It is a prevalent misperception that only wealthy individuals can benefit from establishing a revocable living trust. In actuality, trust-based estate planning provides families with a variety of benefits.
Below is a review of several significant benefits of trusts.
A trust can help you avoid lengthy and frequently expensive procedures.
In general, assets held in a living trust are exempt from probate. Probate is a protracted legal proceeding that begins the estate settlement process after a person's death. A trust provides possibilities for bypassing this procedure. As the grantor (i.e., the person who created the trust), you would transfer assets to a revocable trust and continue administering them during your lifetime. Upon your death or incapacity, a successor trustee you select would settle your estate and distribute its assets to your beneficiaries. This helps your loved ones to eliminate the necessity for an attorney or legal process following your passing. In this manner, you can save time and money over time.
Probate records are also public documents. Anyone can look at court files and determine who inherited what. Any party may contest the legality of a will's contents in court. A trust can preserve your privacy by ensuring that only your loved ones know who inherited it and the size of your estate. This also makes contesting difficult, as only identified heirs may view the record.
A trust can include thorough incapacity planning.
When an adult cannot take care of him or herself due to physical or mental incapacity, the court appoints a legal guardian or conservator to take care of medical and financial decisions. Typically, the procedure begins with a social agency or family member filing a petition to place an adult under guardianship or conservatorship. The process entails a court hearing, during which family members frequently testify, and can be burdensome for the family. The judge then decides if guardianship or conservatorship is necessary.
Trusts allow grantors to define incapacity to administer their assets. If the criteria are met, a trustee can administer assets on behalf of the grantor. Trust-based estate plans feature a durable power of attorney. This document allows you to appoint an agent to sign documents on your behalf if you become incompetent. Among other things, they can pay your expenses and file tax returns on your behalf. This plan also includes a medical power of attorney. This document provides a list of individuals authorized to make medical choices on your behalf and your end-of-life care preferences. Due to this, guardianship or conservatorship is unnecessary.
A trust can protect beneficiaries
Trusts can build up beneficiary trusts at the trustee's direction. This is especially important when parents are concerned about the beneficiary's capacity to manage their inheritance. For example, suddenly receiving a significant quantity of money can incentivize reckless financial decisions. To prevent this, a trust inheritance can benefit both parents and beneficiaries. The grantor can stipulate that the bequest will be delivered in stages over time, establish the circumstances under which the beneficiaries will receive their inheritance, or stipulate the permitted uses of the monies.
This would also safeguard the beneficiary from losing their inheritance in divorce or litigation, as the assets would belong to the trust, not the beneficiary.
However, trusts can be expensive.
Trusts are more expensive to establish than wills. Depending on your estate's intricacy, they can cost a few thousand dollars. In addition, as a trust is more complete than a will, it takes additional processes, such as establishing a trust bank account, moving assets into the trust, registering it for tax purposes, etc. However, the time, effort, and money saved with a trust may make a trust-based estate plan the most effective approach to reaching your objectives. Your unique objectives and priorities may determine whether these trust benefits justify the investment.