We often witness scenes in movies where families gather for the reading of a will, assuming it takes care of everything. While wills are common, trusts, legal arrangements granting individuals control over specific assets, offer a more robust solution for estate protection. This article explores the benefits of trusts, potential risks without one, and the reasons for considering this option.
The Risks Without a Trust:
Inability to Directly Transfer Your Home:
- A trust facilitates the smooth transfer of real estate, avoiding the delays and complications of probate. Without a trust, the court-supervised probate process can tie up assets for an extended period.
Extended Court Hassles:
- Probate is an expensive and somewhat complex process, involving inventory, appraisals, notifications, and debt settlements. This can take 9 to 18 months or longer. Trusts streamline this, saving time and minimizing court-related delays.
High Probate Costs:
- Probate expenses, including legal fees, can be steep and are calculated as a percentage of the estate’s value. Trusts generally incur lower fees, making them a more cost-effective option.
Frozen Assets During Probate:
- Wills freeze assets during probate, causing delays in paying bills and expenses. Trusts avoid this freeze, ensuring that funds are available for immediate expenses.
Inheritance Tax Exposure:
- For estates over $5.4 million, inheritance taxes apply. Irrevocable trusts can offer protection. Establishing a trust can be a strategic move for those in this tax bracket.
The Benefits of a Revocable Trust:
- Direct Asset Transfer:
- A revocable living trust allows control and enjoyment of assets during the individual’s lifetime. At death, assets transfer directly to beneficiaries without going through probate.
- Privacy and Control:
- Unlike wills, trusts remain private, shielding family matters from public records. Trusts provide a level of control over asset distribution, protecting against potential family conflicts.
- Creditor and Predator Protection:
- Trusts prevent assets from being used to pay beneficiaries’ debts or becoming subject to claims from divorcing in-laws. This safeguards assets for intended beneficiaries.
Establishing and Managing a Revocable Living Trust:
- Grantors maintain control over their assets as long as they are mentally competent. Control transitions to a secondary trustee only when the grantors choose to relinquish control or lose mental capacity.
Funding the Trust:
- Assets, including real estate and investment accounts, must be retitled into the trust for it to be effective. Proper funding ensures the trust’s ability to bypass probate.
Periodic Review and Modification:
- Revocable trusts can be amended or restated based on changing circumstances, ensuring they align with evolving preferences, family dynamics, and legal requirements.
Getting Started with Estate Planning:
- Options for Estate Planning:
- Individuals can choose do-it-yourself (DIY) methods, online will creation services, or consult trusts and estates attorneys. Each option caters to different needs and complexities.
Hiring a Trust or Probate Attorney:
- Choosing an Attorney:
- Recommendations from friends or other lawyers can help find a suitable trusts and estates attorney. Compatibility, experience, and communication style are crucial factors.
- Fee Structure:
- Attorneys may charge hourly rates or a flat fee for services. The cost depends on the estate’s complexity. Clear communication about fees and services is essential.
- Homework and Information Gathering:
- Attorneys often provide worksheets to identify goals, address issues, and collect estate data. Accurate and complete information ensures effective estate planning.
- Minimizing Estate Taxes:
- Consulting on strategies to minimize estate taxes may incur additional fees but can significantly benefit high-net-worth individuals.
- Multiple Drafts and Communication:
- Wills and trusts may require multiple drafts to ensure they align with the individual’s wishes. Clear communication with the attorney is crucial for satisfactory outcomes.
- Regular Review:
- Periodic reviews, ideally every five (5) years, help ensure that estate documents remain current, considering changes in laws, family situations, and asset values.
Understanding trusts and their benefits is essential for effective estate planning. Whether choosing a revocable living trust or other options, seeking professional advice, periodic reviews, and adapting to changing circumstances contribute to a comprehensive and successful estate plan.