Why Trusts Should Be Part of Your Estate Plan

Trusts in your estate plan
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Trusts have long been a tool for the ultra-wealthy to preserve wealth and pass it down through the generations. However, even those of more modest means may benefit from this powerful estate planning tool.

More and more people have learned that they need to have an estate plan to protect themselves, while they are living and to distribute assets when they pass. Estate planning tools like a Power of Attorney and a Health Care Power of Attorney are basic documents anyone over 18 needs to have. Trusts, once exclusively the province of the wealthy, are now being used by everyone, reports the Cleveland Jewish News in the article “Five reasons to incorporate trust into estate plan.”

Taxes. Since the Federal exclusion for estate and/or gift tax is now $11.4 million per individual, most estates won’t be taxable at the federal level. However, don’t overlook state estate taxes, as select states have their own state estate regime. What if life insurance proceeds cause the value within your estate at your death to exceed the estate tax limit? One way to keep the cap on your estate size, is with an irrevocable life insurance trust, also known as an ILIT. It will keep life insurance policy proceeds outside of your estate and minimize the amount of your estate of your estate, otherwise subject to possible estate tax.

Asset Distribution. A trust can ensure that funds are used for specific purposes, such as higher education. It can also control how funds are distributed to an individual. If there are concerns about how an heir might mishandle an inheritance, perhaps because of an addiction or a lack of financial skills, a trust can be used for oversight into when funds are distributed and possibly under what circumstances. You can set benchmarks for trust distribution, such as completing college or a rehabilitation program.

Privacy. Heirs are sometimes surprised when they start receiving solicitations after a loved one’s Will is probated. That is because once a Will goes through probate, the information is a public record and available to anyone, including nosy neighbors, scammers or an estranged family member. A trust provides a layer of privacy, which can also apply while you are living. Certain information, like the ownership of a property, can be made less public, if the property is owned by a trust instead of an individual.

Making Estate Settlement More Efficient. Depending upon the jurisdiction, probate matters can take substantial time. The court process does not always move quickly, and sometimes can be difficult to navigate. Probate can also become quite expensive. An executor or administrator of the estate is generally paid a percentage of the total value of the assets managed. But assets that are held in a trust do not go through the probate process and can be managed far more efficiently, quickly, and less expensively.

An experienced estate planning attorney will be able to determine what kind of trusts will be most appropriate and useful for your situation.

Reference: Cleveland Jewish News (September 16, 2019) “Five reasons to incorporate trust into estate plan”


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