool. A Trust bifurcates title in an asset into two categories: legal title and beneficial title.
Briefly, legal title determines who or what owns an asset; beneficial title determines who has the right to use and enjoy the asset. This bifurcation of title is how a Trust can alter your estate plan. The most basic example is a trust for a minor child. If you were to leave a sizable sum of money to a teenager, the likelihood of that teenager properly managing the money is low. But this likelihood doesn’t eliminate your desire to leave a generous gift. Leaving the funds to a Trust for the benefit of the child gives you the ability to make a generous gift and to control how that gift is used.
For example, if you left $100,000 to your grandchild outright, he or she could use the funds to help buy a house, pay for his/her education, or spend it all on lottery tickets. Your grandchild’s decision regarding the $100,000 could go in any direction, but with a Trust you have the ability to limit the options. If instead you left the $100,000 in Trust to your child for the benefit of your grandchild, then you can direct your child to spend the 100,000 on your grandchild’s behalf in specific areas, e.g. education, a wedding, a home, etc. In this case, your child would hold legal title (i.e., an account holding the funds would be accessible by your child only) but your grandchild would hold beneficial title (i.e., the use and enjoyment of the money belongs to your grandchild). With a Trust, you are able to make your desired gift while retaining some amount of control and direction over the gift.
A Trust is a powerful estate planning tool that permits you to make a gift to an individual while ensuring the asset is spent or used in a way that you would have approved.
Daniel Makoski’s primary areas of concentration are tax planning, tax controversy, transactional business matters, wills, trusts, and estate planning. Contact Mr. Makoski at Gebhardt & Kiefer, PC at 908-735-5161 or via email.