Creating an estate plan helps ensure that, in the event of your death or incapacitation, your financial affairs will be managed according to your wishes and your assets distributed to your beneficiaries.
Every estate plan should include a will, power of attorney and advanced directives. But does your estate plan also need a trust?
The benefits of trusts
A trust is a legal arrangement that allows you (the grantor) to transfer your assets into the care of a third party (trustee) to be managed on behalf of your beneficiaries. They can be in effect during your lifetime (living trusts) or not until after your death (testamentary trust). Trusts can also be revocable, meaning you can make changes to it, or irrevocable, where you give up all control of the assets and cannot make any changes without the approval of the beneficiaries.
Creating a trust has several advantages, such as allowing your beneficiaries to avoid probate. Probate is the process of validating your will and overseeing the distribution of your assets, first for your final expenses and creditors and then the remainder to your heirs. The entire process can be time-consuming and expensive. A trust allows the assets to go directly to the beneficiaries.
In addition, wills become public records during probate, which means anyone can see the details of your estate and the beneficiaries’ information. Trusts remain private, keeping that information confidential.
A trust also gives you control over asset distribution. You can specify how and when your assets are distributed, which could be advantageous for minors, individuals with special needs or beneficiaries who are fiscally irresponsible.
Adding a trust to your estate plan requires careful planning. If they are not structured properly, it could lead to adverse consequences. Therefore, you should discuss your estate planning with goals to ensure your trust is structured to meet your needs.