Wednesday, August 30, 2006

FAQ- Can I control investments within a PAT?

The short answer is "no". This PAT is a non-grantor trust. The trustee (who cannot be you or your spouse) is responsible for investing the funds. The responsibility of the trust is to make the agreed upon payments back to you for the entire amount of time it was set up for.

This concept seems scary for some, as they are used to complete control over how their assets are invested. This is understandable, but should become comfortable if the proper steps are taken to protect your investments. You do have some input before the trust is created.

Although some advisors tout volatile investments such as stocks and mutual funds, caution should be taken with this approach. Just as these vehicles offer a large upside, they also have the possibility of major loss. Your trust could run out of funds and be unable to complete the payments due you.

Once you begin receiving payments from the trust they are fixed. The rate used to calculate your payments is the Federal MidTerm Rate. Even if the trust funds make more than this rate of interest, your payments don't vary. The extra money in your trust can continue payments to you if you outlive the IRS guidelines or pass to your heirs.

The PAT is not the place to speculate with volatile investments.

No two situations are identical, so there is no hard and fast rule for a specific investing strategy.

Common sense and a fair degree of conservatism are good ways to approach the trust investment strategy. Ideally, you should be able to sleep well at night knowing the trust will be able to meet the commitments it was designed for.

Paula Straub
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