What Are The Benefits Of A Trust?
Victoria Pappas Law Student, Cardozo School of Law
Steve Buissinne from Pixabay
Wills and trusts aren't just for rich people. Everyone needs one. Both dictate how you want your money, property and personal items to be distributed upon your death.
While many web sites advertise free templates for wills and trusts, a lawyer is essential when it comes to figuring out which is best for your family - a will or a trust.
The differences between a will and a trust
A will is a written legal document —signed by you and witnessed by others—that indicates how your money, property, and possessions will be distributed at the time of your death. Wills also allow you to appoint caretakers for minors and dependents. You can change it at any point.
A trust is another way to manage what you leave behind. But in a trust, a third party manages the distribution of your money, assets or property according to your own wishes and intent.
Unlike a will, a trust doesn't need to go through probate court, which is a long process. There are no court or attorney fees after the trust is established. Your property can be passed immediately and directly to your named beneficiaries.
Here are the reasons many people opt for trusts over wills.
1. Avoid Probate and Have Privacy
Trusts do not go through the probate process.
Probate is a legal process where a will is authenticated and the contents of the will are administered. This process is public, therefore things that go through probate are public record. This gives anyone and everyone the right to see these documents and learn of your assets and properties.
Trusts, however, avoid probate and therefore are not usually public record. Trusts are thus a great way to keep your assets and property private.
2. Maintain Control and Flexibility
With a trust, you get to decide what happens to your assets or property. With a revocable trust, you can make changes at any point in time. This can be an advantage if circumstances change after you initially created the trust and need to make amendments.
Revocable trusts allow you to add or remove assets, beneficiaries, and change any other terms you’d like.
When creating any type of trust, you also control exactly what happens with your assets. You can attach conditions to the use of certain assets or properties. For example, you can state that your beneficiaries only use certain funds to pay for college or that a grandchild may not access funds or properties until they turn 18.
How and when your assets are used, distributed, and managed are completely up to what the grantor wants. The plans can be as a specific or vague as the grantor wishes.
If you become mentally or physicall incapacitated, a court can appoint someone to manage your assets and finances, known as a conservatorship. Setting up a trust prevents a conservator from managing your assets in a way you do not want.
Additionally if you become ill, your family or loved ones do not have to worry about distributing assets as this will all be taken care of by the trustee. A trustee can distribute assets, file taxes, and pay bills.
3. Hard to Challenge
Sometimes when beneficiaries or non-beneficiaries are unhappy with the distribution of assets or terms of the trust, they will try to challenge its legitimacy. This commonly happens with wills, but is harder to do with a trust, thus greater protecting the grantor’s wishes and assets.
It is harder to prove the grantor was incompetent when creating a trust, specfically a revocable one because trusts are continuously managed throughout the grantor’s life.
Unless the grantor was illegally influenced or coerced when writing the trust, the actual document was not legally valid, or the grantor was mentally incompetant at the time the trust was created, trusts are not as easy to challenge as wills.
4. You'll pass by the tax man.
Assets and properly placed into a trust are usually not subject to certain taxes, such as estate taxes.
Since the terms of irrevocable trusts cannot be changed, property has officially been transferred out of your own estate and therefore you will not be taxed for those things anymore.
Revocable trusts can provide tax benefits depending on the terms.
A lawyer can help you set up a trust, and explain the pros and cons.
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