5 P's of Revocable Living Trusts - Part 2

Today, we are continuing our discussion about the 5 P's of Revocable Living Trusts. This post highlights the last 3 P's: Prevention, Protection, and Preservation.

3. Prevention - Trusts are a wonderful tool to use in blended families because they can be structured to prevent the accidental disinheritance of children.

Every day, kids are being disinherited because their mother or father remarries and prepares a Will giving everything to their new spouse. The kids only inherit if the new husband or new wife has already died. In such a scenario, if the new spouse survives the parent, the parent's kids will never see a dime of their mother or father's estate. Everything goes to the new spouse. And who do you think the new spouse has as the beneficiaries to his or her Will? His kids or her kids...not your kids! I've worked with clients who have seen the family house, the family land, the family business end up in the hand of someone outside the family because of this simple, but costly, mistake.

This issue is also a problem because of the elective share statute in North Carolina. The elective share statute grants your husband or your wife an automatic entitlement to your estate -- no matter what your estate plan says. While this may make sense for traditional families, it creates challenges in blended family situations.

A revocable living trust can be used to prevent the disinheritance of kids when their parent remarries in a way that a Will cannot.

4. Protection - As I mentioned in last week's post, there are huge privacy issues at play here. The best way to protect your loved ones from predators who might attempt to exploit your loved ones due to their newfound wealth and inheritance is to never let that information get in the public domain in the first place. That's the kind of protection a trust provides.

The trust also offers protection when it comes to creditors. As long as the money is being held in a trust and is not in your heir's hands, no creditors can come after that money.

A trust can also be used to protect the heir from himself or herself. For example, if an heir has money management issues, has drug or alcohol dependency issues, is too immature to be financially responsible, or is in a destructive relationship, safeguards can be put in the trust to protect the money and to protect the heir as well. A Will simply isn't designed for this level of complexity.

5. Preservation - In North Carolina, as the law currently stands, a trust can live on into perpetuity. There is no mandatory end date to a trust. This means a trust can be used to preserve wealth for generation after generation. It can also be used to preserve income streams (such as the income from a business or rental properties) for your children and grandchildren. In other words, because the trust never dies and never expires, property does not have to be sold and stocks are not required to be liquidated upon your death. This allows the Trustee (the person who administers the trust and manages trust assets) great flexibility in developing an appropriate investment strategy for the trust. For example, the Trustee may want to sell certain assets and reinvest the proceeds in assets that offer better long-term investment opportunities.

Not all states allow trusts to live on indefinitely, but we are fortunate that North Carolina provides this planning opportunity to its residents.

This is not an exhaustive presentation of the benefits of revocable living trusts. To learn more about how a trust might be beneficial for you or your family based on the specifics of your situation, please give us a call to schedule a consultation - (919) 678-5761.