For many of my clients, a Last Will and Testament serves as the foundation of their estate plan. As they expand their estate plans, additional tools and strategies become necessary to help achieve broader estate planning goals. When it comes time to consider additional estate planning tools, a trust agreement is a popular choice. For anyone who is considering an expansion of their existing plan, let me explain five common reasons to include a trust in your estate plan.
- Avoiding Probate: One of the primary reasons people establish a trust is to avoid probate. Probate is the legal process through which a Will is validated, and assets are distributed to heirs. This process can be time-consuming and costly, sometimes taking months or even years to complete. By placing assets in a trust, they pass directly to your beneficiaries without the need for probate. This not only saves time and money but also helps maintain the privacy of your estate since probate records are public. In contrast, the distribution of assets held in a trust remains private, allowing your family to manage your estate more discreetly.
- Providing for Minor Children: A trust is an excellent tool for providing for minor children after your death. If you leave assets to a minor directly through a Will, those assets will likely be managed by a court-appointed guardian until the child reaches the age of majority. With a trust, you can dictate how and when your children will receive their inheritance. You can appoint a Trustee to manage the assets on behalf of your children and set conditions for the distribution of those assets. For example, you may choose to distribute the funds at certain milestones in your child’s life, such as when they turn 25, or different ages, graduate from college, or purchase a home. This allows you to provide financial support while also ensuring that your children receive the guidance they may need to manage their inheritance wisely.
- Protecting Assets from Creditors: Another important use for a trust is protecting your beneficiaries’ inheritances from creditors. A spendthrift trust, for example, includes provisions that prevent a beneficiary from accessing their inheritance in a way that makes it vulnerable to creditors or poor financial decisions. With a spendthrift trust, the Trustee retains control over the assets and can distribute them in a manner that protects the beneficiary. This is especially useful if a beneficiary is struggling with financial instability or has a history of poor money management. The trust can ensure that the funds are used for their intended purpose, such as paying for housing, education, or healthcare, while keeping them safe from creditors.
- Planning for Incapacity: A revocable living trust can be particularly valuable if you become incapacitated due to illness or injury. In the event that you are unable to manage your own financial affairs, a successor Trustee, whom you have chosen, can step in to manage the assets in your trust. This avoids the need for a court-appointed guardian or conservator and allows for a smoother transition of financial management. You retain control over the trust while you are capable, but in the event of incapacity, the trust can continue to provide for your needs and the needs of your loved ones without interruption. This feature ensures that your financial affairs are handled according to your wishes during your lifetime.
- Supporting Charitable Giving: A trust is also an ideal vehicle for charitable giving. If philanthropy is important to you, a charitable trust allows you to support your favorite causes in a tax-efficient manner. You can set up a charitable remainder trust (CRT), for instance, which allows you to receive income from the trust during your lifetime, with the remainder going to the charity of your choice upon your death. Alternatively, a charitable lead trust (CLT) provides income to a charity during your lifetime, with the remaining assets eventually passing to your beneficiaries. This arrangement allows you to contribute to the causes you care about while also providing potential tax benefits for your estate.
Can We Help You Incorporate a Trust into Your Estate Plan?
For more information, please contact our estate planning office in Owings Mills, Maryland by calling 410-654-3850 to schedule an appointment.
Attorney at Gershberg & Associates, LLC
Mr. Gershberg, an active member of his community, is well aware of the growing importance of estate planning, and dedicates himself to informing the public of the need for careful attention to their specific situations Read More!
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