“Put not your trust in money but put your money in trust.” Those words of Oliver Wendell Holmes Sr., the famous 19th-century American poet and physician, were directed at young women of the era who, upon marriage, risked losing control of the money to their husbands.
Having money in trust could in theory make their money inaccessible to a free-spending husband and keep it from getting commingled with the marital property. This could ensure that the woman would have some means of support if the husband left or died — no small concern in an era in which few women worked outside the home.
The trouble with putting “trust in money” instead of having money in trust is that trusting money doesn't protect it from being wasted.
Trusting money leads to situations where a financially successful person leaves money and assets to a child who has a less disciplined work ethic — or is less capable for other reasons — and needs restraints on his or her ability to spend.
Note the American proverb “from shirt sleeves to shirt sleeves in three generations” -- the first generation builds wealth, the second expands it, and the third spends it.
Trusts help maintain control over money so that beneficiaries can't blow through it. That makes trusts a relevant topic for anyone (not just the wealthy) who wants, among other things: to provide money for someone's support or for any specific purpose (such as paying for a child's education); to preserve an asset such as a lake house for children and grandchildren; and to keep a family business in the family.
Trusts can also help maintain control over money with respect to taxing authorities by minimizing estate taxes.
A trust can do all of these things because it places control outside of the beneficiaries and is a legal arrangement that can survive its creator's death or incapacity.
The person who sets up a trust, called the grantor or settlor, does so for the benefit of designated beneficiaries through a legal trust document. Among other things, the trust document names a trustee, who is empowered and required to carry out the wishes of the grantor as written in the trust.
A trustee can provide a financial and economic perspective that most people (including the grantor) don't have. Most importantly, a trustee can prevent wasteful spending or imprudent investments and business deals, because trustees are subject to a legal duty of care, and can be liable for making imprudent investments that a beneficiary might have been talked into on his or her own. Trustees may also have tax planning capability that ordinary people don't have.
Few Oklahomans use trusts, however. According to Jonathan D. Reiff, a trust and estates attorney with Rubenstein & Pitts PLLC in Edmond, that is at least in part due to the perception that trusts are expensive to create, and that trusts are only important for rich people who have to pay estate taxes.
For 2013, only couples with estates greater than $10 million and individuals with estates greater than $5 million have to pay federal estate taxes. The Oklahoma estate tax has been abolished.
But trusts can still be extremely useful to people who may never owe estate taxes.
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