Changes in laws, society change trust planning

SYRACUSE — Changes in federal estate law in recent years have resulted in an evolution regarding how trusts are viewed and what type of trusts individuals and business owners are choosing.

“We’ve just seen a huge move from asset preservation from government to asset protection from other human beings,” says Todd Freeman, senior private client advisor in the Syracuse office of Wilmington Trust Corp. Trusts today are designed to protect assets from “creditors and predators,” he says.

The federal government allows the first $5.43 million of an estate to be exempt from federal taxes. For those with estates worth less than $5.43 million, estate planning can be less complex. However, for individuals, business owners and couples with a combined estate worth more than $10.86 million, trust and estate planning is essential both to avoid a heavy tax burden and to protect those assets from unwanted parties, says Freeman. That can be done in a variety of ways, depending on the individual circumstances.

“It’s not a cookie cutter at all,” he notes. Every family or business needs to develop a plan that’s best for the situation because these days there are a lot more options than the standard revocable or irrevocable trusts that were once very popular.

These days, the focus on asset protection is steering people toward options such a Delaware trust, Freeman says. The state has trust-friendly laws that allow for better asset preservation. “It avoids all creditors if they use the state of Delaware,” he says. “That’s where we’re seeing a lot of new business come in for us.”

An example might be a doctor, with a $2 million umbrella policy, putting assets into a Delaware trust to preserve them for his children and protect them from creditors in the event of a malpractice lawsuit where the judgment exceeds the umbrella policy. The standard irrevocable trust in New York would not protect those assets from that lawsuit, Freeman notes.

Other changes in society — including the decline of the traditional nuclear family of mother, father, and children; increasing legal recognition of same-sex marriage; and the continued prevalence of divorce and remarriage — have boosted the popularity of a number of other types of trusts, Freeman says.

Qualified terminable interest property trusts, known as QTIP trusts, have become a preferred option for those who are remarried. A QTIP allows the first spouse to die to control the disposition of the property, typically passing it along to the children, while still providing an income from that trust to the new spouse. A QTIP also allows people to keep assets protected from stepchildren, if that is their desire, or to exclude the spouses of their children as beneficiaries, Freeman adds.

With changes in society happening more rapidly these days, the estate-planning solutions of the past may not be applicable in the future, Wilmington Trust says.

The bottom line is anyone with an estate exceeding the federal exemption needs to plan ahead to make sure that estate is protected the way they want it to be, Freeman says. Many people don’t even realize the array of trust options available. “It’s our job to open their eyes,” he says. “Where do you want those assets to go?”

Wilmington Trust (www.wilmingtontrust.com), a subsidiary of M&T Bank Corp. (NYSE: MTB), provides wealth advisory and institutional client services, including personal and institutional trusts, financial planning, asset management, and retirement administrative services, for clients in all 50 states and in more than 90 countries. As of March 31, the company had $78 billion in assets under management.