There is a myth that trusts are useful only for saving taxes or for protecting minors or
spendthrifts. On the contrary, leaving property in trust rather than outright can provide
significant non- tax benefits for all beneficiaries, including surviving spouses and adult or
minor children.

General Benefits

Gifts in trust have the following advantages over outright gifts:

Claims of Creditors

Assets held in trust are generally protected from the claims of the beneficiary's creditors.
The value of this protection has increased in today's litigious climate. Lawyers, doctors,
architects, corporate directors, and other professionals and executives worry about
exposing their assets to claims of litigants. Many individuals seek to protect their assets
from future creditors by engaging in complex, costly and risky strategies. By leaving
assets in trust, rather than outright, you accomplish this object for your beneficiaries in a
simple, cost-effective and safe manner

Claims of Spouses

If a beneficiary divorces his or her spouse, a divorce court has the ability to divide
property between them. Assets inherited outright by an individual would ordinarily not
be subject to division by the court; however, if that inheritance is commingled with other
joint or "marital" assets, it might be subject to equitable division. By placing the
inheritance in trust, you guarantee that it will not be subject to division by a divorce
court. Florida grants a beneficiary's surviving spouse an automatic right to take property
from your beneficiary's estate, known as the Elective Share, even if your beneficiary has
intentionally disinherited the spouse. If you leave property in trust, however, the
surviving spouse generally has no right to the property when you beneficiary dies. You
can provide your beneficiary with the ability to benefit his or her spouse, without giving
the spouse any automatic rights to that property.

Keeping Funds in the Family

You have the ability to select the ultimate recipients of property left in trust after your
beneficiary's death. You may desire this result, especially if your beneficiary has no
spouse or descendants and you wish for other members of our family or charity to benefit
from the property.

Disability or Death

Assets held in trust can continue to be managed without interruption should your
beneficiary become disabled or die. This may not be the case for property owned
outright by your beneficiary.

Upon becoming disabled, a guardianship may become required. Guardianship is an
expensive, lengthy and potentially embarrassing court proceeding. A guardian is
appointed by the court. The guardian manages the property owned outright, unless your
beneficiary has given a power of attorney to an individual. After a guardian has been
named, continued court supervision over the management of investments and
disbursements is required.

At your beneficiary's death, the probate process may cause delay in the Personal
Representative's (Executor's) ability to collect, manage and distribute the property
owned outright. Assets in trust are available immediately to pay debts and estate taxes.
There is also continuity of management when assets are held in trust.

State Income Taxes

Through careful planning, a trust may not be required to pay state and local income taxes
on accumulated income and capital gains.

Professional Management

Funds held in trust are more likely to be professionally managed, especially if a trust
company is appointed trustee or co-trustee. Trust assets are also protected from anyone
exerting undue pressure on your beneficiary for investment capital or charitable
contributions.

Benefits Specific to Spouses

In addition to the above advantages, bequests in trust for spouses have two advantages:

Intended Beneficiaries

You may have a clear idea of whom you would like to receive your estate after your
surviving spouse's death. If you leave that bequest in trust, your intended beneficiaries
will receive the property. This is important if your current spouse is not the parent of
your ultimate beneficiaries. It is also important if your surviving spouse remarries. As
described above, a new spouse would have rights in the property that your surviving
spouse owns outright.

Post-Mortem Tax Planning

A marital bequest in trust affords the most flexibility for estate tax planning.

Benefits For Minors

Many individuals make annual gifts to minor children under their state's Uniform
Transfer to Minors Act ("UTMA"). Making hose gifts in trust provides the following
additional advantage over UTMA gifts:

Control

Custodial gifts become subject to your beneficiary's control in Florida upon his or her
reaching age 18 (an age which is quite young). Gifts to a properly structured trust may be
left in trust beyond age 18.

Death

If your minor beneficiary dies, the gifted assets would by law pass back up to the minor's
parents—one-half to the mother and one-half to the father. This is true regardless of who
made the gifts. This result may not be desirable, not only because it defeats the estate
and gifts tax reasons for making the gifts, but also because the parents may no longer be
married to each other at the time of the child's death. By gifting assets to a trust, you can
instead direct that your minor beneficiary's siblings receive the property at the
beneficiary's death.

Other Advantages

In spite of the above advantages, some individual are reluctant to create trusts for
competent, adult beneficiaries unless there is a significant tax benefit to doing so. They
cite cost and inflexible provisions as two factors weighing against using a trust.

Significant Benefits for Minimal Cost

I believe that the cost to create and manage a trust is minimal compared to the benefits
derived from a trust.

Flexibility

Trust need not be—nor should they be—inflexible. Trust are most powerful when they
give the trustee the latitude to adapt to current circumstances, thereby allowing the trustee
to carry out your (grantor's) wishes most efficiently and effectively. The key to ensuring
flexibility lies in the drafting of the trust.

Trust provisions should be flexibly drafted so that the beneficiary can receive maximum
enjoyment from the trust property without destroying the trust's protective qualities. One
methods of creating flexibility is to give certain powers to the beneficiary. For example,
the beneficiary can be given any one or more of the following rights:

¦ to demand a withdrawal each year from the trust of an amount equal to the greater of
$5,000 or 5%;

¦ to demand that trust principal be paid to his or her own spouse or children;

¦ to dispose of the trust property under his or her will; and

¦ to remove a trustee and designate successors.

All of these powers give your beneficiary a degree of control over trust property. If
carefully worded, they will not destroy the trust's benefits. In addition, these provisions
allow a financially sophisticated trustee to adapt the trust's investment strategy to
changing circumstances in the markets or in the beneficiary's life.

In Summary

Trust can be much more that vehicle to protect a spend-thrift beneficiary or to save taxes.
Trusts can be powerful estate planning tools to provide for surviving spouses, adult or
minor children, and other beneficiaries—especially for the most financially sophisticated
of these beneficiaries.

Fiduciary Trust Company International was founded in 1931 to specialize in
investment management and administration of assets for individuals and families. A
bank charter permits Fiduciary to act as executors and trustee, providing continuity of
management through several generations.

Fiduciary's investment management services were extended to foundations and
endowments during the 1930s and then to other instructions. Fiduciary began investing
internationally in the early 1960s, making it one of the first American firms to develop
global investment capabilities.

Fiduciary offers the following services to clients throughout the world:

¦ Investment Management

¦ Trust and Estate Administration

¦ Strategic Planning

¦ Assets Allocation

¦ Custody

¦ Multi-Currency Reporting

¦ Banking

¦ Tax

These services are offered to families with substantial assets in a comprehensive,
integrated program called Family Resource Management.

If you would like more information regarding Fiduciary's services, Please contact your
account manager, or call Ellen Kratzer or Tom Loizeaux in our New York Office (212)-
466-4100

About the Author