There are a variety of estate planning tools at your disposal. Most people are familiar with wills, but your estate plan could also include documents like powers of attorney, advance health care directives, trusts and others. The trick to creating an effective estate plan is choosing the right documents for your unique situation.
Many people overlook the value of including trusts in their estate plans. Sometimes this is because they do not understand what a trust is or how a trust might benefit them.
A trust is a legal entity that can help manage property during your lifetime and distribute your property after your death. Typically, you would transfer ownership of your property to the trust where it would be managed by a trustee of your choosing. After you pass away, the trustee would distribute your property according to your wishes.
One of the biggest benefits trusts offer is the ability to avoid probate. Probate is the process of distributing your property according to state law or your will. This process can be time-consuming for your loved ones who may need to wait years to receive the assets you left for them.
The probate process is also a part of public record. This means that once your estate goes through probate, anyone can find out information about your estate and its distribution.
By creating a trust, you can be sure your wealth will be passed on shortly after your death, if that is your wish. You can also keep the details of these transfers private.
Control how wealth is transferred
Although you may want to have your assets distributed shortly after your death, you may also want to control that transfer in other ways. For example, if you have a minor child, you may want the trustee to wait to distribute the child’s inheritance until he or she is 18. If you have a special needs child, you may want the wealth distributed in small amounts over a long period of time, so the assets do not disqualify him or her from certain government aid. You may even want to limit an adult beneficiary’s access to his or her inheritance, so the individual does not waste the wealth frivolously.
There are different kinds of trusts to serve a variety of purposes. However, unlike wills, trusts generally allow you to be specific about the circumstances surrounding a transfer of wealth. That extra control can allow you to protect your loved ones, while also protecting your wealth.
Plan for incapacity
If you fund your trust while you are alive, you can help protect yourself in case something unexpected incapacitates you. If you become incapacitated, your trustee or successor trustee may access the assets on your behalf to manage those assets and pay your bills. This can prevent the need for conservatorship, which can be time-consuming, expensive and restrictive.
If you are beginning the estate planning process, it can be helpful to understand all of the tools available to you. Although a trust may not be the best tool for all situations, it can be an effective tool for avoiding probate, controlling distributions and planning for incapacity.