To follow-up on my last post of Top 10 Reasons To Have A Will, here are my Top 10 Reasons To Have A Trust. The benefits of having a trust usually fall into one of the following categories: control, protection, privacy and cost-savings.
1. Avoid Probate. There are three major reasons to avoid probate. First, probate is costly. There are a number of different expenses that present themselves during probate, and probate costs reduce the amount of the inheritances that will ultimately be received by the heirs. It can cost up to 25% of the total value or, in some cases, deprive your family of 100% of their inheritance. The expenses could include court costs, legal fees, accounting expenses, the executor’s remuneration, appraisal charges, liquidation fees, and other miscellaneous expenditures.
Second, probate is slow. Heirs that are named in the Last Will cannot receive their inheritances until the court has probated and closed the estate. Each case is different, and some are more complicated than others. An estate valued at less than $150,000 can take advantage of a simplified probate process. A simple, straightforward case with an estate valued at over $150,000 can pass through probate in perhaps nine months to a year. Complicated estates can take many years.
Third, probate is public. Probate records are available to the general public, so anyone who has an interest can access these records and find out how you planned your estate. In addition, con-artists and others looking to get a windfall from your family can access information about the family to facilitate their schemes.
2. Protection From Legal Challenges. A trust gives you greater protection than a will against legal action from anyone who is unhappy with the distribution of assets and decides to challenge it. This benefit alone may make some people consider a trust a good option.
3. Distribution Flexibility. Trusts offer flexibility in how assets are distributed. A trust can set out in detail how the estate is to be distributed to beneficiaries. For beneficiaries who are unable to effectively manage money or who can't be relied on to make sound financial decisions, a trust gives the grantor the option of disbursing funds to the beneficiary in smaller, regular amounts instead of one large lump sum, so the beneficiary can't spend all the money at once. The grantor can also specify how the funds can be spent, for example on rent, food, healthcare, and other necessary or unexpected expenses.
4. Higher Education. One of my personal favorite reasons, whether the grantor is paying for one child or several, a college trust fund offers flexibility in how and when money is disbursed for educational expenses. Typically, an education trust will specify that each child's full tuition and college expenses be paid, after which any remaining assets in the trust can be split evenly among all the children. In some cases, the children will have different financial needs -- for example, if one child attends medical school, while another simply earns a BA. The person setting up the trust may decide to give each child the same amount, regardless of the cost of their education, or provide varying amounts depending on each child's educational costs.
5. Asset Protection for Children. A trust can protect the assets you leave your children from a future divorcing spouse, a creditor, predator, or lawsuit.
6. Asset Protection for Spouse. By setting up the right language to create a “Bypass” trust at the death of the first spouse, the surviving spouse can gain asset protection for themselves over the assets that are in the “Bypass” trust.
7. Divorce/Remarriage Protection for the First Spouse to Pass Away. A so-called “Bypass” provision created from the trust at the death of the first spouse can protect the first to die’s separate property and their half of the community property. This is because the surviving spouse cannot change the terms of the “Bypass” trust. The “Bypass” trust becomes irrevocable at the death of the first spouse and the surviving spouse can’t leave the assets to a new spouse.
8. Remote Contingent Beneficiary planning. In a trust, you may choose a remote contingent beneficiary or beneficiaries. Some wish to designate a charity or others in their family to be the remainder beneficiary in the event all those listed predecease or are all in a common disaster or accident.
9. Protecting Life Insurance Proceeds. If your life insurance beneficiary form designates your trust as the primary beneficiary, at your death or upon the death of the surviving spouse, your life insurance proceeds can be asset protected for your children from creditors, predators and future divorcing spouses in a continuing trust that can spring from your revocable trust.
10. Estate Tax Savings for High Net Worth Individuals. This doesn’t apply to most of us, but in 2018 an individual estate valued at over $11 million ($22 million for couples) may be able to benefit from some estate tax planning that utilizes the estate tax exemptions of both spouses. Check with your tax advisor for the current estate tax limits.
Before you decide whether a trust is right for you, I suggest talking to an attorney about your unique situation. I offer complimentary 20-minute consultations and will be happy to answer your questions.