Trusts all are about asset protection and maintaining control. A trust agreement is a document developed by an estate planning attorney that details the rules you want followed for assets held in trust for your beneficiaries, including how you want payments to be made. Some of the main reasons for a trust include: protecting your property, reducing your estate tax liability, and in many cases, avoiding probate.
A trust directs proceeds from life insurance, banks, investment accounts, and other sources to be payable directly to one place: the trust. It makes the process of providing proper documents at the time of death irrelevant since all of the paperwork has already been taken care of and the intentions of the deceased have been expressed clearly in writing. With a trust, the estate does not need to petition the probate court to establish the validity of documents or accounts, as is normally the case. Thus, proceeds can be placed into the trust immediately. A trust can include a “transfer at death” clause. This cause allows your beneficiaries to merely file a death certificate to take possession of the family home, for example.
With an estate valued at $200,000, by avoiding probate, the family can often save as much as five times of cost of establishing the trust in the first place by avoiding the legal fees associated with having to go through probate. The peace of mind that having a trust provides cannot be overstated. Having a trust means less timing waiting for the financial affairs to be settled. Every day, Sean observes the emotional anguish that can be avoided by smart estate planning.
A trust is also an ideal way to provide for minor children since it establishes a repository for all assets. Between the time a person dies and when his or her children reach adulthood, a trust specifies who and how the money for the childrens’ care – including their health, education, and support – will be administered. A trust can also be used to specify and direct money toward the care of an elderly parent, or a dependent with special needs. In addition, trusts are invaluable in clarifying intentions when a person dies who has been recently separated or divorced.
Sean Tanko can also advise you as to how a trust can reduce estate taxes and whether it makes sense to pay out more from the trust to beneficiaries right away – who may be subject to lower income taxes than the trust itself. Those savings can ultimately enrich beneficiaries and can boost the overall effectiveness of the trust. The trust doesn’t have to be huge for this strategy to work. Shifting more income to beneficiaries of a trust with $300,000, for example, could save a significant amount in taxes.