A previous article discussed the limitations of a will, and what a trust is and how it may better help you achieve your estate planning goals. A common misconception is that only the rich benefit from setting up a revocable living trust. In reality, trust-based estate plans offer a range of benefits that families can utilize.
Below is a discussion of several key benefits of trusts.
A trust can help you avoid a lengthy and often costly process
In general, assets in a living trust avoid probate. Probate is a lengthy court process after someone dies to start the process to settle their estate. A trust provides some bypass options to this process. With a revocable trust, you, as a grantor (i.e. the person who established the trust), would move assets to your trust and continue to manage them during your lifetime. A successor trustee you choose would settle the estate and distribute assets to your beneficiaries upon death or disability. In most cases, this allows your loved ones to avoid needing an attorney or a court process upon death. In this way, you can save time and money in the long run.
Probate files are also public record. This means anyone can look at court files and find out who inherited what. Any party can go to court to challenge the validity of a will’s contents. A trust can protect your privacy by keeping information about who inherited and the size of the estate known only to your loved ones. This also makes it harder to contest since only named heirs can look at the record.
A trust can incorporate comprehensive incapacity planning
When an adult cannot take care of him or herself due to physical or mental incapacity, the court appoints a legal guardian or conservator to take care of medical and financial decisions. The process commonly starts with a social agency or family member filing a petition to request the adult be placed in a guardianship or conservatorship. The process involves a court hearing, with family members often testifying, and can place a burden on their family. The judge then determines whether the guardianship or conservatorship is needed.
Trusts allow grantors to define incapacity for the purposes of managing their assets. If the definition is met, a trustee can step in to manage assets on the grantor’s behalf.. Trust-based estate plans contain a durable power of attorney. This document allows you to name an agent to sign documents on your behalf if you are incapacitated. Among other things, they can pay your bills and file tax returns on your behalf. There’s also a medical power of attorney in this plan. This document contains a list of agents that can make medical decisions on your behalf, and your wishes for end-of-life care. Because of this, there’s no need for a guardianship or conservatorship.
A trust can protect beneficiaries
Trusts can set up beneficiary trusts at the trustee’s direction. This is especially valuable in cases where parents may be concerned about the beneficiary’s capacity to manage their inheritance. For example, suddenly gaining a large sum of money can incentivize impulsive financial decisions. To prevent this, both parents and beneficiaries can benefit from inheriting a trust. The grantor can specify the inheritance to be distributed in installments over time, set up the conditions for beneficiaries to receive their inheritance, or specify the purposes the funds can be used for.
This would also protect the beneficiary from losing their inheritance in cases of divorce or lawsuits, because the assets belong to the trust, not the beneficiary.
However, a trust can be costly
Setting up a trust is expensive compared to wills. They can cost a few thousand dollars, depending on your estate’s complexity. Additionally, it requires a few extra steps than a will, as it is more comprehensive, such as setting up a trust bank account, transferring assets into the trust, registering it for tax purposes, etc. However, the time, energy, and money saved in the long run with a trust may make a trust-based estate plan the best way to achieve your goals. Your personal goals and priorities may dictate whether these trust benefits make the investment worthwhile.
If you’d like to learn more about the benefits of trust-based estate plans, feel free to give us a call. We’d be happy to get a consultation scheduled with an Arizona estate planning attorney.