Deciding whether a trust is right for you
For many, using a trust to distribute assets after death is preferable to using a will.
When you think of how you would like your assets distributed after your death, you may think that a will is all that you need. Although this is true for many people, in some cases, many would be better served by including a trust in their estate plan as well. As a result, it is important to understand the situations where a trust may be more beneficial.
In essence, a trust works by transferring ownership of assets that you designate to another party or institution, known as the trustee. The trustee is under a legal duty to manage the assets within the trust for the benefit of persons that you designate to receive them, known as beneficiaries. Since the trustee has a fiduciary duty towards the trustees, he or she is legally accountable for any mismanagement or financial improprieties concerning the assets.
Although there are many types of trusts, one of the most commonly used ones is a living trust. As the name suggests, this type of trust is created during your lifetime. In creating one, you have the option of choosing the trustee as well as changing the terms of the trust (or canceling it) at any time. After your death, the trustee is under a duty to distribute the assets in the trust according to the terms of the trust document.
Although the trust carries out some of the same functions as a will in the end, there are many situations where having a trust is preferable to having a will alone.
You want more control over the distribution of your assets
One particular benefit of trusts over wills is that they give you more say in how your assets are distributed. With a trust, you have full control over the timing and manner of distributions. For example, you can specify that your assets be distributed in parts or upon the occurrence of a contingency (e.g. no distributions until the beneficiary is married). Additionally, you have control over what your assets may be used for (e.g. the living and educational expenses of a minor beneficiary). In a will, on the other hand, you have no such control, as your assets are distributed all at once after your death in most cases.
You want to avoid probate or desire privacy
Many people choose trusts because they would like to avoid probate. For many estates, probate can be a costly and time-consuming process. Since the expenses of probate come out of the estate assets, it can lessen what is left over for your beneficiaries in many cases. Unlike wills, the property in the trust does not have to clear probate before it may be distributed to your beneficiaries.
In addition to avoiding probate, trusts are ideal for those wishing to keep the details of their final wishes private. Since probate proceedings become a matter of public record, the terms of the will may be accessed in the court records by anyone. However, since trusts avoid probate, their terms can be kept secret.
You would like to minimize taxes
Trusts are especially helpful for those with estates large enough to be subject to estate taxes. Trusts allow you to title your property in the name of the trust. When you die, the property is not within your name, so you can save a significant amount of money in taxes. As a result, you will be able to pass on the assets that would have gone to the IRS otherwise.
Get legal advice
If you believe that a trust may benefit your estate plan, it is important to speak with an experienced estate planning attorney. An attorney can consider your goals and recommend the best means of carrying them out.