Most executives are accustomed to carefully planning for the future of their business. But when it comes to planning for the future of their own wealth, these same executives are often not familiar with their choices or the potential risks of inaction. This can prove to be a big mistake, says Dexter Lowry, a certified financial planner at Union Bank in San Francisco.
“If you’re passionate about your business, you should be equally as passionate about protecting it in the event of your death or disability,” says Lowry.
Smart Business spoke with Lowry about how trusts can help protect your business and your family and how the right trustee can help ensure your personal and business financial plans are executed according to your wishes.
What is a trust, and how can it help protect your assets?
Very simply, a trust is a written agreement that provides the terms under which you wish your assets to be held and managed, and where you want them ultimately to be distributed. Once a trust is established, you then can systematically place all of your assets — your home, bank accounts, etc. — in the name of that trust. Then, you manage and control the assets until you become incapable due to death or disability. Your trust will also define when a person named by you will take over the role as your successor trustee. At that point your assets will remain in the trust and will be controlled by the language of the trust.
What are the benefits of establishing a trust?
First, you avoid time-consuming and expensive probate administration. The court and the attorney costs can quickly add up, plus the process is not a pleasant experience. It’s also very public, whereas a trust is a private document and assets are not exposed to public scrutiny.
Second, a trust protects your family from having to manage your assets should you become disabled or incapacitated. If you don’t have a trust in place, a conservator may need to be appointed by the court to manage your assets, should you become incapable. Once again, this is an expensive and public process that you can easily avoid.
Finally, a trust can help you reduce tax liability. In fact, many people view this as the prime reason to create either a living trust, which you create and fund during your lifetime, or a testamentary trust, which is created and funded after your death through the terms of your will.
Probably the most important thing to remember is that a trust allows you to make decisions from beyond the grave, but you have to put it in writing. You can include terms in the trust that tell your trustee how future decisions are to be made — even if you’re not here to make that decision.