A majority of Americans understand the importance of estate planning, yet an alarming percentage of adults do not have arrangements in place. According to a 2019 survey, 51 percent of people believe having an estate plan is necessary, but only 40 percent have actually implemented one.1 If you’re a part of the majority of Americans who have put off facing the future of their finances after death, it might be time to start weighing your options. We’re offering helpful insights on what trusts are, who they benefit and why you may want to make them an integral part of your estate plan.
What Are Trusts?
Trusts are legal documents you set in place to protect and control all of your assets. While some people may associate trusts with ultra-wealthy families, this stereotype is often untrue. Trusts are for anyone looking for an efficient way to control their assets after death or in the case of incapacitation. Additionally, trusts can help those caring for minors, children with special needs or pets make future arrangements for dependents.
Types of Trusts
If you decide to incorporate a trust into your estate plan, the next decision to make is the type of trust(s) you wish to use. There are four main types of trusts, although these can be broken down further into smaller, more detailed trust types.
The main types of trusts include:
- Revocable trusts
- Irrevocable trusts
- Living trusts
- Will trusts
Just as they sound, revocable trusts can be altered and amended after creation, while irrevocable trusts can not. And while a living trust is established while the individual is still living, a will trust is created at or after death, based on the individual’s will.
Top Three Benefits Of Establishing Trusts
As you consider establishing a trust in an effort to control your legacy, don’t forget to weigh the potential benefits of a well-established trust.
Benefit #1: Tax Efficiency
For some couples, establishing a revocable trust may help in minimizing estate tax burdens. With the recent Tax Cuts and Job Acts, federal estate taxes will only be triggered if an individual’s accumulated assets equal $11.4 million or more, or a combined total of $22.8 million for couples, as of 2019.2 Couples with a high accumulation of wealth and assets may want to work with their legal and financial professionals to create trusts that help shelter the remaining spouse from estate tax burdens after the passing of their loved one.
Benefit #2: Avoid Probate
If your loved ones are left with only a will after your passing, the will must be sent through the state’s probate process. This means the contents of the will become public record, and your heirs may be delayed in receiving their inheritance. Additionally, probate can be an expensive and burdensome process to put on your beneficiaries. In establishing a trust, you can help your loved ones avoid the probate process. This can mean more privacy and less delay in fulfilling your final wishes.
Benefit #3: Protect Your Estate
What’s a more obvious reason why someone would want to set up a trust? To control what happens to their things after they die. Simply put, trusts can help you protect your estate. When done right, a trust can determine who gets what and how things are cared for once you’re gone. Neglecting to provide instructions like these means your biggest assets could end up in the wrong hands. Instead, creating a trust allows you to pass along what you have to who you want, including your children, grandchildren and charitable organizations.
Disadvantages of Establishing Trusts
While there’s potential to greatly benefit from having trusts as a part of your estate plan, there are a few considerations to make before diving in. Most of the advantages listed above are only effective if a trust has been established correctly. And these are often complex documents, especially when compared to the simplicity of a will.
Any number of small errors could negate the benefits your beneficiaries were intended to receive. Because of this, it is recommended that you seek legal help if you decide to establish a trust. A professional can help you understand your options and work to maximize the benefits. This, however, means that establishing a trust can come with a hefty upfront cost, as well as on-going costs for maintenance, revisions and re-titling of assets.
Whether you’ve been trying to make estate planning a priority or it’s been at the bottom of your to-do list, you may want to consider if establishing a trust could benefit you, your estate and your loved ones. When done right, you may be able to avoid costly and slow probate processes and protect your dependents in the event of an unexpected death.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.