You have a will. Maybe you worked with an attorney years ago, or maybe you went online and bought an “estate plan” that consisted of a basic will and a power of attorney. Now, time has passed, some things in your life have changed, and you are wondering: Do I also need a trust?
Let us start by saying that everyone’s estate planning needs are different. An estate plan that works for you probably won’t work for someone else – and vice versa. From your family tree to your health and your personal finances, virtually all aspects of your life will influence the decisions you make during the estate planning process.
4 Reasons to Consider Incorporating a Trust into Your Estate Plan
With this caveat in mind, today, most people will benefit from incorporating some form of trust (or perhaps multiple trusts) into their estate plan. Revocable and irrevocable trusts can offer a variety of benefits, from avoiding probate to helping to minimize (or avoid) estate tax liability. Remembering that individuals’ estate planning needs vary, here are four reasons you may want to consider incorporating a trust into your estate plan:
Reason #1: Avoiding Unnecessary Probate
When you distribute your assets using a will, the distribution takes place through the probate process. While this is the “standard” procedure for winding up a person’s final affairs, it involves unnecessary costs and delays. As a result, it is generally desirable to avoid probate to any extent possible.
Transferring assets with a trust keeps these assets separate from the probate process. For this reason, gifts made through the use of trusts are also known as “non-probate transfers.” When you have a trust, at the time of your death, your appointed “trustee” can begin immediately executing the terms of the trust. If you use a revocable trust to leave your assets to your children, this means that your children will gain access to your assets sooner. If you use an irrevocable trust to leave assets to charity or to fund a foundation, this means that your funds can start making a difference without the need to wait for court approval.
Reason #2: Establishing Guidelines for the Distribution and Use of Your Assets
Incorporating a trust into your estate plan also allows you to have more control over how your assets are distributed and used. For example, if you have minor children, you can specify the age at which your children are able to gain access to the trust, and you can instruct your trustee to manage the trust for your children’s benefit until they reach the age at which they are entitled to withdraw funds for discretionary use. If you intend to leave a portion of your wealth to charity, you can use a charitable trust to gain maximum tax benefits while also ensuring that your gift will be used as you intend.
While the revocable trust (or “revocable living trust”) is a popular option for individuals who are passing on their assets to their children, grandchildren, or other loved ones, there are several different types of irrevocable trusts that serve discrete estate planning purposes. Depending on your individual estate planning goals, examples of trusts that you may want to incorporate into your estate plan include:
- Qualified Terminable Interest Property (QTIP) Trust
- Qualified Domestic Trust (QDOT) Trust
- Generation-Skipping Trust
- Life Insurance Trust
- Charitable Lead Trust
- Charitable Remainder Trust
- Pooled Income Trust
- Bypass Trust
- Spendthrift Trust
Reason #3: Mitigating or Avoiding Estate Tax Liability
If you will leave a considerable estate, incorporating one or more trusts into your estate plan can also help you mitigate your avoid estate tax liability. The Internal Revenue Service (IRS) explains the estate tax as, “a tax on your right to transfer property at your death.” Since assets that have been properly and timely placed into a trust are not considered to be estate assets that transfer at death, any assets held in trust will not count toward the estate tax threshold (which is $11,400,000 for 2019).
Even if your estate is currently nowhere near the estate tax threshold, it is worth considering whether you may need estate tax planning in the future. If so, preparing the necessary documentation now will ensure that you have a plan in place should something happen before you have an opportunity to make changes in the future. You can always modify your estate plan (as long as you have the legal capacity to do so), so there is no downside to putting a contingency plan in place. Not only can establishing a trust help mitigate the costs of probate, but it can also help ensure that no more of your estate ends up in the government’s hands than absolutely necessary.
Reason #4: Special Needs Planning
If you have a minor or adult child with special needs, making an outright gift through your will can result in the loss of his or her eligibility for Social Security Income (SSI) and other need-based government disability benefits. Using a trust to manage your child’s access to your assets after your death is an effective (and completely legal) way to preserve his or her disability benefit program eligibility.
Should your child need a guardian, you can use a trust to provide financial assistance to your chosen guardian as well. For example, you can specify that funds left to your child’s guardian are to be used for purchasing a larger vehicle, buying new furniture, making accessibility modifications to their home, and other similar types of necessary expenditures.
How Can You Benefit from Trust Planning?
In short, regardless of your estate planning goals, there are likely to be a number of benefits to incorporating trusts into your estate plan. To learn more in a confidential initial consultation, please contact us today.
Schedule an Initial Consultation at Beller & Bustamante, P.L.
If you would like more information about incorporating trusts into your estate plan, we encourage you to contact us for a confidential initial consultation. For personalized legal advice from an experienced attorney, please call 904-288-4414 or inquire online today.