7 Reasons Trusts Are Frequently Used in Estate Planning

When it comes to estate planning, you may be more familiar with the concept of a will versus a trust, but there are several reasons that trusts could benefit you and your loved ones in estate planning.

What Is a Trust?

A trust is a legal agreement in which one party, the trustor or grantor, transfers assets to another party, the trustee, to hold and manage for the benefit of a third party, the beneficiary.

Establishing a trust gives you control over how your wealth will be protected and, ultimately, transferred to your beneficiaries.

Here are seven reasons trusts are frequently used in estate planning.

1. Avoidance of Probate

In some cases, if you leave assets to your loved ones and other beneficiaries in a will, they may have to go through a potentially lengthy, costly, and public validation process called probate. During this process, a court validates the will, appoints an adult executor, ensures all taxes and debts are paid, and authorizes the distribution of assets.

When assets are held in a trust, they are not considered part of the probate estate, so assets can typically be transferred to beneficiaries more easily. Bypassing probate also avoids associated legal fees and provides your family more privacy.

2. Asset Protection

Many types of trusts provide a level of protection against creditors, lawsuits, and other legal claims that could otherwise target your assets. In an irrevocable trust, for example, assets are legally owned by the trust, not the individuals who create or benefit from it, shielding them from personal liability. Asset protection may be an especially important consideration depending on your profession.

3. Tax Planning

Certain trusts can reduce potential tax burdens, which is particularly beneficial to those with significant assets. Irrevocable life insurance trusts, for example, can remove assets from your taxable estate, reducing your estate taxes. Other trusts, such as charitable remainder trusts – irrevocable trusts that let you donate assets to charity and draw annual income for a specific time period – may provide income tax benefits. Talk to a trust officer to see which types of trusts fit your specific tax-reduction goals.

4. Control Over the Distribution of Assets

When you create a trust, you specify how, when, and to whom your assets will be distributed. You can indicate if beneficiaries – those who will benefit from the trust – must be a certain age to claim their assets or set parameters as to how the assets can be used, a smart step if you have beneficiaries who may be minors at the time the trust goes into effect.

5. Planning for Incapacity

A trust doesn’t only serve a purpose after someone passes away. When you appoint a trustee, the trust ensures that someone is legally authorized to manage your assets and that the assets are used or distributed correctly if you become incapacitated by illness or injury. When you can’t make decisions, your trustee will be able to use your assets to fund the care or other expenses you require and ensure funds and property are distributed according to your wishes.

6. Providing for Minor Children or Beneficiaries With Special Needs

If you have minor children or beneficiaries with special needs, creating a trust can offer peace of mind that they will be financially taken care of without jeopardizing their eligibility for government benefits, such as in the case of a special needs trust. With certain types of trusts, you can manage and safeguard your assets and ensure they’re distributed appropriately to meet the needs of these important beneficiaries.

7. Preservation of Privacy

If you write a will, it will become public during the probate process. Many types of trusts offer more privacy for your family and your financial matters. Keeping details about your assets, debts, and who will inherit what out of the public eye can reduce family conflict and stress as well as protect them from scammers trying to look for potential victims in public records.

Could a Trust Elevate Your Estate Plan?

Trusts are valuable tools in estate planning, and this article gives a good overview of why you might consider one for the protection, management, and distribution of your assets. If you are ready to consider creating a trust, talk to a Trust Officer to learn more.

While trust officers are not able to offer legal advice, they are here to help you explore these concepts and guide you on your next steps.

This material is for general informational purposes only, and is not intended to provide any tax, legal, financial, or other personalized advice.