Whether you are wealthy or working class, Trusts can be a very valuable planning tool when it comes to creating an effective estate plan. When people think about estate planning, they often think about a Last Will & Testament. While Wills are the most basic estate planning tool, Trusts are a terrific way to plan for things that Wills can’t address.
The benefits of creating a Trust include a more solid assurance that your property will go where you want it to go and will be protected from taxes and probate courts.
In this post, we’ll take a look at five ways in which you may be able to benefit from creating a Trust. This list in not comprehensive, but it will hopefully help you see that Trusts aren’t just for the uber-wealthy.
5 Benefits of Creating a Trust
The following are some of the most important benefits of establishing a Trust as part of your estate plan. Trusts can:
- Organize your assets (stuff you own) so it’s easier on your family. (Read about two types of asset organization mistakes here.)
- Give instructions for what to do when you’re not able to make your own decisions.
- Keep things private, which can provide protection from predators.
- Protect your assets from creditors, divorces, kids who don’t know how to manage money, and even future lawsuits you can’t anticipate (like car accidents).
- Reallocate assets to help pay for long-term care or a nursing home.
Trusts Organize Your Assets
A Last Will and Testament is simpler to create than a Trust, but Wills leave some room for interpretation regarding how assets can be distributed, which means more possibility for family members to disagree. Specifically, the executor has a great deal of discretionary power.
A Trust offers more clarity than a Will, reducing the possibility of disputes. Trusts enable you to efficiently transfer assets directly to the beneficiaries you wish to have them.
Trusts are vital to business owners who want a succession plan to keep their business running smoothly while passing it to the next owner after they die. Trusts provide a level of protection against beneficiaries challenging the business succession.
A Trust can also make it easy to pass specific valuable pieces to individuals or organizations like charities.
Protecting your assets is an essential part of your legacy planning, and a Trust enables you to do just that.
Trusts Protect Your Wishes
Many think that they’ve created an effective estate plan if they have a Last Will & Testament, but there are a lot of potential problems that Wills do not solve.
There may come a time when you cannot make your own decisions because of a stroke, a dementia diagnosis, a massive heart attack, or other medical complications. When that happens, a Trust (previously set up) can set provisions for what you want to have happen if you become mentally or physically unable to make decisions. This is a huge help to your loved ones who may be left having to make hard decisions about the unthinkable.
Trusts can help make sure your wishes are carried out, even if you become mentally or physically incapacitated.
Trusts Make Sure Your Estate Stays Private
When you distribute your assets through a Last Will & Testament, it all becomes a matter of public record. Anyone can examine your records and see what you left behind and, worse, how much it was worth. This can leave your beneficiaries vulnerable to greedy and unscrupulous individuals.
When a property is placed in a Trust, the Trust becomes the owner and is treated legally as a person. This means your property becomes the Trust’s property and thus remains private.
Trusts Can Ensure Care for Dependent Beneficiaries
You may have a child who is not yet an adult when you pass away. Or maybe you have a loved one living with a disability requiring special care, and you do not want to interfere with their government benefits.
A loved one may even be struggling with an addiction or severe mental illness, and while you wish to take care of them, they cannot be trusted to manage the funds on their own.
A Trust can ensure that your family member has the money they need. It maintains your disabled loved one’s standard of living while protecting government benefits. It ensures that your mentally ill or substance-addicted loved one can get the funds and assets you want them to have but use them responsibly.
The right Trust ensures that your dependent beneficiaries receive the necessary care and assets they need.
Trusts Can Provide Substantial Tax Savings
Assets placed in a Revocable Trust can gain substantial savings on taxes for the beneficiaries. This is called a step-up basis, which means that even if the assets grow in value, their taxable value remains relatively steady.
It is important, however, that you choose the right type of Trust to ensure the tax benefits you desire. There are two types of Trusts: Irrevocable and Revocable.
A Revocable Trust offers these step-up benefits. An Irrevocable Trust, on the other hand, does not offer step-up benefits but allows annual gifts that are protected from gift taxes. Your estate planning attorney can help you understand the difference.
Each type of Trust (Revocable or Irrevocable) has its own tax benefits.
Speak to your estate planning attorney at Edwards Group to explore your options and create the right Trust to offer tax savings to your beneficiaries.
Trusts Avoid the Probate Process
The probate process is among the most stressful parts of settling an estate. This process verifies the assets you leave behind and distributes them to your beneficiaries. During this time, creditors come knocking, and family members can get into bitter disputes over your last wishes. Probate is also the reason why estates become public record.
When you set up a Trust, any assets you place into the Trust are protected from the probate process. They become the property of the Trust, and the trustee you choose executes the agreement you and your lawyer create. When you die, it is an easier, faster way to distribute and protect your assets.
Trusts protect against creditors, courts, ex-spouses, and future lawsuits against your estate.
To gain these benefits, however, you must create the Trust before you die. You can establish a Trust at the time of your death, but in this case, the assets must pass through probate before entering the Trust.
Establish a Trust for Your Estate Today
If you’re ready to organize and protect your assets, protect federal benefits such as Social Security, Medicaid, and VA benefits, and defend against greedy third parties, the importance of Trusts cannot be understated. Edwards Group is ready to help you establish an estate plan that will provide maximum protection for your assets and your loved ones.
We also offer free, no-obligation workshops that can help you prepare for planning at any stage of life. Contact us today at 217-726-9200 or fill out our contact form to set up an Initial Meeting with one of our estate planning attorneys.