A trust is one of the most important tools in your estate-planning arsenal, as it provides many advantages not available with a simple will.
The main advantage of a trust is that it can help assets avoid probate, which can save time and money. A trust can also provide greater control over how and when assets are distributed after death, especially when dealing with complex situations such as remarriages or children from previous relationships. A trust can also help protect assets from creditors and beneficiaries who may not be adept at managing their wealth.
Another benefit of a trust is that it’s private, meaning that only those who are named in the Trust are authorized to view its contents and see how you want your assets distributed. This is in contrast to a will, which is a public document that anyone can access and read after your death. This also makes it harder for someone to contest the distribution of your assets.
In addition, a trust can provide greater flexibility in terms of taxation. Depending on the type of trust you choose, it can be structured to reduce state income taxes, protect assets from potential creditor claims or preserve the generation-skipping transfer tax exemption. A grantor retained life estate trust (GRILT) for example, is a form of irrevocable living trust that allows the donor to retain ownership of property such as farmland or real estate while passing it to future generations tax-free by granting them a lifetime right to use it.
Finally, a trust can be used to make charitable gifts. For example, a trust can be set up to donate the remainder of a trust to a charity at the end of the donor’s life and then pay a beneficiary a stream of income for life. This can be beneficial because it eliminates the taxable gift and also enables the donor to take a deduction on their federal estate tax return for up to five years.
Of course, like any other estate-planning tool, a trust is not right for everyone. If the value of your estate is relatively low and your assets are primarily in a bank account and investments, then the expense of creating a trust and incurring ongoing asset management expenses might not be worthwhile. Also, a trust requires that you retitle assets into the name of the trust before your death, which can create conflicts and potentially result in the asset not going to the person you intend. Nevertheless, if you’re in doubt about whether a trust is appropriate for your situation, you should consult with an attorney to discuss your goals and options.
