Benefits of a Trust . . . When Done Properly

by | Jun 1, 2023

 

A trust is an extremely helpful tool in estate planning. There are many misconceptions about trusts like only millionaires or only people who own multiple properties need a trust. While a trust is typically necessary for people with above-average assets, a trust provides a variety of benefits to anyone who has one . . . when it is done properly.

Benefit #1: Trusts Avoid Probate.

Just simply creating a trust, does not avoid probate. Take a look at the importance of funding your trust here. Additionally, as you may have read in our previous blog post, a trust will avoid probate if your assets are properly handled to include your Trust.

What does this mean? This could be a variety of things, depending on the assets you have, what your goals are, and who you are leaving your assets to. However, it typically means that your real property needs to be owned by your Trust and that financial institutions need to have your trust listed as a beneficiary to transfer the money to the trust after you pass. It could also mean that your governing business documents need to state that your business assets transfer to the trust after you pass. It’s important to meet with an attorney to discuss your assets, how they should be owned, who or what should be listed as your beneficiaries, and how to ensure nothing slips through the cracks!

Benefit #2: Family Inheritance.

Minor children cannot inherit money. If you list your minor child as the beneficiary on your $100,000 life insurance policy, it will trigger a conservatorship hearing. A conservatorship hearing is a costly proceeding where a professional is appointed to manage your child’s funds and then your child will receive anything that is left usually at 21 years old. With a trust, you choose who is in charge of managing your child’s money and what age your child must be in order to inherit a large lump sum.

A trust is also very customizable. You can decide that your child can receive 1/3 of her inheritance at 25, 1/3 at 30, and the rest at 35. You can put in other types of rules or restrictions such as your child must graduate from an accredited university, college, or trade-school to receive her inheritance. A trust is an easy way to ensure your child’s money is being managed by someone you trust and allows your child to receive funds as needed while maintaining the goals you have in mind for them.

Children

Benefit #3: Privacy.

Another huge benefit of a trust is that a trust provides an extra layer of privacy in two ways. First, a trust does not need to be lodged with the court, like a will does, because it avoids probate. Second, property deeds are public records, meaning anyone can pull a deed of title on a property and know that you own it. However, if your property is owned by your trust, when people pull the deed of title, they will see “ABC Trust, Dated May 15, 2023” instead of your individual name.

Benefit #4: Liability of Your Beneficiaries.

When you pass, your Successor Trustee opens a trust account at any bank she wants. Once the account is open, she contacts the financial institutions that have the trust listed as the beneficiary and transfers them into the trust account. Any property owned by the trust can be sold with the proceeds also going into the trust account. Now, everything is consolidated into one account. From here, your Successor Trustee pays any creditors, funeral expenses, taxes, etc. before distributing to the beneficiaries.

If all the money and property is distributed to the beneficiaries first, while that avoids probate, creditors have one year from the date of death to file a claim against the estate. If that happens, it can cause your beneficiaries to have to pay creditors out of pocket.

This causes contention. For example, two beneficiaries, John and Jane, were listed as 50/50 beneficiaries on your accounts so they receive the funds immediately. Jane fronts the cost of funeral expenses and asks John to reimburse her for half the cost and John refuses. While listing them as beneficiaries is helpful in that it avoids probate, now we have two siblings who are fighting over something like funeral costs. A trust alleviates contention as the Trustee pays all administrative expenses from the Trust first, then dividing the remainder.

Let us help you!

As you can tell, there is a lot that goes into an estate plan. That is why it is important to meet with an attorney to make sure every aspect of your plan is covered so your family is protected! Schedule a free initial consultation today!