For many individuals, wills and trusts are highly beneficial estate planning tools that work hand in hand. Both are legal documents that can be used to manage estate assets by assigning beneficiaries and setting rules regarding how property can be accessed; however, each has unique benefits and capabilities.
While having both a will and trust can be helpful, whether you need a trust depends on your objectives, family circumstances, and financial circumstances. There are some additional costs and disadvantages associated with maintaining a trust. As a trust lawyer serving Joliet and the surrounding communities, when I meet with clients and learn about the nature of the assets, their family situation, and their objectives, I can advise as to whether a trust may be beneficial.
Call (708) 279-4050 today to schedule a free consultation to learn if having a trust can help you protect your loved ones and accomplish your long-term goals!
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A trust is an arrangement that allows a third party (known as a trustee) to hold and manage the assets placed into the trust on behalf of trust beneficiaries.
Typically, a grantor (the person creating a trust) executes a trust agreement that defines essential terms, such as to whom, how, and when accounts and possessions will be distributed. The trust agreement also specifies who will be the trustee of the trust – often, the same person who creates the trust is also named as the trustee. After completing the agreement, legal title to assets is transferred to the trust, and the trustee is then charged with administering the assets placed into the trust.
When the assets are transferred into the trust, they are no longer legally owned by the person creating the trust. Instead the trust is considered to be a separate legal entity for probate purposes. As a result, when a person dies, the trust assets normally are not subject to probate, since the deceased person does not technically “own” the assets (even though the deceased may have been the beneficiary of the trust prior to death).
As a result, the beneficiaries of the trust (such as the person’s children) may gain access to property and other assets more expeditiously than had the estate been distributed through a will.
By combining both a will and trust, individuals are afforded a higher level of protection and can exercise significant control over their estate during and after life. Wills distribute assets to loved ones after an individual dies and provide critical instructions, such as who should manage an estate or have guardianship over a minor child. Further, what is known as a “pour-over-will” can be utilized to ensure that any assets not previously transferred to a trust during a person’s lifetime can be transferred to the trust upon the person’s death. Those assets are then managed and distributed in accordance with the trust.
There are numerous types of trusts, but a major distinction is whether they are revocable or irrevocable. A revocable trust (sometimes also referred to as a living trust) allows individuals to retain control of assets throughout their lifetime. Living trusts can be readily changed and are dissolvable at any time; however, they typically become irrevocable when the trustor dies. While revocable trusts provide significant flexibility, they are subject to both income and estate taxes.
An irrevocable trust allows less asset control but can provide tax advantages in some cases. Once an irrevocable trust is established, a trustor will lose control over the assets and be unable to change any terms.
Trusts are a popular estate planning tool because they offer many advantages. The following are just a few of the benefits:
If you currently have minor children, a trust is often a good way to protect them from potentially coming into a large inheritance at a young age if you should die. With a trust, you can name a trustee to oversee the trust funds and to distribute assets to provide for the welfare, education, and other needs of your children. The trustee you choose can be an individual or even a company such as a bank.
A trust can be used to avoid the potential issue of a child or young adult suddenly receiving a large sum of money that may not be wisely spent. Similarly, in this situation, the trust assets will normally be out of reach of potential creditors of the children, since they do not own any assets until such assets are distributed. Creating an irrevocable trust, however, does not protect the children from creditors of the person creating the trust.
Probate is a court-involved process for distributing a decedent’s possessions. Depending on the estate and parties involved, probate can be lengthy and expensive, which can delay the dividing of an estate and depreciate the amount of inheritable assets (as court, legal, and other fees must be paid by an estate during probate proceedings).
By placing assets in a trust, court intervention may be avoided; instead, property will be distributed according to the instructions contained in the trust agreement. Consequently, money and other possessions can transfer faster and costly court expenses will be avoided.
Trusts are often beneficial to keep a business in the family. By properly creating a trust, the trust can be used to protect the business assets. It can also prevent the business from subsequently becoming owned by a non-family member following a divorce.
A trust typically does not account for everything an individual owns, even when a person diligently tries to transfer all possessions. There is still a high risk that property will be acquired shortly before death or that certain assets will slip through the cracks. A pour-over-will is utilized to transfer any remaining assets to a trust at the time of death.
Wills are also essential because they can accomplish tasks that trusts cannot. For example, if a decedent leaves a minor child, a will can appoint a guardian for the adolescent.
As an experienced estate planning attorney, Ryan Hejmanowski can explain the benefits of executing a will in conjunction with a trust and help draft an estate plan that meets your end-of-life objectives.
While trusts are highly beneficial, there are some disadvantageous that must be considered.
Many grantors are reluctant to transfer assets to trustees because they fear relinquishing control. Thus, they create revocable trusts to ease their concerns. This can be problematic because assets are treated as if they still belong to the individual. As such, creditors can make a claim against property held in a revocable trust.
Establishing and maintaining a trust can be a costly endeavor. Legal assistance is typically needed to set up a trust, which can be more expensive than drafting a simple will, especially if legal title to multiple assets must be transferred.
Administering a trust also comes at an additional cost. Some trusts are maintained by financial institutions which may charge substantial fees. Even if a private individual is named as a trustee, he or she is entitled to be reasonably compensated for their time and effort.
Because a trust can be substantially more expensive to establish than a will, it may not be a cost-effective option for small estates. If you are unsure if the cost of a trust outweighs the benefits, we can evaluate your assets and advise whether a trust is a sound option based on your circumstances.
A trust may be helpful in certain situations. For example, if a parent dies while their children are young, a trust can direct that inherited money is not received by children while they are teenagers or young adults. However, if the parent’s estate is modest, it may be more beneficial for the children to receive money directly than to waste much of the estate assets through trust administration costs.
There are numerous alternative ways to transfer property without a will or trust, including:
Depending on the complexity of an estate, it may be possible to transfer all assets through these and other alternative means. Thus, a trust may not be worthwhile.
In order to determine whether a trust may be beneficial for your circumstances, you can begin preparing by taking the following steps:
Setting up a trust does not have to be complicated or time-consuming. I can help you evaluate your assets, discuss your goals with you for providing for loved ones, and help you construct a plan that is in your best interests.
Please call me at (708) 279-4050 or fill out this form for a FREE Consultation.
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