You’ve spent your entire adult life building assets to support the type of lifestyle you and your family desire now and in the future. However, a major threat to sustaining that lifestyle for your loved ones exists in the form of estate taxes and probate proceedings. If you haven’t arranged for the proper management of your assets and failed to declare your intentions clearly, your beneficiaries might have to fight for what you intended them to have and the government could get in line to reduce your beneficiaries’ share even further. However, you might think you’ll sidestep all of this drama simply by establishing a will. Read on to discover why this might not be the case.
Isn’t a trust just a fancy will?
While a will does allow you to provide instructions for what to do with your assets when you die, a trust allows you to designate an individual to accept, manage, and protect your assets while you’re still alive as well as upon your death. This individual referred to as a trustee also administers and distributes said assets for the benefit of the individuals you identify in the trust. In simpler terms, a will dictates the management of your assets when you die while a trust dictates management of your assets as soon as it’s established.
Isn’t a trust just for the wealthy?
Most people think a trust is for the outrageously wealthy, but if you would like to provide a portion of your assets both liquid and illiquid to a number of individuals and charities upon your death, maybe you should consider a trust. If you would like to limit the impact of estate taxes and the probate process, as well as delegate the distribution of your assets to someone with the knowledge to manage your financial affairs now and after your death, you might consider a trust. You might also consider a trust if you are providing an inheritance to one or more beneficiaries who lack the skills to responsibly manage such a gift themselves.
Now that you know what a trust can do, what are some considerations and next steps?
Just because you’re delegating the management of your assets to a trustee doesn’t mean you lose all control. Essentially, you’ll draft the covenants by which the trust functions. You decide who will act as trustee and who the beneficiaries will be. Also, to reduce conflicts of interest and ensure your instructions are honored, you can have more than one trustee. In some jurisdictions, you can be a trustee as well as a beneficiary.
Given the tax and legal implications involved, you should hire a professional to help establish your trust. The starting costs range from $1000 to $1500 depending on your circumstances. However, the peace of mind and the reduced time and legal costs in the future could make the price of establishing a trust a smart investment.