When you hear about estate planning, the first thing that comes to mind might be creating a will to distribute your assets after you die. However, there is another estate planning strategy that flies under the radar. It is called establishing a trust.
As a legally binding contract, a trust designates a trustee to manage your assets when you die. You direct the trustee to manage the trust according to your wishes during your lifetime and after you pass away. Establishing a trust provides you with five significant benefits.
Helps You Avoid the Probate Process
Although the assets you control in a will must go through the probate process for distribution according to your wishes, the same cannot be said for a trust. A will becomes part of the public record, which is why it must complete the probate process. On the other hand, a trust is considered a private legal contract that remains private upon your death.
When you create a trust, you have to deal with just an attorney and the trustee you designate to manage the trust. A will requires you to interact with several more parties when it reaches the probate stage. When you plan for your death, you want the transferring of assets to go as smoothly as possible.
Creating a trust ensures that happens.
Can Provide Tax Breaks
You can set up either a revocable or an irrevocable trust. A revocable trust allows you to make changes, but it does not typically provide tax advantages. However, you cannot change an irrevocable trust in any way. This means that if you have transferred assets out of your estate into an irrevocable trust, you might benefit from a tax advantage.
You can make a gift to an irrevocable trust each year without the beneficiary paying a gift tax. The exemption rate for the gift tax in 2021 is $15,000 for individuals and $30,000 for married couples that file a joint return.
Customization of Your Estate Plan
A trust allows you to customize your estate plan. You have the legal power to add conditions to a trust, such as how you want the assets to be used and establishing an age attainment provision that declares the age when a beneficiary can access the assets placed in the trust. For example, you can add a stipulation that requires your grandchildren to use the assets in the trust to pay for college. Another common example is to limit how much particular beneficiaries are allowed to receive from the trust.
Provide Financial Help During Disability or Prolonged Illness
Wills kick in only when a grantor dies. If you create a revocable trust, you can help your family financially if you suffer from a disability or prolonged illness. If you become incapacitated, the trustee named to manage the trust makes the distributions of assets according to your wishes. Providing financial help during a time of incapacitation gives you peace of mind knowing your family will be taken care of financially.
A Revocable Trust Offers Flexibility
Setting up a revocable trust offers you the flexibility to change the terms of the trust at any time. All you have to do is create and execute an amendment that details the change or changes. This enables you to adapt to changes in your life, such as having another grandchild come into the world.
Flexibility is essential when you want to add or remove a beneficiary from a revocable trust.
Contact Cloud Peak Law Group
Life is unpredictable, but establishing the correct type of trust allows you to adapt to life’s rapid changes. Learn more about setting up a revocable or irrevocable trust by contacting Cloud Peak Law Group. We schedule free consultations with potential new clients.