A trust is a legal entity that you create to fulfill a specific purpose. Trusts often serve to hold, invest and distribute assets during someone’s golden years or as part of the administration of their estate. Although people often dismiss the idea of a trust as unnecessarily complicated, they are very useful, protective tools for those with particularly valuable assets or complicated family circumstances.
Trusts can help eliminate estate tax risks and keep certain assets out of probate court. What are some of the most common circumstances that lead to someone creating a trust?
1. They have assets to keep out of probate court
Is the most valuable item in your name a family business? Do you own real estate that you worry could trigger taxes or conflict among your beneficiaries?
Having particularly valuable property that you need to address in your estate plan may make the creation of a trust worthwhile, as trusts offer long-term control over assets and reduce the likelihood of a major challenge in probate court later.
2. They have a blended family
If you remarried and have stepchildren or your spouse is a stepparent for your children, your complex family circumstances can lead to estate challenges later. For example, children and stepparents often have conflicting desires during estate administration. A trust can be a way to protect the comfort and stability of a new spouse without stripping your children of their inheritance entirely.
3. They have family members who require support
There are many reasons why an individual might benefit from having a trust separate them from their inheritance. Perhaps they struggle with financial management or have a history of substance abuse. Trusts can help those with special needs and a history of difficult or dangerous behavior avoid the pitfalls commonly associated with receiving a large inheritance.
If you decide to add a trust to your estate, you can limit the risks involved in an inheritance while maximizing the protections for you as the testator and the beneficiaries who stand to inherit from your estate. Exploring the needs of your loved ones and what you hope to accomplish with your estate plan could help you add the right documents for your needs.