Page 28 - Newcom

Walt Disney and his family en route to England on June 15, 1949.
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Hunter says. “It’s a very limited power.”
Going through court does mean added costs. Depending on how complex the case is, it can end up costing between $25,000 and $200,000, says Hull, noting it can be worth it when the endgame is “getting the noose of a bad trust off
a family’s neck.” To gure out whether it’s worth it, bene ciaries need to look at how much it will cost relative to the size of the assets in the trust, and the distributions they’re expecting to receive in the short-, medium- and long-terms.
And beware: along with the legal costs, there could be a big tax hit, particularly for clients who’ve set up a trust for a minor: all taxes on interest accumulated in the trust are charged to the person who set it up until the bene ciary hits the age of majority. The tax hit is paid out of the trust assets or, if the rest of the estate has been wound down, executors will have to hold back money to pay the tax bill on the trust.
However, if a trust is challenged after the per- son who set it up dies, Hull says there shouldn’t be any major tax consequences because the repaired trust would operate in the same way.
Still, it’s better to get a trust right the rst time. Advisors must help clients think longer- term about their needs and what kinds of life changes could derail their best intentions. AE
5 TIPS TO SET UP AN ACCURATE TRUST ACCOUNT
1 Be exible. Whether it’s a trust meant for school fees, or to help buy a home, people’s needs change. Your client’s child might grow up and decide not to go to university, or get married. What happens to the money then? Avoid this situation by making the trust exible enough that the bene ciary can use the money if his life takes a different path.
2 Get the trustees right. Help your client choose more than one and encourage him to make it a business decision, not an emotional choice. Don’t presume you have to use family members; choose people who can make unbiased decisions, such as a professional trustee or a lawyer who acts as a trustee.
3 Ask awkward questions. Divorce, death, and dropping out of school—a lot can happen to derail your client’s best intentions. You need to cover various scenarios to ensure she’s clear on what should happen when things don’t go as planned.
4 Remember, fair and square is impossible. Make sure the trust is set up to bene t those who really need the help. Equal distributions might not make sense if your client has a child with a disability,
for example. And make sure clients discuss it with family members ahead of time, so they know and understand your client’s rationale.
5 Don’t think too far ahead. Clients should revisit trusts every few years or when a major life event happens (e.g., death or divorce). And some people design trusts for many generations, even when there’s not much money. Remind them it’s often better to have their chain of heirs end at the next generation.
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