Trusts: Not Just for the Wealthy
Yachts, ski chalets, chartered jets, trusts: one of these things is not like the others. Contrary to popular belief, establishing a trust isn’t a luxury reserved for the ultra-rich.
Yes, trusts are often used by the wealthy to shield assets and pass money from one generation to the next. That’s just one way that trusts are used, though. This financial arrangement has benefits for average working Americans too.
A Will May Not Be Enough
The months following a loved one’s death are always hard. Going through probate – the process by which the deceased’s assets are distributed to beneficiaries – only compounds the stress and struggle of this period.
Here’s another common misconception about death planning: having a will doesn’t mean that your heirs will avoid probate. And probate isn’t anyone’s idea of a good time.
Even when the deceased had a will in place, the probate process can take anywhere from three to six months. During that time, the executor must submit a deceased’s will to probate court and get the court’s approval to access and distribute assets. The process is even more complicated (and can even become contentious) when the deceased had no will.
Probate is also problematic for the privacy conscious. Wills must be filed with the probate court, so they become public record. It may also be necessary to publish a notice in the newspaper to alert anyone with an interest in the deceased’s estate that the probate proceedings are underway.
Why You Might Need a Trust
Like creating a will, establishing a trust allows you to record your wishes regarding what happens to your assets when you die. Unlike a will, a trust doesn’t have to be filed with the probate court, and no notice must be placed in the newspaper. Creating a trust might be worthwhile for privacy reasons alone.
Avoiding probate is another major reason that average people use trusts. If the deceased had a trust, the person who is named trustee can automatically access and distribute assets. There’s no months-long delay while the executor waits for the court’s sign-off, like with probate.
Creating a trust is also a better alternative to joint tenancy, a strategy that some people use to avoid probate. It’s the practice of naming a joint owner of major assets. For example, an elderly mother might give her son joint ownership of her home, thinking that because the asset is in his name too, he’ll automatically own it once she’s gone and won’t have to go through probate.
However, this thinking can backfire in a few ways. One potential downside is that the primary owner can’t enforce any terms on the joint asset. The mother could instruct her son to sell the house and split the profits with other relatives, but he might not comply with her wishes after she’s gone, and the house would be entirely his. In addition, this creates adverse tax consequences for the son.
By contrast, creating a trust does allow you to set specific terms that determine how your assets are managed. That’s especially useful if any of your beneficiaries are minors. You can name an age at which the children receive assets, or create a schedule dictating that they get set amounts at different ages or when they meet certain milestones. The trustee you name will manage your assets and make sure that minors are provided for, if necessary.
Establishing Your Trust
The desire to maintain your privacy and have control over your own assets isn’t reserved for the wealthy, and neither are trusts. Because there are no financial minimums required for creating a trust, taking this step is an option even for people living paycheck to paycheck. It’s a way to make sure that even after you’re gone, your assets are distributed and managed exactly the way you envision. You can even establish a trust that pays for a pet’s care!
At the Ladimer Law Office, estate planning is our area of expertise. Our attorneys have years of experience with trust creation, funding and administration. We’d love to answer your questions about whether a trust is the right choice for you and your loved ones. Get in touch to learn more.