Tanya Shimer 11/23/15 Tanya Shimer 11/23/15

Demystifying Trusts

Planning our estate with Wills and Trusts.

I can’t tell you how many times I get calls from people who want to create a trust of some kind as a part of their estate plan. There are many types of trusts and they all serve different purposes. I have created a summary of the most common types of trusts and what they are used for as a basic guideline to help dispel some of the myths around “trusts” and how they are used. There are many different asset protection tools available, including LLCs and family partnerships and so trusts are an important vehicle but not the only way to protect assets. As an estate planning tool, trusts are an important planning technique but not always either necessary or advisable. If you are curious about trusts and how they are used, I hope the summary below gives you some helpful information.

First, there are revocable trusts and irrevocable trust. Revocable living trusts are generally used as part of an overall estate plan and are important planning tools in Colorado when a client has assets in multiple states or a very complex asset structure, has an imminent disability that would require a successor trustee to be able to step in seamlessly, or has a need for privacy. While probate avoidance is important in some jurisdictions, Colorado has an informal and relatively simple probate process that can make the expense of trust set up contraindicative for simple estates. Revocable living trusts do not shelter assets from the creditors of the settlor and become irrevocable upon the death of the settlor.

An irrevocable trust cannot be modified or revoked after it is created. Examples of these are Irrevocable Life Insurance Trusts (ILIT) or Asset Protection Trusts, which can be set up in jurisdictions such as Nevada or the Cook Islands that have trust protection laws. ILITs are generally used as an estate planning technique for those who find themselves in the position of having taxable estates ($5.43 million in 2015) and Asset Protection Trusts are used to make sure that future creditors can never access the Trust to satisfy a judgment against the settlor.

Charitable Remainder Trusts are set up to benefit a nonprofit organization. These are used as an estate planning technique and can help avoid the estate being taxed and gift tax implications. The settlor receives benefits during his or her life and also receives the intangible benefit of being recognized by the charity beneficiary during his or her life.

Special Needs Trusts are set up for people who are disabled and receiving government benefits. The disabled beneficiary cannot control the amount or frequency of the trust distributions and cannot revoke the trust. Parents of a disabled child can establish a special needs trust as part of their estate plan and not worry that their child will be prevented form receiving necessary benefits when they are not their to care for their child.

There are many other types of trusts, including Spend Thrift Trusts which are created to protect a beneficiaries’ interests from creditors, Tax By-Pass Trusts, Totten Trusts, etc. If you are curious about whether a trust might be an important tool to manage your assets, I would be happy to discuss the various types and how they might or might not be applicable to your situation.

Tanya Shimer 10/6/12 Tanya Shimer 10/6/12

Can I provide for my pets in my estate plan?

Clients often ask me if they can provide for their pets in their estate plans. The answer is yes – Colorado does allow for Pet Trusts – and many people use these as a means to ensure that their beloved companions (dogs, cats, horses, exotic birds etc.) are provided for if they are either disabled or upon their death.

Pet Trusts are extremely useful in a number of situations. For most household pets, Pet Trusts are used as just-in-case planning, very similar to naming a guardian in your Will for minor children. For pets with a very long lifespan, such as many types of tropical birds, Pet Trusts may be viewed as a necessity so that pet owners can provide certainty of care for pets that will almost certainly outlive their human companions. Pet Trusts are also useful to provide continuity of care for pets in the event of the disability of a human companion.

In general, trusts need certain types of beneficiaries before they will be recognized and upheld by the law. Typically, these types of beneficiaries have been either ascertainable individuals or charities. Therefore, historically, it was difficult to provide for the continuing care of pets after death. In the past, estate planning to care for pets involved leaving assets to a trusted friend or family member with the understanding that they would use the assets to care for the pet. Although this method has certainly worked, there have undoubtedly been times when the pets have not been taken care of in the way that their human counterparts would have expected or the pets have not been cared for at all, with the trusted friend or family member using the assets for self-benefit instead of the benefit of the pet. Finally, the most obvious choice of an individual to care for a pets physical needs may not be the best choice of an individual to manage the assets placed in the trust for the benefit of the pet.

Several states now have legislation that specifically authorizes the establishment of trusts to benefit pets and other animals. Colorado law, reflected in Colorado Revised Statues Section 15-11-901, allows a pet owner to put aside assets and ensure that the assets are used for the benefit of the pet.

PET TRUSTS IN COLORADO

Many Colorado estate planners draft their Pet Trusts to allow pet owners to leave assets for the benefit of their pets as well as to allow the pet owners to designate both a Pet Guardian to manage the care of the pet and a Trustee to manage the assets in the trust and make appropriate distributions to the guardian. Because of this separation of duties, the creator of the Pet Trust can ensure that the best person is selected to care for the pet and the best person is selected to manage the assets funding the trust for the pet.

SPECIFICS OF THE COLORADO PET TRUST

Under Colorado law, Pet Trusts operate in the following manner:

Assets can be placed in trust for the benefit of a pet.
The trust can be written so that if the pet is pregnant at the time the trust goes into effect, the trust will remain in force to provide care for the offspring of the pet.
The trust will remain in effect until there is no living animal covered by it, unless an earlier termination is provided for in the trust itself.
The trustee is not allowed to use any portion of the principal or income of the Pet Trust for the trustee’s benefit or in any way that is not for the benefit of the animals covered by the trust.
The creator of the trust has complete freedom to designate where any assets left in the trust upon its termination should go.
The appropriate use of the trust funds can be enforced by a Trust Protector designated in the trust instrument, by any person having custody of an animal for which care is provided by the trust, by any beneficiary designated by the trust creator to receive assets at the termination of the trust, or, if none of the above, by an individual appointed by a court if someone makes an application to the court to review the use of the funds.
If there is ever a situation in which a Pet Trust comes into effect but there is no trustee able or willing to serve, a court has the authority to designate a trustee and make other orders and determinations so that the intent of the creator of the pet trust will be carried out.

WHEN TO SET UP A PET TRUST

Pet Trusts can be set up at death, at disability, or immediately upon signing a trust instrument.
Pet Trusts are typically set up in a Last Will so that upon the death of the creator of the Will, the Pet Trust is established and funded.
However, Pet Trusts can also be established in a Revocable Living Trust so that upon the disability of the creator of the Revocable Living Trust, a Pet Trust will be established to provide for continuity of care of the pet or pets.
Additionally, at any other time, any individual can set up a stand-alone Pet Trust to establish a Trustee and fund a trust for the benefit of a pet.