Have a will, but don’t think you need a trust? You may want to think again.
It’s a misconception that trusts are only for the ultra-wealthy. For many people, a trust should be an essential part of a sound and smart financial strategy. If you don’t think you need a trust, here are a few examples of why you might:
- You want your money and assets equally distributed to your heirs.
- You want your estate to go to your biological children and not your step-children.
- Ensure higher education is paid for before asset distribution.
- Mitigate estate taxes for your family.
- Protect your assets from your creditors or the creditors of your heirs.
- More privacy surrounding your money and assets.
These are just a few examples. The list could go on and on.
Bottom line: if you have assets such as investments, a home, or other property such as a boat or vacation home and you want to avoid additional taxes and specify who inherits your assets, when they inherit, and how, you need a trust.
The Benefits of a Trust
Aside from detailing the fate of your assets, trusts have many specific benefits to both you and your beneficiaries.
Save Time and Money by Avoiding Probate
If you have a will but not a trust, your assets will go through the public process of probate. Upon your death, all of your assets will go into probate, and the court proves that your will is valid.
Typical Probate Process
- The court inventories your property and assets;
- The court then pays outstanding taxes and debts;
- The court assesses your probate tax;
- The court distributes the assets to the wishes of your will or by state law if you do not have a will in place or you did not correctly draft your will. Your estate plan should be reviewed regularly as estate laws evolve. Alliance can refer you to attorneys that will assist you.
The probate process can take up to a year, and in the meantime, your family will be without their inheritances. Sometimes the court allows some of your estate to be distributed during probate, but often your family is left waiting.
YOU Control Distribution
A trust allows you to detail exactly how, when, and to whom you’d like your assets distributed. You can choose to have your assets distributed over time or in one sum and even how you want the assets utilized. For example, you can specify that the money is only for the use of living expenses such as food and housing.
Controlling distribution can be highly effective in situations where you are unsure about how your beneficiaries will handle receiving a large sum of money. Often, grantors want to be certain bad decisions don’t squander their wealth.
A Trust is Difficult to Contest
While a will is easy to challenge, a trust is not. If you fear that someone will be unhappy with your decisions and wish to challenge the distribution of assets, a trust is a much safer option.
There are two ways to challenge a trust, both requiring significant proof:
- The grantor was not in the right mental state when setting up the trust.
- The grantor was under “undue influence” when drafting the trust and did so under someone else’s influence.
Even with these potential challenges, a trust is much more likely to withstand contest than a will.
Cover Educational Costs
Many grantors want to be sure that educational costs for their beneficiaries are covered first before the distribution of assets. You can specify whether each child should get the same amount after education costs, or whether distribution should be contingent on education costs.
An educational trust fund provides a lot of flexibility and control for a beneficiary to ensure their educational goals for their children are met even after their death.
Specify the Division of Property
Some assets are more difficult to divide than others, such as real estate or other personal property like boats or cars. A trust helps make these things easier to divide by allowing the grantor to specify precisely how to transfer the property upon their death.
A grantor can choose who gets what property, whether they can sell the property and if so, how they should sell the property and divide the proceeds. The trust can provide equal access to the property for each beneficiary or even allow them to buy each other out if they wish.
Avoid (or at Least Reduce) Estate Taxes
Assets placed into a trust are not subject to estate taxes. A trust gives grantors the ability to give tax-free gifts from the estate to their children up to the annual exclusion. The annual exclusion states that grantors can give gifts up to a certain dollar amount annually without incurring taxes.
Estate taxes only apply to estates worth $1 million or more, so they don’t apply to most. You do, however, need to be sure you understand the full value of your estate. Remember to factor in the value of your home and any other assets, not just your liquid assets and investments.
Enjoy More Privacy
As we mentioned earlier, if your estate is in a will and goes into probate, it is a public process. With a trust, your assets remain private. While a public record is sometimes necessary, it is not common. In many cases, you can find ways to work around disclosing records publically.
Keep Family Harmony Intact
After the death of a family member, there is grief and many emotions involved. A trust is an easy and straightforward way to ensure that emotional factors don’t play a part in the distribution of assets.
It can be easy for family feuds to arise during the division of an estate. A trust can be customized to precisely specify what each heir will inherit, leaving nothing to be argued over. A trust can even ensure that only the beneficiary has access to their inheritance and exclude spouses, step-children, or anyone else a grantor desires.
Who controls the trust? You do! Or a trusted family member, friend, or independent corporate trustee whom you appoint. Unlike a will, you control every aspect of a trust before and after your death to ensure your family is immediately protected.
Nevada carries the most advantageous privacy and asset protection laws in the U.S. You do not have to live in Nevada to take advantage of Nevada’s trust jurisdiction. Alliance Trust Company of Nevada has vast experience with both domestic and international complex estate planning and taxation strategies. Moreover, Alliance had a significant network of Nevada attorneys, advisors, and CPAs that we can refer you to. Do not hesitate to reach out to learn more about what Nevada can do for you!
