When you are focused on estate planning, chances are good that you will have a sense of wills and of advanced directives and power of attorney. Plenty of people, however, when they are looking at their estate planning do not even consider the benefits of a trust.
What Is a Trust?
In effect, a trust is any legal arrangement or entity that holds and manages assets for another person. You create a trust by transferring property to a trustee – either a bank, an individual, an attorney or an investment firm – for the benefit of someone else (the beneficiary).
What you are going to find is that you are able to use trusts to manage virtually any asset – cash assets, securities, physical properties (like real estate) or even life insurance policies.
What Are the Benefits of Using a Trust?
There are a number of clear advantages to setting up one or more trusts as a part of your estate plan:
- If you fund trusts during your lifetime, they are able to avoid going through probate; to fund a trust, you re-title your assets in the name of the trust.
- While wills can be challenged in the courts, it is much more difficult to challenge a trust.
- By setting up trusts, you will find that you are able to avoid the beneficiaries paying an estate tax on the assets.
- Rather than willing money to your children, by setting up a trust, you will be able to have some say in the way that the money is spent; this is particularly valuable if you have children with special needs and wish to arrange for their care without affecting their ability to receive aid from Medicare and Medicaid programs.
- By setting up a trust, you will be able to retain some sense of privacy whereas wills become a matter of public record.
- Whereas in a will minor children will receive their inheritance at the time of your death, a trust can be arranged to hold funds until your children reach a particular age.
- The instructions that you include in a trust regarding the management, disposition and control of your assets will be consistent with the goals that you had at the time of creating or modifying the trust.
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