“You can’t take it with you when you go,”
Is a common expression but what can you do about it? Well, for one thing you can set up a trust so that your estate is divvied up how you would like after your passing. This may not be something that’s easy to talk about, because well most people don’t like thinking about their inevitable death, but it is something that needs addressing. So before even getting into planning an estate trust it would probably be a good idea to understand what exactly qualifies as your estate.
Legally speaking your estate is everything you own although the word ‘estate’ usually leaves the impression that it is referring solely to property. Your estate, which includes everything you own and all the money you would have upon your death, including life insurance policies and such, can be managed through a trust. It could be intimidating or even uncomfortable to quantify all of your worldly possessions and then place them in the hands of a third party. So, let us delve into what an estate trust is and what the pros and cons of having one is.
An estate trust involves having a trustee, which is a person or organization, in charge of enforcing the terms of your trust. There are many benefits of an estate planning trust that may not immediately be apparent.
One reason to use estate planning trusts is to avoid probate.
Probate is a lengthy legal process through which your wishes may be outlined in a will may be followed, after paying filing fees, attorney fees and paying off unsecured creditors. However, if you are survived by family that need to be able to receive your assets in a timely manner (like dependents that don’t have individual incomes), or if you just want your beneficiaries to get what you’re leaving them quickly, then an estate planning trust comes in handy. This is because the substantial majority of estate planning trusts avoid probate altogether and allow your estate to be distributed, and your wishes to be honored, immediately upon your passing.
Another benefit that estate planning trusts provide is the ability to stagger distributions and continue to control your assets after you have passed away. If you only have a will, your beneficiaries will receive their portion of your estate all at once and be able to use it however they wish. But we all know people where that may not be the best thing and by using an estate planning trust you can lay out parameters for them to receive their inheritance in increments.
You can also include stipulations that must be met in order for them to continue receiving their inheritance. For example, you could leave your child a certain amount of money spread out across a set amount of years that can only be used to pay for tuition if that is how you would like your money to be spent after your death.
Asset protection is also a useful aspect of estate planning trusts because it can protect your money and possessions from things such as bankruptcy or divorce. This can be incredibly useful if you know that you don’t want to lose something, or you don’t want it to leave your family lineage, or really any other reasoning you may have for fearing losing a possession to a legal matter such as a nasty divorce, an attack by creditors, or a declaration of bankruptcy. All of these options are available to you through estate planning trusts because of the variety of trusts out there.
There are specialized trusts for the type of person that receives your estate (like a spouse), for the type of inheritance (to care for a surviving child that has special needs), a cap on the inheritance left (once the quota is met instructions can be left for the remainder to go to a charity), and a multitude of other specific actions. All of these different trusts all fall under two broad categories of trusts, revocable and irrevocable.
A revocable trust can also be referred to as a living trust. In this form of trust, you are able to either dissolve the trust or make changes to it as you wish, you can even make yourself the trustee until the time of your death. Whatever the state of this trust, it becomes unchangeable once you pass away but while you are still alive you are able to transfer and edit its contents.
This can have many advantages because well for one thing you can change your mind. However, the freedom to change your mind about the specifics of the trust will come at the cost of estate taxes and the risk of losing those assets in the event of something drastic like bankruptcy. This is because a revocable trust is viewed like any other asset you own, so if that isn’t what you’re looking for the other option is an irrevocable trust.
If you have an irrevocable trust you can’t change your mind about what you have laid out in it because once it is signed it is out of your reach. The assets outlined in the trust are no longer subject to estate taxes and cannot be seized for any reason, however you are also unable to reach or use them. The irrevocable estate trust is usually preferred over the revocable trust because even though you lose the ability to manipulate those assets once it is invoked, overall it lowers the estate tax and is protected against legal action.
On the whole, estate planning trusts are clearly very diverse and useful legal documents and it is important that you consult a legal representative to discuss which form of estate planning trust is best suited for your needs.