Trusts an important tool in estate planning
In many ways, wills and trusts are not all that different. Both are legal documents that can be used to direct what happens to your money and property when you die. However, a trust can do much more than a will. For example, special needs trusts can be used to preserve money that will supplement the needs of a disabled family member without making that person ineligible for public benefits. Trusts can also be used to plan for (and maybe even avoid) future expenses such as nursing home costs and estate taxes. Young parents or grandparents often use trusts to protect money for the benefit of a minor child.
Trusts hold someone’s assets for them “in trust.” There are three important parties in a trust: the person who created the trust (the settlor), the person who runs the trust (the trustee) and the person who benefits from the trust (the beneficiary). Depending on the trust, the settlor, trustee, and beneficiary can all be the same person. Assets can be put in trust either before or after a person’s death, but only assets put into trust before death avoid probate. Transfer of assets into your trust does not happen automatically, therefore trusts require a little more work to set up than a will. After a will is executed, there is not much that needs to be done until after your death.
Contrary to popular belief, trusts are not only for the wealthy. They can be a useful tool in anyone’s estate plan. Because trusts can be more complex to create, they may be initially more expensive than a will. However, this initial cost often results in savings in the long run. The primary reason for this is that trusts avoid probate. Wills are administered in a court-monitored process called probate. Probate is public, may last more than a year, and can be costly. If you have property in multiple states, separate probate processes may be required in each state. By comparison, administration of a trust is completed in private by a trustee you choose. Because the court is not required to be involved, it typically takes less time and money to administer.
Estate plans can include both a will and a trust, and many estate plans do. An attorney can help you decide which option works best for your individual situation.
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This article is designed for general information only. The information presented here should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.