A trust can serve several purposes in estate planning.
When it comes to estate planning, trusts are versatile tools.
Although many people consider trusts to be of value only to millionaires and billionaires, this is not accurate.
Rather, the average American may find that a trust would best meet their estate planning goals for their families.
According to a recent Forbes article titled “Trust Funds: They’re Not Just For The Wealthy,” trusts are legal entities to hold title to and distribute assets without probate.
Trusts typically include at least one grantor, one trustee, and one beneficiary.
The grantor is the individual who has the trust document drafted, then signs, and funds the trust.
The trustee is the individual (or institution) who manages and distributes the assets according to the instructions in the trust document itself.
The beneficiary enjoys the income (and principal) held in the trust according to the instructions in the trust document itself.
Trusts can hold different types of assets like personal property, stocks, bonds, real estate, and business.
Not all assets should be placed in trusts.
If an asset passes through a beneficiary designation, naming the recipient directly may be more efficient.
How do you fund a trust?
The Grantor can either re-title the assets while they are still living or have a trust funded when they die.
While there are many reasons for using trusts in estate planning, the most common reason is to avoid probate.
Bypassing probate allows your heirs to have access to their inheritance more quickly and allows you to maintain the privacy of your estate.
For some families, it may not be wise to give an outright inheritance.
Perhaps the heir is a young adult and still learning financial responsibility.
With a trust, you can provide incentives for distribution or instructions for greater amounts to be disbursed after a certain age.
Another reason trusts can be helpful is to protect assets from the divorces or creditors of your heirs.
If estate taxes are a concern, an irrevocable trust removes these assets from your taxable estate.
A supplemental needs trust can benefit heirs with special needs, without jeopardizing their ongoing eligibility for public assistance.
Discuss your goals and your specific circumstances with an experienced estate planning attorney to determine whether a trust would be the best solution for your estate planning needs.
Reference: Forbes (March 15, 2021) “Trust Funds: They’re Not Just For The Wealthy”