Do you have a trust? Not sure if you need one? Here are the top 5 reasons why a trust should be something you consider.
1. Stay out of Court.
Many people operate under the misconception that a will in and of itself will keep them out of probate, but that is simply not true. A will, by itself, will be subject to the court-supervised distribution of your estate, called probate. When you pass away or become incapacitated, certain financial obligations- paying your mortgage, your bills, your taxes, your insurance- will need to be addressed. With only a will, your executor will have to seek court approval to handle your financial responsibilities. If, however, you have a trust, and your assets are titled in the name of the trust, a successor trustee (who you have already named in the trust itself) will be able to manage those assets free of court supervision and delay.
Keep in mind that titling your assets correctly is tantamount to avoiding probate. Any asset not held in trust and which does not pass by law will be subject to the probate process. Furthermore, assets in different states which are not held in trust will be subject to probate in those states. As mentioned here, probate fees and costs can be expensive and time-consuming.
2. Stay In Control.
A trust can also control how and to whom your assets are distributed. For example, if you are concerned that a minor child might not be able to responsibly handle the assets they will inherit, your trust can specify age requirements and amounts to be distributed. Further, your trust can allow multiple smaller distributions to a beneficiary, rather than a one-time, lump-sum distribution. A will does not come with this type of control.
3. Keep your Matters Private.
Absent compelling circumstances, what happens in the courtroom becomes part of the public record. If your estate is subject to probate, information about the distribution of your assets will be obtainable by anyone who seeks it. You (or your family) may prefer to have these matters handled privately for a variety of personal (and understandable) reasons.
4. Protect Your Assets from Creditors.
Generally speaking, trusts carry built-in asset protection against third-party creditors. A trust can assure that your assets are maintained for your children (or non-children beneficiaries), and not subject to collection by their creditors prior to distribution.
5. Reduce Potential Tax Liability.
Many Americans are shocked to know that the IRS taxes your estate at your death. This is called the Estate Tax. Estates under $5.43 million for an individual, and $10.86 million for a married couple, will not be subject to estate tax due to the 2015 exemption amounts.* (Aren’t they considerate?) Any amount over the exemption amount, however, will be taxed at 40%. This has potential to affect many homeowners in the Bay Area, as their property values are higher based purely on the high value of Bay Area property! An appropriate trust structure can preserve the value of your estate and minimize potential tax consequences.
Not all of these factors need apply to you. Just one is enough for you to at least consider making a trust a part of your estate and financial planning process.
*Note that the exemption amount is adjusted annually for inflation.