Do I need a trust? Consider the benefits.
A common question that comes up when people are thinking about creating an estate plan is whether or not they need a trust for all or part of their estate.
While there are lots of types of trusts—and many fine points to understand—what I want to focus on first are the main benefits of using a trust as part of your asset transfer strategy. No matter what kind of trust you’re talking about, these are some of the key benefits that come with trust planning.
But isn’t a trust complicated? Doesn’t it cost lots of money to get a trust? Not necessarily. A trust can be very straightforward, and you can get the necessary documents drawn up for a reasonable fee. Just be sure that your trust accomplishes your goals. Talking with an estate planner is a good place to start that conversation.
PRIVACY. While you are alive, as you presumably are as you’re reading thing, would you be content for your local courts to publish a full accounting of your assets, liabilities, net worth and property? Probably not. But that is precisely what happens when an estate passes through a local probate court. (And NO a will doesn’t get you out of probate!) Probate proceedings are part of the public record, and the details are available to virtually anyone who requests them. A trust, on the other hand, is private and does not pass through probate proceedings. Whatever you put in your trust is between you and the beneficiaries of the trust.
CLARITY. Uncertainty is the last thing anyone wants when settling an estate. A trust can provide great clarity over what happens to your assets, who gets what, how and from where taxes and fees are paid, as well as your other final wishes/desires. While a will on its own can be clear—and should be—a trust may go a step further by providing funding and a strategy for maintaining an asset. Let’s use a family farm as an example. Sure, you could leave the farm in equal shares to your three kids via a will, along with your wish never to sell the farm. But reality means they probably will—who is paying those property taxes and maintaining the land? But a trust could make your kids equal beneficiaries (rather than direct owners) and could establish funding for maintenance and taxes.
SPEED. Probate is many things, but fast is not one of them. Probate proceedings even for simple estates can take well over a year. It’s for a lot of reasons—including the fact that the proceedings are public and time must be allowed for creditors or other interested parties to make a claim on the estate. Settling an estate through a trust will instead take only a few weeks. While there is work to be done, transferring assets through a trust is fast because it is essentially transfer via a written contract.
CONTESTABILITY. Let me be clear that no trust or will is ironclad. Either could be contested in court. However, in order to contest them you must have standing, meaning you must have an interest in the estate as defined by the law. The only parties with standing pertaining to a trust are those named by the trust documents. With a will, however, particularly if there are multiple versions of the will, or someone feels jilted, there are many people who could claim to have standing and could thus hold up the settlement of the estate.
TAXES. Trusts are an excellent way to prepare for estate taxes, or simply for taxes that may come due in the future such as taxes on an inherited piece of property. Taxes are complex, and a trust isn’t a free pass to get out of paying taxes, but trust planning does offer some tax mitigation opportunities that estates of any size should consider.
So while you are learning more about trusts and making an estate plan, consider the above benefits when you are decided what makes sense for your family!
