Estate Planning: Trusts

Organizing what happens to your estate in the event you or your loved one passes away is often a difficult subject to broach, albeit very important. In addition to the subject matter being daunting, there is often a lack of understanding of the financial burden that may follow. We think it’s important to educate our clients on this process to ensure they are armed with the basics in estate planning.

An estate plan is a collection of legal documents that give individuals the authority to preserve and manage their assets in the event of death or incapacity. The estate plan also designates decision-makers in the event of one’s incapacity and allows for the continued support for family members after death.

One of the most common estate planning techniques used is the creation of a Trust. Put simply, a trust is a fiduciary arrangement that allows a third party (Trustee) to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when assets are passed to the beneficiaries. Trusts are one of the more common estate planning tools because they provide extremely valuable benefits that include avoiding court and probate, controlling your wealth and protecting your legacy, and minimizing your tax liabilities.

Benefits of a Trust

Avoid Probate
Probate is the legal process that takes place after someone passes. It is a public proceeding that includes proving the deceased person’s will is valid, identifying and inventorying the deceased person’s property, having the property appraised, paying debts and taxes, and distributing the remaining property as the will directs. It is important to remember this is a public proceeding, which means that all your assets will become public information. Trusts usually avoid probate thus allowing your beneficiaries to gain access to the assets more quickly and in a private manner. Also, avoiding probate saves additional time, court fees, and can potentially reduce estate taxes as well.

Control Your Wealth/ Protect Your Legacy
In the event you become incapacitated, a trust can provide for the administration of your estate. You can ensure that certain assets stay in the family and that your retirement assets are distributed as you have planned. Alternatively, you may want to leave some of your assets to your favorite charity and a trust allows you to do this as well. Trusts also allow you to set up health directives in the event you become incapacitated, providing clear direction to your family in case of this event. Power of attorney can also be established so that someone else can make financial decisions on your behalf. The trust is effective as soon as it is signed and therefore may be preferable to a will which is more likely to be contested.

Minimize Taxes
Trusts can provide ways to avoid or reduce estate taxes which are taxes levied on the net value of a deceased person’s estate before distribution to the heirs. In 2016, the estate and gift tax exemption is $5.45 million per individual or $10.9 million per couple. This allows for an individual’s estate to be valued up to $5.45 million and a couple’s estate to be valued up to $10.9 million before an estate tax is levied. Current estate taxes can reach as high as 40%.

The general purpose of a trust is to help you better realize the vision you have for your estate, and in turn, your legacy. Trusts provide a powerful, straightforward way to ensure that your heirs or charities of your choice have timely access to your wealth. Probate can result in added expenses and wasted time and therefore should be avoided if possible. As terrible as it may sound, passing away can be expensive, but your trust can help minimize the tax burden left to your heirs and other beneficiaries. After a life spent accumulating wealth, trusts can help control that wealth in the event of death or incapacity and allow you to protect your legacy as you see fit.

As always, if you have any further questions or would like more information regarding these matters, please do not hesitate to contact us.