Estate planning serves a lot of purposes, not the least of which includes transferring your assets to the next generation without much lost to taxes. Trusts are one of the more common methods people of means have of doing exactly that.
Why are trusts so useful? Consider these advantages:
- Wills go through probate, while trusts do not, so there’s no delay in access to the assets for your heirs.
- Trusts can help you legally avoid estate and gift taxes (if they’re structured the right way).
- You can retain some control over the assets after your death, ensuring that your heirs will not fall prey to creditors, their own financial mistakes or poor judgment.
- You can use a trust to make sure that you are properly cared for in the event you become incapacitated.
- You can protect the future well-being of any heirs you have that are still minors or who suffer from disabilities.
There are numerous kinds of trusts, but they generally fall into two main categories: revocable and irrevocable. Revocable “living” trusts are designed in a way that allows you to retain control over them as long as you live. That’s important if you might ever need to dissolve the trust or make changes to its terms. Assets don’t fully transfer to that kind of trust until you die.
Irrevocable trusts are just that: Irrevocable. You cannot alter them nor dissolve them. However, irrevocable trusts are often safer from creditor claims, better protected against taxes and can even be safe from claims by Medicaid.
Does every estate need a trust? Not really. But you should talk your estate goals over with an experienced attorney before you decide whether a trust is suitable for your estate plans.