Do You Need A Trust?

By Barbara Coenson
Attorney at Law

Why would you need a revocable living trust to leave your property and possessions to your loved ones when you already have a last will and testament? Well, you may not. But, here is what a trust can do for you…

A Trust Offers Protection During Life

Although wills and trusts are instruments to pass property at death, a trust can protect your assets while you are alive. As owner and trustee of the trust, you control the property in your trust. But what happens if you become ill and are unable to manage your assets? A successor trustee selected by you takes immediate control and manages your trust assets for your benefit. The trust instructs the successor trustee to use trust assets to protect and care for you and your family. For example, Sarah named her son, Chad, as successor trustee of her trust. When Sarah had a stroke and could no longer manage her trust assets, Chad was able to take control and use Sarah’s trust assets to provide in-home medical care for Sarah.

A Trust Passes Property without Probate

A trust allows your successor Trustee to distribute your property directly to your loved ones when you die without court-involvement. When you have only a will, property must pass through the probate process before being distributed. Probate takes 8-12 months and costs about 6% of the value of the property being probated. For example, for Sam’s daughter, Tina, to receive the $250,000 he left for her in his will, Tina will have to wait several months before receiving the money, and it will cost $15,000 to  probate. If Sam had left the $250,000 to Tina in a trust, Tina would receive the money almost immediately after Sam’s death and without the $15,000 cost.

If you own real estate in multiple states, a probate proceeding will be necessary in each of those states when you die. But, because a trust bypasses probate, those properties can pass directly to your loved ones without probate. For example, Sam left Tina his residence in Florida and vacation home in Virginia in his will. Tina will have to wait for the residence to be probated in Florida and the vacation home to be probated in Virginia. If Sam had put the properties in a trust, the residence and vacation home would pass directly to Tina without probate.

A Trust Offers Privacy

When you submit a will to the court for probate, the will becomes public record. But, because a trust bypasses probate and is not recorded with the court, the trust and its contents remain private. Thus, only your successor Trustee and those to whom you leave your assets know the details of your trust.

A Trust Protects a Child’s Inheritance

When you leave property to your minor children in a will, the property is distributed to your children’s guardian; the court will not wait until your children reach adulthood to distribute your assets. However, property can stay in a trust long after you die. You can instruct the Trustee to keep, manage, and grow your property in trust until you want your children to receive their inheritance. For example, Lois’ trust instructs the trustee to distribute her children’s inheritance in increments: give each child one-third of their portion when they turn age 25, one-third when they turn age 30, and the remaining third when they turn age 35.

If you married a second time and have children from a first marriage, you can instruct your Trustee to use the assets in the trust to take care of your spouse after you die, and then, when your spouse dies, give the assets remaining in the trust to your children from your previous marriage. For example, Eduardo instructed his successor trustee that after Eduardo dies, the Trustee should use the trust assets to take care of his current wife, Amanda, as long as she lives. But, after Amanda dies, the assets remaining in trust should be distributed to Eduardo’s three children from his first marriage. If Eduardo had left everything to Amanda in a will, when Amanda died, Amanda’s heirs would receive the remaining assets.

A Trust Supports the Disadvantaged

If you have a family member who is disabled, ill, unable to manage finances, or is overextended to creditors, a Trustee can use trust assets to pay for that person’s medical needs, education, and living expenses without distributing the assets directly to that person. Leaving assets under a will means that family member will receive his or her full inheritance. Receiving assets may disqualify your loved one from public funds such as SSI or Medicaid, or encourage squandering of the inheritance, or loss of the inheritance to creditors.

A Trust Can Minimize Estate Taxes

A trust minimizes estate taxes for married couples. A married couple passing property under a will, receives a single estate tax exemption. However, with a trust, when one spouse dies, the trust can divide into two trusts and each separate trust will receive its own estate tax exemption. Thus, a trust can shelter twice as much from estate taxes.

Lake Mary Life, 2007

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