You don’t have to be wealthy to benefit from the use of a trust, which is a legal arrangement by which one person(the grantor) transfers his or her assets to a trustee who holds those assets in trust for third parties(the beneficiary), explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the grantor” you determine who the trustee is, as well as naming the beneficiaries.
There are many different types of trusts which serve different purposes. However, the two basic categories are revocable (also known as “living”) and irrevocable. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the grantor. The irrevocable trust, however, cannot be changed, and the grantor gives up control of the assets. Regardless, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.
A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use them:
- Protect assets from creditors
- Allow heirs to avoid probate of certain assets
- Avoid, minimize or delay estate taxes, transfer taxes or income taxes
- Control how assets are disbursed or invested
- Facilitate business succession planning and manage business assets
- Shelter assets for descendants, if a spouse remarries
- Establish a family tradition of philanthropy
Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.
The cost of setting up a trust depends on the complexity and the estate as well as other factors like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting one up should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.
Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.
Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”