Estate planning 101: Does your plan need a trust?
Trusts can be helpful legal tools, protecting assets from taxes and creditors.
Trusts are legal tools that can be beneficial for many types of estate. Trusts can range from relatively simple to extremely complex, depending on the creator’s goals. Trusts are often considered tools used only by the wealthy, but they can serve a number of purposes for a wide range of families. A recent article published by CNN Money touched on the benefits of trusts, specifically noting that these legal tools can be beneficial for the middle class. This is particularly true as trusts can be more efficient than probate. Probate, or the court process used to determine if a will is valid, can result in costs ranging from 5 to 7 percent of the estate.
Estate planning: Do I need a trust?
Having a basic understanding of some of the more common benefits of a trust can help aid in the decision to include a trust within an estate plan. Some examples to take into consideration include:
- Avoid probate. Transferring assets into a trust further reduces the risk of having to go through probate. As noted above, this can save time, money and heartache for loved ones.
- Increase control. In some cases, use of a trust can provide the creator with a certain level of control that is not present with an outright gift. This can be beneficial for younger beneficiaries or those that may have questionable spending habits. If done correctly, use of a trust can also protect the assets from creditors and lawsuits. It can also provide protection of the asset if any beneficiary goes through a divorce.
- Tax advantages. Depending on the design of the trust and intention of the creator, a trust can provide tax advantages. One example is the AB trust. The AB trust is designed to reduce estate taxes.
If these benefits appear to line up with your estate planning goals, the next step is to consider which type of trust best meets your needs. There are many types of trusts. Examples include special needs trusts, charitable remainder trusts, irrevocable life insurance trusts, qualified personal residence trusts, generation skipping or dynasty trusts and spendthrift trusts, to name a few. Determining the right trust or trusts to use in each estate plan depends on the creator’s assets and wishes.
Estate planning: Do I need legal counsel?
Estate plans are unique and should be tailored for each individual situation. As a result, it is wise for those who are looking to put together an estate plan or update one that already exists to contact an experienced estate planning attorney. This legal professional will review your unique situation and help to better ensure your plan meets your needs.