A trust may be used to minimize estate taxes and offer other benefits. A trust is fiduciary arrangement that allows a trustee to hold assets on behalf of beneficiaries. Trusts can be drafted many different ways and can set forth exactly how and when your assets pass to the beneficiaries you name.
Assets in a trust may be able to pass to your beneficiaries outside of probate, saving time, and court fees compared to a will. However, a trust is more complex and expensive to create than a will. Everyone should have a will or a trust. It allows you to communicate your wishes clearly and precisely. It is advisable to work closely with an attorney to create and update your trust.
A Trust may be useful if:
If you have a net worth of at least $150,000 and meet one of the following conditions:
- A sizable amount of assets in real estate, a business or art collection.
- You want to leave your estate to your heirs but not directly and immediately payable to them upon your death.
- You want to support your surviving spouse, but also want the remainder of your estate to go to your named heirs (e.g. your children from a first marriage) after your spouse dies.
- You and your spouse want to maximize your estate tax exemptions.
- You have disabled relative you would like to provide for without disqualifying him or her from Medicaid or other governmental assistance.
OTHER BENEFITS OF TRUSTS
- Specific control over your assets. You can specify when and to whom distributions will be made. The trust assets can remain fully accessible to you during your lifetime while designating who will receive the assets after your death.
- Protect your asserts from heirs’ creditors. A properly drafted trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be equipped to handle money.
- Privacy and no probate costs. The privacy of trusts versus the public process of probate of a will is often mentioned as a reason to have a trust. The privacy of trusts often creates major financial and legal problems due to the lack of court oversight after your death. These problems may be avoided by a will that supervised by the local probate court.
REVOCABLE VS. IRREVOCABLE
A major distinction between trusts is whether they are revocable vs. irrevocable.
- Revocable Trust: also known as a living trust, your assets pass to your named beneficiaries yet allow you to retain control of the assets during your lifetime by naming yourself trustee or co-trustee with your spouse. A successor trustee would be named to manage the trust if you are incapacitated or die. A revocable trust usually becomes irrevocable upon the death of the original grantor.
- Irrevocable Trust: typically transfers your assets out of your estate. It may avoid estate taxes and probate. It cannot be altered after it is executed. Once it is established, you lose control over the assets and you cannot change any terms or decide to dissolve the trust.
BASIC TYPES OF TRUSTS
- Marital or “A” Trust: Designed to provide benefits to a surviving spouse and generally included in their taxable estate.
- Bypass or “B”: Trust Established to bypass the surviving spouse’s estate in order to make full use of any federal estate tax exemption for each spouse.
- Testamentary Trust: Set forth in a will, it becomes effective after the death, with the assets subject to probate and transfer taxes.
- Generation-Skipping: Permits trust assets to be distributed to grandchildren or later generations without incurring either a generation‑skipping tax or estate taxes on the subsequent death of your death.
HOW MUCH WILL IT COST?
An estate plan including a trust can cost between $1,500 and $3,000 depending on how the type of trust, the nature and extent of your assets, whether you own a business, and the number of beneficiaries. An estate plan should include drafting the trust, a pour-over will, and an advance health care directive. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.
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