By setting up a trust, you can ensure that property is distributed efficiently and responsibly after you pass. This article explores the many benefits of including a trust in your estate plan.
A Broad Explanation of Trusts
A trust is not like a will. With a will, you pass certain belongings or large portions of your estate along to a recipient. A trust is a living account. You can place your property into this account, and a trustee manages the account, keeping it alive. The trustee can buy or sell property with the account. They can also make investments in the trust’s name, allowing it to grow.
You can also establish and manage your trust while you are still alive. Wills, on the other hand, go into effect only after your death.
A trust can be revocable or irrevocable. You, the testator, can change the terms of the trust or not, depending on your preference.
A will must go through probate. This is the court process that distributes assets according to the will. Essentially, an executor must transfer ownership from the deceased to the beneficiary. The process can be long and difficult.
Trusts are living financial entities, so they can avoid probate. The trust can distribute property at any time, according to its rules. You can use a trust to pay for ongoing expenses, such as the care of a minor child or a disabled family member, as well as to provide for future generations. Your trust offers more flexibility and control over your assets than a will.
A Trust’s Advantages
- It can provide privacy and confidentiality, unlike a will, which is a public document.
- Trusts can help reduce conflict over inheritances. Its rules are clearly laid out, and the trustee manages it. Recipients are dealing with the trust directly as if it is a business. This leaves fewer opportunities for disputes over the distribution of assets.
A Trust’s Disadvantages
- Setting up a trust can be costly. It generally benefits only people with large estates.
- You must transfer your assets to the trust, which can be time-consuming. If the trust exists while you are alive, you will have less control over your assets, as the trust now owns them.
The Complexities of Setting Up a Trust
First, you must determine the type of trust that suits you best.
In California, there are several types of trusts available, including:
- Revocable Living Trusts
You create this trust during your lifetime, and you can modify or revoke it at any time.
- Irrevocable Trusts
As the name suggests, these trusts cannot be modified or revoked once created. They protect against creditors and taxes, and they are often used for estate planning.
- Testamentary Trusts
You create this trust as part of a will. It goes into effect upon your death. People often use testamentary trusts to provide for minor children or loved ones with special needs.
- Charitable Trusts
You create this trust for charitable purposes. It can provide tax benefits while supporting a specific cause or organization.
- Special Needs Trusts
You can create this trust to help a loved one with disabilities. Often, this recipient requires government benefits. Special needs trusts allow you to provide for the beneficiary without disqualifying them from government assistance.
After creating your trust, you must carefully choose a responsible, trustworthy, and knowledgeable trustee.
You must properly fund the trust with assets and develop a comprehensive plan for managing and distributing those assets.
Finally, you must consider tax implications and potential inheritance disputes.
Because of these complexities, you must seek guidance from an experienced estate planning attorney. They can help make sure that your trust is properly set up and meets your goals.
Samra Dhillon & Associates is here to help you with all your estate planning needs. Whether you need a will or a trust, we can help guide you in the right direction. To set up a free consultation, reach out to our team online or call us directly at (916) 571-1550.