Why Trusts are Important Estate Planning Tools

Estate planning involves creating a plan for where – and to whom – your assets will go upon your death. The process can include making a will, designating which of your loved ones should receive your retirement accounts and life insurance policies, and minimizing estate taxes. Overall, an estate plan helps ensure that you can provide for your loved ones after you have passed away.

What Is a Will?

Many people are familiar with a will as a means of distributing assets. A will is a legal document that outlines how a person’s assets and property should be distributed after their death. It allows individuals to specify who will receive their belongings and in what proportions. Wills also designate guardians for minor children and can help minimize family disputes over inheritance.

Some people are under the mistaken impression that if you have a will, it is not necessary for your assets to go through probate at your death. In fact, a will is the method by which you give instructions to your personal representative about how your probate estate should be distributed.

In some ways, a trust can be even more effective for asset distribution. One benefit of a trust is that it generally is a way to avoid probate.

What Is a Trust?

A trust is a legal arrangement where a person, known as the grantor or settlor, transfers their assets to a trustee. The trustee then manages and distributes those assets to heirs according to the terms specified in the trust agreement.

Some people shy away from this legal document because of the extra cost. However, many are not aware that they can in fact save time and money in the long run. Trusts offer several significant benefits that make them essential components of any comprehensive estate plan. The advantages include the following:

Probate Avoidance

One of the primary advantages of trusts is their ability to avoid the probate process. Probate is the legal process through which a court validates a deceased person’s will before distributing their assets. It can be a lengthy and costly process, subject to court supervision and public scrutiny.

By using a trust, your estate can bypass probate entirely. This ensures a faster, more efficient transfer of assets to your intended heirs. You’ll not only save time and money, but also maintain your privacy. This is because trust documents are not public records like probated wills.

Flexibility

Another important aspect of trusts is their flexibility. You can work with an estate planning attorney to tailor them to meet your specific needs and goals.

For example, if the grantor has minor children or heirs who are not yet responsible enough to handle their inheritance, they can create a trust to provide for their financial well-being until they reach a certain age or milestone. This allows the grantor to exercise control over how and when the assets are distributed, ensuring their loved ones are taken care of in the best possible way.

Asset Protection

Trusts are also valuable tools for protecting assets from creditors and lawsuits. By transferring assets to an irrevocable trust, the grantor effectively removes them from their personal ownership, making them less susceptible to potential legal claims or judgments. This can be particularly advantageous for people in high-risk professions or with substantial wealth. Additionally, trusts can safeguard assets in situations where the grantor loses capacity, ensuring that a designated trustee manages their affairs and finances according to their wishes.

Philanthropic Legacy

Charitable giving is another area where this estate planning tool can prove especially helpful. If you like to give back, you can set up a charitable trust in your estate plan. It can support the causes that you care about and allow you to leave a lasting impact on an organization that is important to you.

Through a charitable trust, you can donate assets while retaining income from those assets during your lifetime. This allows you to support charitable organizations and potentially receive certain tax benefits, all while ensuring that your philanthropic legacy endures.

Tax Planning

Trusts can be a powerful tool for tax optimization. By leveraging their tax advantages, you can preserve more wealth for future generations and secure a more meaningful legacy.

For example, certain types of trusts allow you to reduce your overall estate tax liability. A generation-skipping trust is one type. It lets you transfer assets to your grandchildren or even further descendants, skipping a generation. You can therefore minimize estate taxes by avoiding the generation in between from being taxed on the assets.

This can be a valuable tax planning strategy for individuals with significant assets who want to ensure that their wealth is passed down to future generations with minimal tax implications.

Work With an Estate Planning Attorney

In creating a trust, you can expedite the distribution of assets, maintain privacy, and provide greater control and flexibility over how your assets are managed. This important estate planning document can also offer asset protection, facilitate charitable giving, and help minimize estate taxes for your family members.

An experienced estate planning attorney can help you navigate the intricacies and ensure that your plan aligns with your goals and aspirations. At Wenzel Bennett & Harris, PC, our attorneys and legal staff  are very experienced in guiding clients through the steps to create an effective estate plan that meets their individual needs. The first step is to contact our client care specialist, Doreen Escott, at (989) 356-6128 Ext 103 to learn more about the process and to schedule an estate planning consult.  She will also provide you with written information so you know what information you should gather in advance of the consult. In this way, our legal staff can be prepared to discuss the specifics of your individual situation and give you recommendations about an estate plan tailored to your needs.

For additional reading on this topic, check out the following articles:

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

Medicare’s Limited Nursing Home Coverage

Many people believe that Medicare covers nursing home stays. In fact, Medicare's coverage of nursing home care is quite limited. Medicare covers up to 100 days of skilled nursing care per illness, but there are a number of requirements that must be met before the...

When Should I Include a Pour Over Will in My Estate Plan?

In creating an estate plan, you are proactively taking steps to ensure that your assets will be distributed according to your wishes in the wake of your death.  One tool available to you in estate planning is known as a trust. There are numerous kinds of trusts. If...

Older Adults Lack Information in Search for Long-Term Care

According to a recent national study, nearly a quarter of Americans aged 50 and older say they – or a loved one – needed long-term care in 2022. The findings further suggest that seniors and their caregivers could benefit from more consumer-friendly information and...

Protecting Spouses of Medicaid Applicants: 2023 Guidelines

The Centers for Medicare & Medicaid Services (CMS) has released the 2023 federal guidelines for how much money the spouses of institutionalized Medicaid recipients may keep, as well as related Medicaid figures. What Are Spousal Impoverishment Rules? Spousal...

Start 2023 Prepared: Reassess What Matters Most

If we have learned anything these past few years, it’s that life is fleeting. Amid such uncertain times, many of us have realized what – and who – truly means the most to us. Estate planning allows you to reflect on your family, your priorities, and what actions you...

Pros and Cons of a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust (MAPT) is one option a person may consider to protect their assets from Medicaid and nursing homes or long-term care. What Is a MAPT? A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to...

Court Case Illustrates the Danger of Using an Online Power of Attorney Form

A recent court case involving a power of attorney demonstrates the problem with using online estate planning forms instead of hiring an attorney who can make sure your documents are tailored to your needs. Mercedes Goosley owned a home in Pennsylvania. In 2013, she...

Step-Up in Basis and Why It Matters in Estate Planning

Recent news stories may have made you aware of the “step-up in basis” and the current administration’s desire to eliminate or adjust it. If you are considering engaging in estate planning or you may be inheriting assets, it is important to understand what the step-up...

Why Small Business Owners Need an Estate Plan

Running a small business can keep you busy, but it should not keep you from creating an estate plan. Not having a plan in place can cause problems for your business and your family after you are gone.   While an estate plan is important for everyone, it is especially...

Don’t Wait Until You’re Sick to Create an Estate Plan

In the wake of the pandemic, rising inflation, mass shooting tragedies, and other events, more people recognize that they need to plan for the future. Yet while financial planning has been at the top of many Americans’ minds, a vast majority of people have stalled in...