Setting up a trust can convey many estate planning benefits. However it’s important to set up the right trust for the right situation and to get a qualified estate lawyer to help you do the job correctly.
Trusts can help you avoid probate because they name a beneficiary. If you’ll recall from our previous discussion on probate, assets with a living, named beneficiary rarely, if ever, have to go through probate.
Trusts can also reduce the amount of estate taxes that a beneficiary might have to pay.
However, you have to set up the trust correctly. There are different kinds of trusts with different rules governing them.
An after-death trust actually does, for example, put your assets right back into probate. Those assets then go on to fund the trust.
The after-death trust is administered by a trustee and may be overseen by the court.
You may think there’s no good reason to use the after-death trust because of the probate process, but there are situations where it’s appropriate. In some cases it’s a good vehicle for transferring assets to minor children or for transferring assets to disabled adult children.
Living trusts are created while you are still alive. You become the trustee, and someone you designate becomes the beneficiary.
Revocable living trusts allow you to make changes while you’re still alive. If the trust is irrevocable you can’t make changes. Both have legal and tax consequences.
There are other types of trusts as well. Some common examples include:
- Charitable trusts allow you to transfer money to a charity.
- Bypass trusts can help your spouse keep more of your estate when you die by providing tax protections.
- Spendthrift trusts give the beneficiary small amounts of money at designated intervals. The beneficiary’s creditors can’t touch this trust.
It’s very important to use an attorney to set up your trust. Though there are many DIY forms and estate planning software programs out there, they can instantly erase the benefits of the trust by encouraging you to do the job incorrectly.
In addition you should not assume that you do not need a will if you have a trust. There are many other reasons why you might also need a will to help you transfer your estate after you die.
If you live in the Minneapolis area and you’d like to put an experienced estate planning attorney on your side then call Barna, Guzy, and Steffen. We’ll discuss your situation and help you choose the options that are right for you.