Do you need a trust to protect your assets from probate and taxes? You may be surprised to hear that the answer is probably not. Unless you have an expensive portfolio of funds that you wish to control during your lifetime, you probably do not need to undergo the expense of creating a trust. Trusts can result in a hefty set of legal fees and a confusing journey for you or your Trustee.
BENEFITS OF A TRUST:
- To Avoid Probate and Taxes.
If you are trying to keep your funds from being taxed upon your death, and hoping to prevent them from being probated through Court, you may then want to create a trust. However, there are multiple alternatives such an Enhanced Life Estate Deed, which allows for you to control the property during your lifetime, and directs that property transfers to your Grantee of choice automatically upon your death (more on that below).
- To Control Disbursement of Assets Over Time.
Another reason to create a trust is to control the disbursement of funds over time (either before, or after, your death). This is particularly beneficial for those creating the trust (called “Settlors”) to be able to control whether their beneficiary can access (and therefore) spend their entire disbursement all at once.
- To Protect Assets Intended for Beneficiaries From Creditors During the Trust Lifetime.
If a beneficiary is expecting assets from a trust, creditors cannot touch the money until it is in their hands. However, child support is one exception to this. Child support that is due can attach to potential disbursements of trust monies.
REASONS YOU MAY NOT NEED A TRUST:
“Transfer upon death” designation for beneficiaries:
Any stock portfolio or retirement fund is likely to have the option to create a “transfer upon death” beneficiary, which would allow the funds to transfer automatically upon death, thus avoiding the probate process entirely.
Enhanced Life Estate Deed
An Enhanced Life Estate Deed allows you to release ownership (or “quitclaim”) of any of your real estate property to specific person(s) of your choosing (“grantee”), with the intent that the property ownership transfers fully and immediately upon your death. A benefit of this type deed is that, during your lifetime, you still retain complete control to mortgage or sell the property. Still alive but now you decide you want to sell the family home you quitclaimed to your children through an Enhanced Life Estate Deed? You still has sole discretion to do that.
Last Will and Testament
Although the Last Will and Testament does not avoid probate entirely, it does make the probate process much easier for your family. You have the opportunity to spell out every last detail of your wishes and, if necessary, can create a “Testamentary Trust” within the document which is a simple way to create a trust for your needs without spending too much extra money and without adding additional confusion for your loved ones. A will can be as simple, or as complex, as you like and even leave generic assets such as all real property “either owned now or after acquired” so whatever you might buy after you make the will would be covered.
Trusts can be a very complex (and even hundreds of pages long) and confusing thing for family members to navigate after your death. It is helpful to reach out to your attorney to discuss whether you need one or not. However, be sure you are not enticed by the complexity of a process if it can be executed through a much simpler, cheaper, route that is more manageable for your executors.