Should You Consider A Trust?

There may be no area in succession planning that generates as many questions, or more confusion, than trusts. At the same time, there many not be a more versatile tool for timberland families to address the complexities of managing and distributing unique assets such as forestland and farmland. Families who are committed to keeping these important assets in the family’s control, are well advised to explore trusts with their advisors. Here is why.

A trust is a legal entity in which the legal ownership is separated from the beneficial ownership of the property. (Beneficial ownership refers to the right to use the property, or benefit from the property in some manner.) Specifically, a trustee(s) owns and manages the property for the benefit of the beneficiaries. The person(s) who creates the trust is called the grantor or settlor or trustor. The trust document spells out the terms and conditions of the trust, such as:

• Who the grantors are

• Who the beneficiaries are

• Who the trustees are

• What is the purpose of the trust

• How the assets will be managed

• When and how the assets (principal or corpus) will be distributed

• How the income will be distributed

• Who will serve as successor trustees, if needed

• How trustees can be replaced

Once property is placed into a trust, it is the responsibility of the trustee to administer the property according to the trust document specifications. These trust directions can be general or very specific, depending upon the wishes of the grantor. The trust document creates legally enforceable rights for the beneficiaries, and the trustee is considered to own the property in a fiduciary capacity, for the benefit of these beneficiaries.

Trusts can be created while the grantor is alive (“living trusts” or “inter vivos trusts”), or they can be created by will, at death (testamentory trusts). They can be revocable (changeable), or irrevocable (non-changeable). They can help to reduce taxes, or not. They can distribute income or retain it for future use. They can treat beneficiaries equally, or treat them differently. Trustees can be given very broad discretionary powers, or more limited powers. The key word is flexibility. Trusts can be written to accomplish a wide variety of desires, or to meet specific family situations.

Many attorneys and financial advisors suggest revocable living trusts be used in conjunction with wills. This popular planning technique holds appeal for many family forestland owners, for the following reasons:

• It allows the grantors to also serve as trustees, if desired

• It provides for the continuous management of the assets (including real estate) according to the grantors’ instructions in the trust document, if the grantors become incapacitated

• It can provide for additional, “tax-saving trusts” to be created at the death of the grantor (sometimes referred to as “marital” and “family” trusts)

• It can provide for the ongoing income needs of a surviving spouse

• It can provide for the individual needs of children, grandchildren and other heirs

• It can help to protect the assets from the creditors of the heirs, from ex-spouses of heirs, or from the spendthrift tendencies of the heirs themselves

• It can incorporate charitable goals after death, as well

• It avoids the probate process, and keeps the affairs of the family private

A trust is not a replacement for poor planning or preparation. A family forestland owner still needs to determine his/ her vision and goals, to carefully evaluate the capabilities and commitment of heirs, and to explore all available options with the advisory team. However, trusts can provide an incredible opportunity to control the management/ ownership of the family forest long after the current owners are unable to do so.

( Go to the next article "Conservation Easements" )