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As the largest population of elderly Americans has now arrived, it turns out that nearly 60% of them don't have any estate planning documents. Many will turn to attorneys without knowing how does a trust work. If you have to explain this to your clients, you might want to walk them through several of their options for how to disperse their wealth after they can't anymore.

Here are four things you should explain to them to help them plan their estates.

1. The Power of Attorney Compels Them

While you might not be able to speak with the resounding power that comes from standing at a pulpit, you can certainly sell your clients on what POA means. Having a strong power of attorney for financial matters is important to any clients that have built up real wealth. All you have to do is be able to explain it to them.

Signing power of attorney allows a loved one, family member, or an impartial third party to act on behalf of them. If they end up bedridden or incapacitated, even temporarily, it might be pertinent to keep financial matters running smoothly.

Without having an appropriate agent named via power of attorney, the family of the client would struggle to get control of their finances. If no one is named, there could be a long legal struggle just to have a spouse sign over a few standard transactions on their behalf.

When you take the time to talk about incapacitation in advance, heirs don't have to spend time or money trying to go through probate court. Probate law is sticky and difficult for laymen, so power of attorney can help to avoid all of those complications.

When setting up POA, there are two main categories that the documents fall into. One is called "durable" wherein the person named in the document is signed, regardless of whether the client is incapacitated. The other is called "springing power" wherein it's only in place when your client is out of commission.

Sharing a few horror stories and cautionary tales might be necessary to get them to be convinced that this is the right decision for them.

2. Explain Irrevocable Trusts

If your clients aren't sure what kind of trust they want to put together, explain the common uses of an irrevocable trust. If they want to be able to move assets from their name and place it in the control of heirs, this is the type that they should set up. If they're also worried about estate taxes, irrevocable trusts are the smartest decision they can make.

After this is set up, however, they won't be able to be the trustee of the estate. This needs to be clear to them from the start. They'll give over a lot of control, so they need to make this decision carefully and confidently.

If they prefer to take their property back if certain conditions aren't met, they're better off writing that into the trust rather than trying to revoke it. While it's obvious that an irrevocable trust prohibits revocation, even in a revocable trust, it's an unnecessarily complicated affair.

Irrevocable trusts are difficult to undo or dissolve, so they need to be created soberly and with intention. While the person making the trust can dissolve it during any period of their own competence, once an irrevocable trust is struck, it stands indefinitely.

3. Considering Other Trust Options

There are all types of trusts to meet the specific needs and purposes of the people setting them up as well as their heirs. If you set up an irrevocable life insurance trust, the conditions of the trustmaker's life insurance policy will be protected there. The policy on the holder's life will be owned by the trust, separate from the rest of their estate.

The proceeds aren't usually included in the gross value when the estate is tallied up to calculate estate taxes. This means that it won't be subject to the harsh withholdings set up by tax law and more of it can be dispersed to heirs.

If policyholders need to set up a trust for someone who is disabled and needs long-term care, special needs trusts are common for this. Rather than handing the trust over to a beneficiary who might have a cognitive disability, this provides care for them without having to explain terms. This can be supplemental to any social security or Medicaid benefits they'll receive.

There's even a trust called a spendthrift trust which allows for plenty of discretion from the trustee. The trustee can determine when money will be dispersed to the beneficiary, to safeguard against poor spending habits. If the beneficiary gets divorced, the inheritance can be protected from any of the proceedings.

4. Revocable Trusts Can Supplement a Will

While many clients might walk into your office trying to set up a will, a revocable trust gives them just as much control while offering other benefits. If they want to provide for their family in the event of their death, this is an option to give them what they want.

This type of trust will minimize how much a client pays in estate taxes. In several states, estate taxes are so high that clients are always looking for a way around them.

If the beneficiary or the trustee has issues with creditors, revocable trusts are protected from them. Trustees can create generational planning with these kinds of trusts, allowing for grandchildren to benefits from the work they did throughout their life.

Explaining How Does a Trust Work Takes Patience

If your clients are always asking you "how does a trust work", they're probably completely green to the concept of estate planning. It's your responsibility as an attorney to walk them through the process.

If you want to help simplify the process, check out our latest guide on estate planning software to help your clients more efficiently.

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