Is Your Estate Plan “Trustworthy”?

Most people have the misconception that a trust is a tool or plan reserved for the incredibly rich, built purely for tax avoidance purposes, and irrelevant for most families. Yet trusts can prove incredibly useful for everyday Americans, and may:

      • Help your family avoid probate.
      • Minimize the impact of state estate taxes on modest estates.
      • Help maintain your financial privacy after death.
      • Give you much greater control over how and when your assets will be distributed to minor dependents.

Far from being exclusive to the ultra-wealthy, a trust can help middle-class Americans ensure that as much of what they own as possible goes on to their children and grandchildren.

What Is a Trust?

To understand how trusts are best utilized in an estate plan for the transfer of assets and belongings, it is important to understand what trusts aim to achieve in the first place. A trust is a legal entity that holds property and assets in trust for another individual. Trusts are created through a trust document.

Anything mentioned in the trust must effectively be “funded” into it, which usually entails changing ownership documents or creating deeds to reflect that assets and belongings listed in the trust document are now part of the trust (instead of your name, you would designate property under the trust’s name, i.e. “John Doe’s Living Trust”). Some things to note:

      • The person setting up and funding the trust is called the grantor or trustor.
      • An overseer, called a trustee, is charged with managing the trust in the grantor’s absence.
      • A third party, the beneficiary, is ultimately to whom the trust is paid out over time or at once. A trust may have many beneficiaries, and they may be businesses, organizations, charities, or people.

How Are Trusts Built?

Trusts can be built with special and custom provisions and rules. In many cases, sky’s the limit, which is why trusts come in so many shapes and sizes. There are certain archetypes among trusts, wherein specific language is typically used to allow a trust to fulfill a role in an estate plan, such as holding money in trust for a special needs dependent for years after the grantor’s death.

But the strength of the trust often lies in the fact that it can be tailored to an estate’s specific needs through the services of a competent and experienced estate planning professional. There may be other people involved in setting up and representing a trust.

For example, you can (and should) choose to name successor trustees and beneficiaries, should anything happen to the people you have currently named in your trust. Alternatively, if you are your trust’s own trustee (which can be a viable option in certain trusts), you can set up a successor trustee to oversee the distribution of the trust’s contents to its designated beneficiaries after you die.

If you do not have a trustee you can wholly depend on, then you may opt for a trust protector – an independent agent tasked with ensuring that the trustee acts in the best interests of the grantor and/or beneficiary, with the power to fire the trustee under certain circumstances. The specifics of how a trust is built, and who is involved, depend entirely on the size and complexity of your estate, as well as the primary concerns you may have regarding estate planning in your state.

What Are Trusts for in an Estate Plan?

The versatility of a trust helps it serve many different purposes, but perhaps its most touted benefit is reducing the total number of assets in an estate required to pass through probate. In the United States, the probate process is a legal process by which a court oversees the valuation and distribution of an estate, as well as the legitimization of a will, should the decedent have one.

Otherwise, the estate will be divided as per that state’s intestate laws (i.e. the law of succession). However, the probate process can be lengthy, as different states’ probate codes mandate specific periods of time to properly value an estate, give creditors time to make a claim against the estate should the decedent have any debts, and leave ample time for family disputes to be addressed and settled.

Complications, such as certain financial instruments and assets or property held in multiple states with differing laws, can further delay the end of probate. This costs not only time, but money as well, as most families require legal representation throughout the probate process. Furthermore, because probate is a matter public record, the details of a decedent’s estate are available to prying eyes after the fact.

Those who wish to conceal the details of their estate, expedite the probate process, and deal with complex assets before they become an issue after death, can opt for trusts. A living trust effectively removes assets and property from the estate, as it is held in trust for the grantor.

Certain types of trust further remove a grantor from their property. This can be particularly valuable in cases where estates have reached a size where they may be taxed federally or on a state level. These types of trusts also protect certain property from creditors (provided the grantor hasn’t made themselves beneficiary of their own irrevocable trust).

Trusts can also serve a variety of other purposes, including protecting minors and holding assets in their name until they are ready to receive them, distributing assets in installments rather than as a lump sum upon death, holding assets for the care of a loved one, donating to charity, and more.

Trusts vs. Wills

Trusts and wills do not exist as a dichotomy – you do not need to choose one over the other, and they are often used together to fill gaps for each other. For example, trusts cannot be used to determine the guardian for a minor dependent.

Wills can also be used to ensure anything left outside of the trust is “poured over” into the trust upon death. If you are opting to incorporate a trust into your estate plan, you may have to amend other aspects of your estate plan to accommodate and complement the trust.

Why Are Trusts Expensive?

One reason trusts are usually seen as a tool for the rich is that they are comparatively expensive compared to wills. However, that is because a trust is quite different from a will. While both play a role in giving a loved one the power to distribute assets after death as per your wishes, trusts offer much greater control over when and how those assets are distributed.

Trusts are also a great deal more complex in certain cases, and attorneys will want to be compensated for their work. If you decide to enlist a bank or attorney as your trustee, they will also charge you or the estate certain administrative fees to maintain and manage the trust as per your instructions.

Finally, you will have to pay fees in certain cases to transfer and retitle any relevant assets funded into the trust. Overall, however, these costs differ from trust to trust. Some trusts are more expensive as they require a much longer list of provisions and contain far more assets, but a simple trust may be of great benefit to you and your family in the long-term, at a reasonable upfront cost.

Do I Need a Trust in My Estate Plan?

Trusts can help you avoid probate, minimize, or eliminate estate taxes, and exercise greater control over your assets and property, and how they should be distributed after death. These benefits are worth more to some estates than others. It is recommended that you consult an estate planning professional to go over the numbers with you and help determine whether a trust is in your estate’s best interest.


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