When you hear the word ‘trust’ in a legal context, you may think of huge estates that require several professionals to successfully manage. However, creating a trust is not just for the very wealthy. A trust, when correctly set up, can have benefits for everyone involved. This article will go over 5 of the biggest reasons to create a trust. But first, let’s take a look at what a trust is.
What Is A Trust?
In short, a trust is an official legal document that concerns property and other assets. There are usually three parties involved in a trust: the trustmaker (who owns the assets), the beneficiary (who will receive the assets) and a trustee (who takes care of the assets until the time is right to distribute them to the beneficiary or beneficiaries).
The trustmaker and the trustee can be the same person. However, many people use a third party as a trustee. You can pick someone who is trusted and would be able to act in their place if they pass away or are incapacitated. When setting up a trust, it is important to involve competent legal counsel to make sure that the document is properly completed and validated.
Every person’s situation is different, and there are times when a will is a better option than a trust. However, a trust has several important benefits that should be considered when estate planning. Let’s get into some of the reasons why establishing a trust can often be beneficial.
A Trust Is Often More Private Than A Will
Every will has to go through a process called probate before assets can be distributed to the beneficiaries. This process can take a long time (potentially more than a year). Probate creates a public record that includes what was in the will and to whom it was given. Trusts do not have to go through probate, which often saves a significant amount of time and money. Additionally, trusts generally are not required to be made public.
A Trust Offers Greater Legal Protections
Generally speaking, trusts are much more difficult to contest than wills. In most cases, there has to be clear evidence that the trustmaker was either under duress or mentally incapacitated at the time of the trust’s creation. Outside of those circumstances, a trust will generally hold up under challenge much better than a will.
Trusts Provide Greater Flexibility
Life is always changing, and the more people are involved in a will or trust, the more true that is. A trust provides much greater flexibility in the distribution of assets than a will since there is a trusted third party – the trustee – that can assess the circumstances and act accordingly. For example, a family summer home would be impossible to literally divide up among beneficiaries. Placing the home in trust provides a solution in which it can legally be shared and enjoyed by all involved. The same holds true for similarly difficult to distribute assets such as cars, boats, and land.
When authorized by the trustmaker, the trustee has the flexibility to divide assets according to the needs of the beneficiaries and to allow some assets to be shared among them. This can help avoid family feuds. Often, trust distributions are effective when the trustmaker dies or is incapacitated, which is usually a very emotional time for the beneficiaries. Trusts can be much easier to administer than wills. Because they do not go through probate, the beneficiaries can receive their distributions much more quickly and easily.
Trusts Can Be Established For Specific Needs
It is possible to establish a trust intended to pay for the education of a beneficiary or to care for someone with special needs. The flexibility of a trust is helpful if the trustmaker intends to pay for the education of more than one beneficiary. For example, if one beneficiary chooses to become a dentist, more funds can be allocated to them than to another beneficiary who chooses to pursue a bachelor’s degree. If you have a beneficiary who needs assistance in managing money due to disability or other reasons, a trust can include provisions to protect that person.
If the trustmaker has money, assets, or possessions that they would like to charitably give to an organization, they can set up a trust for that purpose. In the meantime, they can still enjoy those assets or possessions while they are living. For example, if they owned a rare musical instrument, they could continue to enjoy it for the rest of their lives, and then, upon their death, it would be given to the organization of their choice.
Trusts Can Reduce Estate Taxes
Some trusts can be set up in ways that will help you reduce or avoid estate taxes (which are taxes imposed on the transfer of property after death and can be quite sizable.) In some cases, a trustmaker can give tax-free gifts to children or grandchildren annually. A lawyer who specializes in estate planning can help you work within the laws of your state to minimize your tax burden and that of your beneficiaries with the help of a properly created trust.
Please note: this article was created for informational purposes only and is not intended to be used as legal advice. If you are contemplating creating an estate plan, we encourage you to meet with a competent attorney for advice regarding your specific estate and situation. If you have any questions, please contact us at 307-857-0300.
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