Planning for the future: trusts and escrows: your financial institution and lawyer can help you protect your assets for your heirs.

• Author: Saunders, Stacey

Trusts and escrows are useful tools in long-term financial planning to protect assets and family. A trust is a device to transfer ownership to a third party for the benefit of another, while in an escrow agreement a third party holds property or money to release only when certain conditions are met.

TRUSTS

Dave Barrone, regional trust and estate planning consultant with McDonald Financial Group (a wholly owned subsidiary of KeyCorp.), finds a discussion about trusts for the average person, "causes their eyes to cloud over. They say, that's for my lawyer...." He has a presentation aimed at "demystifying trusts" and dispelling the myth that they are only for the wealthy and that they are "super sophisticated." The concept is fairly simple: a trust is a contract between three entities: the person giving up assets, the trustee who holds the assets according to the terms of the agreement and the person benefiting from the trust. The person who gives the as sets to the trust may be called: grantor, creator, donor, settlor or trustor. (Grantor will be used throughout this article.) A trustee may be a family member, business associate, a professional corporate trustee from a bank or trust company, or a combination of individuals and corporate trustees. Beneficiaries--sometimes called "heirs"--may be a spouse or children, grandchildren, nieces, nephews, or even charitable organizations. Barrone notes a grantor can also be trustee and beneficiary.

Douglas Blattmachr, president, CEO and co-founder of Alaska Trust Co., says there are a dozen trust types, all operating basically the same. An attorney helps the grantor prepare trust documents designating property placed in trust, who will benefit from the trust, and who will serve as trustee and administer the trust by making investments and disbursements. There are two levels of trusts: revocable, which can be revoked and changed, and irrevocable trusts, which cannot be changed except through courts. Trusts are either created during the grantor's lifetime (intervivos or living trusts) or under a will alter death (testamentary trusts).

"Alaska has the best trust rules in the country," declares Blattmachr. In 1997, the Alaska Trust Act repealed the Rule against Perpetuities, which prohibited trusts from lasting forever. Alaska was the first state to allow Self Settled Spendthrift Trusts to protect eligible benefits and assets from creditors. Other advantages under state law include the ability of couples to opt into a community property agreement, which offers tax advantages, a generous homestead exemption, the country's lowest life insurance premiums, and the best limited liability and limited partnership laws.

"Seventy percent of all...