What You Need to Know about Using Trusts in Your Estate Plan

What You Need to Know about Using Trusts in Your Estate Plan

  • 2 June 2017
  • Author: IEP Team
What You Need to Know about Using Trusts in Your Estate Plan

Early forms of the trust arrangement go back as far as Ancient Israel and the Roman Empire! Modern trust approaches have been used for hundreds of years and remain an important part of contemporary estate planning.

At its simplest, a trust is a legal relationship in which a person’s property is held by one party for the benefit of another. The person with the property is called a “settlor” and creates the trust. The settlor then entrusts (transfers) his or her property or funds to a “trustee” on behalf of one or more “beneficiaries.”

Why Use a Trust?

Many people think estate planning is about their death or the threat of disability. But it’s really about your control over your assets and their distribution. The top benefits of trusts include:

  • Controlling your wealth. You can specify what is held and the timing and amounts that are distributed to both you and your beneficiaries.
  • Avoiding the probate process. A will must be validated by a probate court before it can be enforced, and probate is costly (most of it going to attorney’s fees), time-consuming, and a matter of public record. A trust will save costs, shorten the asset distribution process, and preserve your privacy.
  • Minimizing taxes. The greater your assets, the more likely it is that a trust can help you avoid paying unnecessary taxes. But even people of more modest means can maximize the assets that flow to beneficiaries through trust arrangements.

What’s Best for You?

A good estate planner will begin by asking about your family situation. Married? Children? How old? Special needs? What you want to accomplish will determine your best options among the array of trust types.

Trusts are typically distinguished by whether they are revocable or irrevocable. A revocable (or “living”) trust allows you to retain control of your assets during your lifetime. With an irrevocable trust you typically transfer your assets out of your estate and potentially out of the reach of estate taxes, but you cannot alter it after it has been executed.

Beyond these two basic distinctions, there are many types of trusts that can meet your needs, and some trusts can accurately be described as belonging to two or three trust types based on their characteristics or purposes.

What to Consider?

Beware the fly-by-night trust mills hosting seminars (a free meal!) and selling people (mostly elderly) trusts that they don’t need while charging high commissions. Many of these trusts never get followed up on and become problematic or useless after the person dies.

That’s why it’s so important to find a trustworthy and qualified estate attorney to help you determine the best approach for you. Be sure he or she knows federal and state law and keeps up with frequent changes in the relevant laws. If you have an accountant and financial planner, keep them in the loop!

Once you’ve selected an attorney and made your basic decisions, it will take a few weeks to prepare and file the necessary legal documents. Then make sure you transfer your assets to the trust!

After your trust is in place, make sure you review your estate planning documents regularly, especially if you have children. A rule of thumb is to revisit your plans every three to five years, or whenever there are major life events such as the death of a parent, divorce, or the birth of grandchildren.

We would like to help you determine the best mix of estate planning tools for your situation and peace of mind! Contact our team today to build your own Legal Life PlanTM that fits your family and your needs.

Categories: Living Trust
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