Advantages of a Trust

There are many advantages to creating a trust. For example, your family can save money on probate and taxes, and you can put a more detailed plan in place to manage your property after you are gone. One of these advantages to creating a trust may be more important to you and your family than another.

Probate

One of the biggest advantages to creating a trust is that the property that is owned by your trust avoids the probate process after you are gone. When you create a trust, you usually name yourself as the initial trustee. You transfer the property you want owned by the trust to yourself as trustee.

When you serve as trustee while you are living, about the only thing that has changed for you by creating a trust is that your property is not owned by you as an individual, but is owned by you as trustee for your own benefit. You maintain 100 percent control of your property.

You also name a successor trustee in your trust document. The successor trustee automatically owns the property when you are gone, thus avoiding the probate process. This is a huge advantage. It can be expensive for your family to probate your estate after you are gone, depending on the fees in your state, and it does takes time to complete the process.

Management

This is an advantage that is not available with any other type of estate planning document. Your trust document has detailed instructions on who will manage your property after you are gone or if you become incapacitated. The successor trustee you name will automatically hold the legal title to your trust property. Your trust document will provide instructions to your successor trustee on what to do with that property.

The instructions you give your successor trustee might be very simple and straightforward. For instance, the trust could say, “My successor trustee shall distribute all of the trust property to my spouse,” or “My successor trustee shall, if my spouse and I are both gone, distribute my trust property in equal shares to my children.” If this is your plan, the only advantage you have gained by creating a trust is that of saving your family the cost and delay associated with the probate process.

When you read Chapter 12 and discover the types of powers and discretion you can give your successor trustee, you will be surprised. You may consider creating a trust even if you thought your property and estate plan was very simple.

Taxes

It is important that you determine whether your estate will be subject to federal estate taxes after you and your spouse are gone. Federal estate taxes are very expensive, but usually can be reduced by careful planning.

A trust can also be used to shelter the estate exclusion amount for estates that may owe federal estate taxes. If after you have read Chapter 18 you discover that your estate is subject to federal estate taxes, you absolutely should see a lawyer.

If you are married and you and your spouse own property in excess of the unified credit amount that can be transferred free of federal estate taxes, you can use trusts that include special tax-savings provisions to save your family federal estate taxes on that excess.

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