Dealing with estate planning work can leave you wondering whether you're doing enough to ensure that as much money and assets as possible end up in the places you desire. One approach that many estate planning services firms encourage their clients to consider is setting up a trust. Let's take a look at how this works and what the pros and cons are.
Trusts versus Estates
At its core, a trust is a fiduciary agreement involving a third party while an estate is a direct transfer of assets and powers. In an estate, the responsibilities of third parties, usually administrators and lawyers, will eventually get to a point where they are considered to be fully concluded. In a trust, the third party will continue to have powers and legal responsibilities so long as the trust continues to be funded.
One reason a trusts lawyer will help someone set up their legacy this way is that trusts often sidestep some of the bigger tax problems that come with disposing of an estate. An irrevocable trust is now part of a taxable estate, and it cannot be taxed as such. Many types of court fees may be avoided, too, as a trust generally doesn't risk ending up in probate.
Another argument for setting up trusts is that beneficiaries may not be well-positioned to handle money and assets. For example, if your child has a mental disability, you obviously want them to be taken care of should you pass. Unfortunately, with an estate involved, it may be a very complex issue to sort out in terms of who has power over the money. By establishing a trust, the question becomes simple because the third part put in charge of the trust makes those decisions.
One of the big issues that comes up in establishing a trust is revocability versus irrevocability. In a revocable trust, you maintain control over the assets while you're still alive. Upon your death, a revocable trust becomes irrevocable. Revocable trusts, however, are often subject to estate taxes. In an irrevocable trust, the money and assets are taken immediately out of your control.
Most trusts are set up to preserve a person's legacy for the benefit of a spouse, a child or a grandchild. Some are also configured to benefit non-profit organizations that do work that the guarantor, you, wishes to see done.
For more information, reach out to law firms like Thomason & Hessmer.Share