Estate planning should be considered one of the most essential parts of your financial plan. Setting up an estate plan simplifies the transition of your assets to the people you wish them to go to, and in the way you want them to be disbursed.
There are several aspects of an estate plan, though, and this can make the whole idea of estate planning appear harder than it is. An estate planning attorney can help you with this. But, also knowing the aspects of why you should establish a trust as part of an excellent estate plan will also help.
When you establish your estate plan, you’ll want to work with an estate planning attorney to set up several key components such as a Last Will & Testament, a Guardianship Plan, the appropriate Powers of Attorney including both financial and healthcare, and a Trust.
Trusts play a pivotal role in planning for the future of your estate and how it will be taken care of when you pass or become unable to manage it. We’ll cover the different types of trusts in another article. But first, let’s discuss 6 important reasons why you should establish a trust as a key element of your estate plan.
A Trust Helps You To Avoid Probate
Probate is a legal court process that is responsible for distributing your assets or property when you pass. Probate is a court process that examines your Last Will and Testament, and if all is in order, carries out the desires of that Will. However, as a court processes, probate can be a time sink, costly, stressful and tiring. To avoid going through the process of probate, you can establish a Trust. A trust enables you to pass-on selected assets, or your entire estate to your desired beneficiaries without any delay, hassle or additional attorney charges.
Moreover, avoiding probate can help you save money on probate fees which can be as much as 5% of your entire estate!
A Trust Keeps Your Estate Information Private
Establishment of a Trust not only avoids probate, it also offers the privacy that a Last Will and Testament cannot. A Will is a legal document that is publicly presented during probate. And as we covered in the previous section, Probate is a legal proceeding. This means that the details and execution of a Will are dealt with publicly, exposing all assets of the deceased one to the general public. This can be undesirable for a number of reasons.
A Trust, on the other hand, is maintained between you, your trustee and your beneficiary. The assets passed on to the beneficiaries are not typically subject to public proceedings and disclosure. And you might imagine this has a number of advantages regarding security issues and the avoidance of potential family disputes.
Save Money by Avoiding Estate Taxes
Estate taxes are a huge concern for estate planning. The best scenario is transferring your estate and wealth to your beneficiaries without having to give half of it to Uncle Sam, who didn’t earn it for you in the first place.
One way to prevent this from happening and assuring that your estate and assets be distributed solely amongst the people you desire is that you establish an ‘Irrevocable trust.’ There are certainly circumstances that might lead you to desire an irrevocable trust, but as the name (irrevocable) suggests there are also risks involved. You should have a good discussion with your estate planning attorney about the benefits and risks involved with an irrevocable trust.
The takeaway from this point, however, is that you can potentially avoid very significant taxes by implementing good estate planning.
A Trust Can Be Updatable
A Will is a final document. You can “amend” it, but only in a manner similar to adding a “P.S” to a letter. If you consider what it means when you add a “PS” in a letter – you’re not changing the content of the letter. In a will, this is the function of a codicil. It’s a new thought, that is added as to the Will, but doesn’t change the content of the original document.
If drafted well, a codicil might accomplish the desired amendment to your Will. However, you won’t know because you’ll have passed by the time the Will is interpreted. And part of the interpretation of the Will will consist of trying to figure out what is meant by the codicil. Let’s hope there is no conflicting information between the original document and the codicil. To avoid codicil, many will draft an entirely new Will, but that can feel like overkill for a minor update.
In contrast to the barriers of updating a Will, you can (relatively) easily update a ‘Revocable Trust.’ Should the need arise to change or update your Trust, it can be done by preparing and signing a simple trust amendment.
You Can Establish a Trust That Fits Your Needs
One of the most compelling reasons to establish a Trust is because there are so many ways a Trust can be customized for your specific estate planning. Some examples of types of Trust include Special Needs Trust for individuals who are unable to manage their financial dealings because of certain challenges, Charitable Remainder Trust for donating a calculated amount to any or a desired charity organization, and/or Generation Skipping Trust for the well-being of your grandchildren and great-grandchildren.
You get the idea…you have a lot of options for forming a trust to meet your desires, and potentially avoid the expense and rigamarole of a Will.
A Trust Can Go Into Effect While You’re Still Alive
A Will gives power to its beneficiary after you have passed away, whereas a Trust allows the beneficiary, if you set it up to do so, to access assets while you’re still alive. This can be in various ways. One way this can be set up is through distributed, calculated amounts periodically. Predetermined by you, the Trust maker. Kind of like an allowance for your beneficiaries.
What You Can Do Today!
Many people are unaware of the benefits a Trust has to offer, that is probably the reason why only 20% of Americans establish a Trust. But, If you have an idea of how you want your wealth and estate to transfer to your cared ones, it makes a lot of sense to connect with a great estate planning attorney.