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How many trusts do I need?How many trusts do I need?

Estate Plan Edge: A revocable living trust can create many readily updated trusts.

Curt Ferguson

October 4, 2022

4 Min Read

Several months ago, we wrote about how trusts work on the farm. Instead of giving your estate to your loved ones outright, there are many advantages of giving it to them in some type of trust. This is true whether you are giving them land, equipment, a business entity, life insurance, securities, retirement accounts or cash. Most likely, your estate consists of a variety of those things.

Giving in trust means attaching some terms or conditions to ownership of the property. Those terms or conditions can be very restrictive, or not at all, depending on the situation. If a beneficiary is a minor child, for instance, the trust for them will be placed under the control of an older individual. That older individual is the trustee, with responsibility to manage the assets and use the funds to provide for the child. If a beneficiary is disabled or has life challenges that impact their ability to handle money, their trust would similarly be placed under the control of a trustworthy trustee who will manage and use the trust property to appropriately help the beneficiary.

Perhaps the most powerful yet counterintuitive opportunity is to leave assets in trust for a beneficiary who is mature and capable. Perfect Patti may be the successor-farmer or your child who left the farm with your blessing and achieved success in other fields. Put terms or conditions on her inheritance? You do not want to tie her hands. So the trust for Patti is totally different. She can be the trustee. She can have unlimited authority for management and investment of the assets. She can distribute trust income and even principal to herself to maintain a comfortable standard of living. Under her stewardship, the trust likely will last for her lifetime, and probably even grow. Patti can leave what is left at her death to the remainder beneficiaries she chooses.

Why not simply leave the assets to her outright and let her decide whether she wants a trust? If your estate plan gives her the assets in trust, it is created for her by you. If she gets the assets and then creates her own trust, it is created by her. A trust created by you for her, with the right provisions, will protect the assets from life risks such as lawsuits and divorce, and from estate taxes at her death. A trust created by her cannot have those protections. The trust you set up for Patti is a “third party created, beneficiary controlled, asset protection trust.”

A simple plan

Most of our clients have more than one beneficiary. Even if they don’t have minors or challenged children who need assistance, they want the responsible children to get the benefit of an asset protection trust. Terms of a trust need to be in writing. This might sound like hiring an attorney to write a lot of trust documents. That might sound like a lot of expense.

Not so. Your three children don’t need a trust until you give them their inheritance. Furthermore, considering the speed of change in lives and laws, it would not be prudent to write a trust document today for each beneficiary and put them on a shelf until you die.

The solution is very simple. One document can create many different trusts. What document might that be? Your own revocable living trust.

Imagine a long trust agreement. In the early sections it says you create this trust for yourself, and you explain how things are to be handled in case of your disability. That is trust No. 1. The next sections state what will happen to your estate upon death: Appraise property, claim life insurance, pay debts and taxes, and then transfer what is left to beneficiaries. If you leave a surviving spouse, this document probably creates trust No. 2: an asset protection trust for your spouse. Then your trust document goes on to say what will happen after your spouse dies. “Divide my remaining trust assets into separate trusts for my children, and here are the terms of each child’s trust.” Same document now creates the third, fourth and fifth trusts: an asset protection trust for each of your three children.

Say you wrote this long living trust agreement recently. Every couple of years, that agreement should be updated. This will assure that each child’s asset protection trust will have, as of your death, the best-available balance of protection from life risks and taxes coupled with the broad control you desire for each responsible beneficiary. One document creates five readily updated trusts.

Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at The opinions of this writer are not necessarily those of Farm Progress/Informa.

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