You may have heard of or even created a will – but what about a trust? While similar to a will in that it allows you to give away your assets to your loved ones after you die, a trust is a very different, more flexible document. Even if you already have a will, it might be beneficial to consider also making a trust. Here’s why:
1. One important characteristic of a trust that distinguishes it from a will is that trusts take effect immediately, while wills only takes effect upon death. This feature of a trust can be particularly critical if something unexpected happens, for example, the trust creator (aka grantor) becomes disabled. In that case, the trust would provide security for the disabled grantor because the successor trustee would be able to manage financial and other matters during the disability.
2. Privacy is a major benefit of trusts that does not also apply to wills. When a person with a will dies, his or her will is made public, and can be read by anyone who searches the public record. On the other hand, trusts can be kept extremely confidential. A trust does not have to be filed with the court, even at the grantor’s death, and does not go into the public record (unless there is a dispute). A trust may be a better option for those who are concerned with privacy when it comes to how their assets are being distributed.
3. Will creators are often worried that their estates – their lifetime of earnings – will be exhausted too quickly by their heirs. If you are concerned about a child or sibling with irresponsible spending habits, a trust can be a great solution. Trusts allow their grantors to designate not only who receives which assets, but also when these assets are distributed. That means that grantors can give their assets away in portions; for example, they can give twenty percent of their estate to their child every ten years so that the child does not receive all the funds at once. Grantors may give their successor trustees instructions to buy certain things for their heirs, such as paying for weddings or for higher education. That way, the grantor can rest easy knowing that only their successor trustee has access to these funds when necessary.
4. Many parents and grandparents want to encourage their descendents to stay in school and get an education. Trusts make it very easy to set aside a certain amount of money for your children or grandchildren to spend on higher education. Because trusts allow you to plan far into the future, education funds could even be reserved for great- or great-great-grandchildren.
5. For those who find comfort in planning far into the future, there is no better estate planning document than a trust. A trust can arrange for assets to be distributed for many generations, not just to those currently living when the death occurs, whereas a will only distributes assets upon death. Thus, a trust established today could be written so that its assets are still being given away years into the future.
6. A unique feature of trusts is that they require the grantor to appoint someone as successor trustee, who is the person or entity who will manage the trust when the grantor is no longer able. Until that time, the grantor also acts as the trustee. It is often comforting to know that if you ever become incapable of managing the assets detailed in your trust, your chosen successor trustee will take over.
7. You have a variety of options when selecting your successor trustee, from a family member to a close friend to your accountant, financial planner, or even your attorney. Some people choose to designate a corporate trustee, such as a bank or trust company, instead of an individual. While they may not have the personal touch of a family member or friend, corporate trustees are knowledgeable about how to best secure and invest assets so that they grow over time. This can be a good option if you are concerned about the money management capabilities of individuals close to you.
8. Business owners can also greatly benefit from creating trusts. These documents ensure that the business continues to operate on your or your family’s behalf if you are no longer able to run it yourself. This not only gives you peace of mind, but also could assist your loved ones to continue earning money after you’ve passed away.
9. Trusts allow you to avoid potentially major money-draining estate taxes. Life insurance policies, for example, are a highly taxed item that many people want to include in their estates. With an irrevocable life insurance trust (“ILIT”), the proceeds from this insurance at your death will not be subject to taxation. An ILIT may allow you to avoid the estate tax altogether.
A trust is a creative document that is adaptable to a variety of circumstances. If you think you or your loved ones would benefit from a trust, call our experienced estate planning attorneys today at 248-223-9883 to take the first step.