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When Do You Need a Trust?


When people think of trust funds, they think of large estates and dynastic wealth. For most people, the conventional wisdom goes, estate planning doesn't have to go beyond making a will. But actually, even people of modest means may find a trust an essential part of an estate plan. Below are a few scenarios when a trust becomes essential.

You become mentally incapacitated. A revocable living trust can take care of you and your finances if you can't make decisions for yourself. Its provisions can save you and your family thousands of dollars by keeping you and your assets outside a court-supervised guardianship.

You are concerned about what will happen to your minor children. Will they be well cared for? Will they have access to funds? If you name your minor children as beneficiaries of your life insurance or retirement accounts, the funds are placed in a court-supervised guardianship until your children reach age 18.

Setting up a revocable living trust, naming the trust as the primary or contingent beneficiary of life insurance or retirement accounts, avoids the court’s guardianship. Your trustee accepts the funds, holding them until the kids receive their inheritance at the age you specify — 25 or 30, for example.

You’re single. You may consider a revocable living trust to save your beneficiaries from the costs and hassles of probate. The minimum net worth for a probate-avoidance strategy varies from state to state. In Florida, estates valued at $75,000 or less are considered small enough to administer through a simple summary probate process. If your assets are over that threshold for your state, then the probate process could be lengthy and costly.

You are part of a blended family. Trusts ensure that each spouse’s estate goes to his or her respective children and grandchildren — again, avoiding probate.

You want to keep your estate plan private. Wills are filed with a probate court and become part of the public record. Trusts are private contracts between you and the trustee.

You have real estate located outside your state of residence. If this is your situation, you can establish a trust and deed the out-of-state property to that trust. Otherwise, your family will have two separate probates, one for each state.

Even people with minimal wealth can benefit from trusts to transfer property and to preserve assets for minors until they’re adults. Some attorneys offer basic trusts for a flat fee, but the kind of assets and the complexity of distribution can affect pricing.

Trusts can allow you to be very specific about how, when and to whom your assets are distributed and allow you to ensure that your resources are preserved, managed and spent in line with your wishes. Trusts are flexible in how you deploy them, in order to protect beneficiaries from creditors and manage their state income taxes. Trusts let you plan while you’re still alive to bypass the probate process and to control decisions on asset distribution.

There are many different kinds of trusts, each with its own advantages and disadvantages. Work with financial and legal professionals to find out which kind of trust is right for your situation.

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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