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Trusts help define how and when you want your assets distributed after your death and can often reduce your estate taxes and the cost of probate court.
You may think trust funds are only for the wealthy, but a trust can be a useful tool for many when planning your estate. Trusts let you put conditions on how and when your funds will be disbursed after your death and can often offer a number of benefits for your heirs.
When a trust might make sense for you
Even if you already have a will, a trust can offer greater protection of your assets from lawsuits, reduce your estate taxes and can sometimes reduce the delay and cost of probate court.
A trust might be right for you if your assets are worth at least $100,000, and you:
- have a sizable amount of assets in real estate, a business or an art collection, or
- want to put conditions on how your assets are distributed to your heirs (such as graduating college), or
- want to maximize your estate tax exemptions, or
- want to set up a trust to pass on to your children after your spouse dies.
Types of trusts
There are a number of different types of trusts you can choose from depending on your goals. A living trust is one in which you put the majority of your assets, and is likely all that you need unless your net worth exceeds $2 million. A living trust enables your property to avoid probate and quickly pass on to your beneficiaries. If you have a living trust, you will also need a “pour-over” will, which directs any assets not included in the trust at the time of your death to be included.
The other standard forms of trusts include credit shelter trusts, generation-skipping trusts, qualified personal residence trusts, irrevocable life insurance trusts and qualified terminable interest property trusts. Click here for information on these types of trusts.
How to create a trust
Trusts can be complex—each type of trust offers certain advantages and disadvantages. If you’re willing to take the time to do some research, and your situation isn’t too complex, then you can create a living trust yourself. If, however, your situation is complex, it’s probably best to talk with an estate planning attorney. This can cost up to $3,000 or more, depending on the complexity of your trust.
To make a basic living trust, you’ll need to create a Declaration of Trust in which you name yourself as trustee—meaning that you are in charge of the trust property. You then transfer ownership of the property you want included in your trust to yourself. Essentially, you are retitling to the name of the trust any property you want included in the trust.
In the Declaration of Trust, you’ll also want to name those you wish to inherit property from the trust after your death, as well as the person you want to manage your trust. This person, called the successor trustee, transfers ownership of the trust property after your death to those you named in your trust, eliminating the need for probate court.
Visit nolo.com for more estate planning information.
This article contains general information. Individual financial situations are unique; please, consult your financial advisor or attorney before utilizing any of the information contained in this article.
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