1935, when the United States developed its social security
for old age, disability and health insurance, life expectancy
in the US was age 62.
Ironically, social security benefits didnt begin until
a person had attained age 65.
Barry Asmus, in his book: The Best is Yet to Come, described
this age differential as a smoking deal for the government.
Today, we examine some types of trusts, and how they can be
A charitable trust is the kind of instrument used to leave
wealth for the benefit of institutions, churches and the underprivileged,
after one has died. Charitable trusts can have unlimited duration,
unlike other types of trusts.
If you died without a will, the Government will distribute
your estates according to a formula set out by law. These
intestate rules will not accommodate any charitable ambitions
or benevolence that you may have had. You will have to hope
that your heirs give some charity on your behalf.
Testamentary trusts come into being by virtue of a will, after
death. Such instruments are commonly used in cases where the
owner of property wishes to ensure that property is managed
in the best interests of minors, or to provide income for
the lifetime of a surviving spouse. Upon death of a spouse,
the income and/ or the remainder of the asset can than be
passed to others.
They can also be used to give power to the trustee, to pay
money to various parties, whether planned or at the discretion
of the trustee. It can allow the trustee to purchase life
insurance on the life of a life income beneficiary, for the
benefit of heirs. This serves to prolong the consumption of
the estate over another generation.
Living trusts can be revocable or irrevocable. To make it
revocable is to reserve the right to cancel the arrangements,
or to alter it, during the lifetime of the grantor. Such trusts
are often used in businesses that are set up as a legal partnership.
If there is doubt about business continuity, upon death of
a partner, the business can be automatically transferred to
the trust beneficiary, or can be managed by the trustee. Death
makes the arrangement irrevocable.
If the trust is irrevocable, the transfer of the property
is permanent. One advantage would be to secure the stream
of cash flows for a needy or challenged heir.
Because of the fact that even within families there can be
strained relationships between grantor and beneficiary, eg,
the children of a first marriage may not have cordial relationships
with the second wife of their father, the trust arrangements
can be used to avoid potential personality conflicts and infighting.
This ease of transaction can be furnished by the intermediate
role of the trustee, between grantor and beneficiary. Remember
the trustee has to be paid for his services, usually a percentage
of the value of the trust assets.
However, in this information age, there can be found trust-like
instruments and contracts wherein a virtual trustee can manage
assets in such a cost effective manner, that it can be a smoking
deal for the parties.