Those looking at creating or updating their estate plan can weigh various details to determine the best approach. Solutions will depend upon the size of the estate, the needs of the family, and the goals when creating a legacy. Many will delay this process or do a short will, but a thorough estate plan with a trust may make the most sense even if the children are still young.
Trusts can provide many benefits. Most notably, a trust does not go through probate, which means the estate passes more quickly to beneficiaries. Because the estate does not go through probate, the financial details are also not a matter of public record. Trusts also protect assets from claims by creditors.
When a trust makes sense
Those with larger estates will often have goals they want to achieve beyond passing assets to a spouse. Common examples of where a trust could help include:
- Legacy: Maybe there is not enough money to name a college dorm wing, but there may be enough for an endowed scholarship. Saying you want to do this in a will is one thing, but earmarking money using a trust better ensures that it will happen as initially envisioned.
- Family needs: A trust exercises more control over the administration of the estate, and the planner has many design options. It can provide for spouses or children who cannot care for themselves while also ensuring continued access to federal benefits like Medicaid. It can also benefit heirs with mental health issues like addiction by not better enabling them to engage in destructive behavior.
- Protecting assets: Some states do not have inheritance tax if the estate is below a certain value, but assets in an irrevocable trust are exempt regardless of the size of the estate. It can also help avoid unnecessary taxes, fees and expenses.
- Business ownership: Business owners and partners in closely held companies can also pass certain businesses to beneficiaries using specially designed trusts.
It all depends on goals
One of the great benefits of estate planning tools is that they can be modified to fit the individual and family’s needs. Those with questions can often get guidance from an attorney who designs and drafts trusts for clients. These legal professionals can also skillfully administer trusts, thus not burdening family members with the job.