The reality of our own mortality keeps some of us up at night. For others, it’s a disturbing thought that is easily brushed aside. Whichever group you belong to, you need to have an estate plan in place. This is the only way that you can have any say in how your assets are distributed after you pass. Without an estate plan, your family will be subjected to more stress and financial strain. An important part of an effective estate plan is a trust.
Barron’s recent article, “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich,” explains that there are many types of trusts, but the most frequently used for these purposes is a revocable living trust. This trust allows you—the grantor—to specify exactly how your estate will be distributed to your beneficiaries when you die, and at the same time avoid probate and stress for your loved ones.
When you speak with an estate planning attorney about setting up a trust, also ask about your will, healthcare derivatives, a living will and powers of attorney.
Your attorney will help you retitle your probatable assets to the trust. This includes brokerage accounts, real estate, corporations, LLC’s, jewelry, artwork, and other valuables. Your attorney can add a pour-over will to include any additional assets in the trust. Retirement accounts and insurance policies aren’t involved with probate, because a beneficiary is named, but beneficiaries need to be changed, typically by naming a trust, to make sure your plan works as intended. Note that, aligning your assets, verifying that the institutions have retitled your assets as requested, and tracking the value and changes in your assets is THE essential element to make sure you avoid probate and take care of your family.
While you’re still alive, you have control over the trust and can alter it any way you want. You can even revoke it altogether.
A revocable trust doesn’t require an additional tax return or other processing, except for updating it for a major life event or change in your circumstances. The downside to a revocable trust is the trust is part of your estate meaning it doesn’t give much in terms of tax benefits or asset protection. If that was your focus, you’d use an irrevocable trust. However, once you set up such a trust it can be difficult to change or cancel. The other benefits of a revocable trust are clarity and control— you get to detail exactly how your assets should be distributed. This can help protect the long-term financial interests of your family and avoid unnecessary conflict.
If you have younger children, a trust can also instruct the trustee on the ages and conditions under which they receive all or part of their inheritance. In second marriages and blended families, a trust removes some of the confusion about which assets should go to a surviving spouse versus the children or grandchildren from a previous marriage.
Whether you own five houses or one, drive a late-model car or an old clunker, you need an estate plan. Estate plans have long-range consequences, so sit down with an experienced estate planning attorney who has an ongoing client care program like we offer at Family Estate Planning Law Group to receive good guidance for your legal, tax and financial situation and to keep your estate plan up-to-date.
Reference: Barron’s (February 23, 2019) “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich”