Basic estate planning usually starts with a will, which deals not only with your property but also with important decisions such as who will care for minor children if both parents are deceased. But wills aren't necessarily the best, final option for every estate, especially given the legal proceedings that must occur before any assets are distributed. A will and a trust are two different estate planning tools.
Consider a will like a high-level set of instructions to be used after you pass away. You generally use a will to name the executor of your estate and guardianship for your children. Although you can leave assets to your heirs in a will, it’s not an efficient way to do so, which is why many individuals utilize a revocable living trust.
What is a trust?
A trust is a fiduciary arrangement that specifies how your assets are to be distributed, usually without the involvement of a probate court. They can be structured to take effect before death, after death, or in case of incapacitation. In contrast, wills take effect only upon death and typically need to be authenticated by a probate court, which can take time and involve additional costs.
Trusts can be arranged to accomplish a variety of different goals. For example, you can use a trust to transfer property, help minimize estate taxes, preserve assets for minors until they are adults, or benefit a charity. They can also protect your estate from lawsuits and creditors.
And while trusts have a reputation for being expensive, Forward Law Firm offers a trust or estate planning package for a flat fee.
I don't have a ton of assets, why do I need a trust?
People often mistakenly assume you need to have a lot of money to justify creating a trust. That's not true. A trust is a tool in the estate planner's toolbox—nothing more, nothing less. If a client is concerned about incapacity or wants their assets to transfer to beneficiaries in a particular manner, a trust is a useful tool to make that happen.
Trusts can also provide tax planning opportunities. Assets held in your revocable trust remain under your control during your life. Because of this, assets are also taxed no differently than if they were owned outside of your trust. At death, certain assets are still eligible for a step-up in basis, even if they’re held in a revocable trust at the time of your death.
Another thing to keep in mind is that as useful as trusts are, there are certain things the trust's creator can do to help the process. Letting people know the trust exists, as well as the thinking behind its creation are important to cultivating stewardship around the bequest.
Trusts can be a powerful tool to help you accomplish a wide range of goals during your lifetime and long after. Like the rest of your estate and financial plan, you’ll need to periodically revisit your strategy with your attorney to ensure alignment with your current situation, goals, and laws. For many investors, the relatively small amount of additional upfront work and cost to set up and fund a trust is well worth the benefit to you and your loved ones down the road.