Deciding if setting up a trust is a good option for you
You might think that a trust is not appropriate for you, because your assets are not that extensive. In reality, you don’t have to be a millionaire to need a trust. According to most experts in this field, a trust may be a good choice when looking at estate planning for your family if you have a net worth of at least $100,000 and meet even just one of the following conditions:
- A considerable portion of your assets is in real estate, a business or an art collection
- You (and your spouse) want to maximize tax exemptions for your estate
- You want to leave your estate to your heirs in a way that is not immediately and directly payable to them upon your death. You may want, for example, request that the inheritance should be received in a specified number of installments, or only if certain conditions are fulfilled (i.e., graduating from college, or getting married, etc…)
- You want to provide for your surviving spouse, but at the same time you want to guarantee that the principal or remainder of your estate will go to your chosen heirs (i.e., your children from a first marriage) after your spouse dies
- You want to provide for a disabled relative, but you don’t want them to lose Medicaid or other government assistance
Advantages of a Trust
Trusts have several advantages – for example, they allow you to:
- Put conditions on how and when your assets are distributed
- Reduce estate and gift taxes
- Protect your assets from creditors and lawsuits
- Efficiently distribute assets to heirs without having to go to probate court, which could cause unpleasant delays and publicity, and be quite expensive – normally between 5% to 7% of your estate
- Name a successor trustee, who is empowered to manage your Trust not only after you die, but also in case of an incapacitating event
What type of trust should I choose?
Trusts are varied, flexible, and complex. There are advantages and disadvantages for each specific type of trust, and before setting one up it’s important to discuss each aspect carefully and in depth with your estate-planning attorney.
A basic trust plan should include the Trust setup, a Will, a Living Will and a Health Care proxy, and its cost may vary depending on its complexity. If the Trust is a revocable one, there will be also fees involved if you need to alter it, and other fees should be taken into account to administer it after you die.
Titling your assets for a Trust
It’s important to remember that any assets that you want to be covered by the Trust must be retitled in the name of the Trust, or after your death they will have to be probated – this may result in your assets not being distributed to the heir you intended, but to one chosen by the probate court.
Revocable Living Trust and Pour-Over Will
A Revocable Living Trust is one that will include the majority of your assets – in this case you will also need to have a “Pour-over Will” to cover any of the assets not included in your Trust, in the event of unexpected death. A Pour-over Will is stipulating that any assets that are outside of the trust at the time of your death shall be “poured” into it, so that they can go to your chosen heir.