Estate planning is a complicated process, and some people rush through it just to get it finished. However, hurrying isn’t helpful when creating something as detailed and important as an estate plan.
There are many considerations that people overlook in the initial stages of estate planning that can later come back to impact the validity of their last will or how much of their assets actually pass on to their intended heirs. Issues such as challenges and probate court, or even taxes, can impact the legacy you leave behind. Creating a trust is a great way to protect your legacy.
Trusts provide more control and can reduce the risk of wastefulness
A standard last will usually allocates specific assets to particular people. It may indicate that financial assets get split, but, generally, heirs receive what you allocate to them during the estate administration process.
Assets placed in a trust, on the other hand, can have far more detailed and unique constraints regarding their disbursement. In some cases, you could limit how much the beneficiaries may withdraw within any given month or year. Other times, you may require that the trust pay for items directly, thereby bypassing the issue of giving a spendthrift heir access to a large amount of money.
If your heirs have to declare to another family member why they want to access certain funds or if they must submit a request in writing to touch the assets within a trust, that makes it less likely that they will use those assets on something wasteful or ridiculous, such as compulsive shopping or a drug addiction. Putting assets into a trust ensures that your heirs can use them, but also helps to protect your wishes by preventing wasteful spending of that inheritance.
Trust have tax benefits for your estate and its beneficiaries
There are limits to how much you can pass on to your family members without the requirement to pay tax on that money. Placing assets into one or more trusts is a great way to comply with tax law without worrying about placing a tax burden on your heirs. You can reduce or even eliminate the tax liability for your estate by carefully planning a trust.
Your loved ones and family members will benefit from that extra step, as a trust can also protect their financial situation. Properly planned and managed, a trust can also ensure that your family members still receive any benefits or state assistance that they rely on.
Typically, a lump sum inheritance will drastically impact the overall income of the beneficiaries for that year and may preclude them from receiving benefits. Because the trust can spread that money out over a longer time, it reduces the potential for financial complications as a result of the lump sum inheritance.
Creating a trust may take a little more effort and consideration than a simple last will, but it can offer you and your family members a host of potential benefit. Whether your trust is incredibly simple or complex, the beneficiaries will likely thank you for having the foresight to protect them from their own poor decisions, as well as taxes and other financial consequences.