retirement

Some money goals may require a trust

Don TaylorQuestionDear Dr. Don,
I am a retiree over age 72. My savings are held in saving accounts, CDs, Treasury bills and bonds. I have a small family and no one is knowledgeable or equipped to handle finances.

I'm getting nervous. I need and want a trust account for my son and grandchildren. I have been unsuccessful in finding a proper resource in my area. The one bank I know that has a trust department does not serve customers with less than $600,000 of cash for investment purposes. I have less than that amount to place in trust.

I don't understand the minimum asset size. Nor do I understand the cost to establish the account and the expected costs during the lifetime of the trust. Perhaps I have unreasonable expectations. I am looking for a frugal, reasonable and productive alternative as to what to do with the money saved during my employment years. Is there a safe alternative for establishing a trust fund?

At this point, I am mothering my savings account -- I'm losing money due to low yields and am not willing to make bank-recommended investments of my savings into the bank's bond program, which I am told will earn 4 percent interest. Somehow, I just don't believe the interest rate is true or accurate.

I'm stuck! Incidentally, I am updating my will, which may not have mention of the trust fund.
-- Jere Juncture

AnswerDear Jere,
Without knowing your goals for the trust, it's hard to say what acceptable alternatives there are to placing the assets in trust. A simple action like initiating a payable on death beneficiary can transfer some assets, such as savings accounts and CDs, outside of probate, if avoiding probate is a goal.

If you're just looking for professional money management, there are less expensive alternatives than establishing a trust.

But it will be difficult to accomplish your goal outside of a trust if the goal is to protect the assets by including spendthrift provisions, specific vesting provisions (fractions to be disbursed at certain attained ages), earned income or "no drug use" incentives, or granting discretion to the trustee to invade principal for purchase of a primary home or to start a business, etc.

I recommend you work with an attorney to establish what your goals are and whether trusts are the right vehicle to accomplish those goals. The attorney can help you decide whether the trusts should be revocable or irrevocable, established now or testamentary. The attorney can also draft the trust documents and comment on whether the will needs to include a discussion of any trusts.

Trust administration is expensive on a couple of fronts. Paying a corporate trustee to oversee the trust is one expense. The tax rate on trust income may be higher than your personal income tax rate. You have to decide if the costs are justified based on the expected benefits from holding the assets in trust.

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