Estate Planning: The Advantages of Creating a Trust

When people think about estate planning, they usually think about having a simple Will. Indeed, a Will is one of the most important elements of a solid estate plan and, in fact, one of the most important documents one needs to write in his or her adult life. However, a good estate plan must include arrangements that go beyond a Will. Why? Simply because a Will is limited. For example, even with a Will in place, a person’s estate and assets will still have to go through the probate process. This means that it can take many months until the assets finally find their way to the heirs and beneficiaries.

One of the most versatile estate planning tools is a trust. In this article, we will discuss what a trust is, what the different types of trusts are, and what estate planning advantages they provide.

Trusts Explained

A trust is created when one person (the trustmaker or grantor) transfers the ownership of some of his assets and grants another person (a trustee) the right to manage them upon their death. A trust also mentions one or more beneficiaries to whom the assets in the trust will be eventually granted. Two basic kinds of trusts are:

Revocable living trusts – the grantor, the trustee, and the beneficiary are all the same person. This gives the person who establishes trust the right to manage the assets as long as they’re alive. After their passing (or in case they lose the ability to manage the trust due to circumstances like mental illness), the trust will be managed by a successor trustee whose duty is to make sure the assets are transferred to the beneficiaries.

Irrevocable living trusts – the grantor and the trustee can never be the same person. The trustmaker relinquishes control over assets put in the trust which reduces the size – or net value – of his or her estate. He or she appoints a trustee who will manage the transition of the assets in the trust to its beneficiaries. Irrevocable living trusts cannot be dissolved or changed.

Benefits of Trusts

Here are some of the most important benefits of setting up a trust in relation to estate plans:

  • Trusts don’t go through probate: Assets put in a trust are not included in the net value of your estate, which means they are shielded from the probate process. Thanks to that, their distribution and transfer to your heirs and other beneficiaries are much quicker and more convenient for your family.
  • Trusts can help you avoid the federal estate tax: The estate tax is a tax levied against your estate and paid to the federal government upon your death. Currently, the amount of the tax is 40% of any estate whose net value exceeds $11.2 million. However, an estate whose net value doesn’t reach that threshold is exempt from the federal estate tax. This is where a trust can come in handy. As mentioned, assets in a trust are not included in the net value of the estate. So setting up a trust provides a way to reduce the net value of the estate and avoid the tax.
  • Trusts give you additional control over your estate: Trusts are flexible. You can specify the time intervals at which the beneficiaries will be able to access a portion of the assets, as well as their value and amount. You can even determine additional criteria and conditions that a beneficiary will be required to meet in order to access the funds.
  • Trusts can skip generations: With a generation-skipping trust, you can transfer money and assets to beneficiaries at least two generations younger than you. You can also stipulate that your children will receive a regular income that must be used for the benefit of your grandchildren. Generation-skipping trusts are – up to a certain value – tax exempt, so they constitute a vital way for wealthy seniors to preserve their financial legacy.

Need Help With Setting Up a Trust? Contact a Lawyer

Trusts are versatile and powerful estate planning options, but they are not “Do It Yourself” solutions. Choosing a trust that really fits your financial needs requires not only a considerable amount of planning, but also knowledge and expertise. If you wish to include a trust in your estate plan, you should definitely contact a lawyer and ask for their professional guidance. Luis E. Barreto is an experienced estate planning and probate attorney practicing in Miami. Contact his offices to discover what kind of estate planning solution will benefit your estate and heirs the most.

Luis E. Barreto