4 Reasons Trust Accounts Make Sense For You
No one wants to think about estate planning. That's probably because it's not particularly pleasant to imagine your end-of-life scenarios. Like it or not, though, you'll need to make a plan for what happens to your estate when the end comes. It'll be a tough enough time on your family without adding the hassle of probate court, inheritance laws and asset management. You owe it to the people you love to do some estate planning while you can.
While most people think about wills when they think about estate planning, a will is only one way to establish a plan for your estate.
A will is basically a contract between you and your heirs that is enforced by the state. There are a few problems with that. First, your will has to go through a process called probate, which is a hearing in front of a probate judge. There are expensive attorneys to hire, and administrative costs can easily eat 2-4% of your assets. In most states, the exceptions being Wisconsin and California, every will must go through probate.
Second, wills can be expensive to set up. You may need the assistance of an attorney to create and ensure the legality of a will. While a standard will won't incur a significant cost, these fees can accumulate if someone challenges your will.
Finally, wills can be challenged in court. A will can be thrown out on "testamentary capacity." Someone who feels slighted by the will can argue in court that the person who wrote the will didn't understand the size of the assets or the number of dependents who needed to be looked after, for example. While these challenges are not always successful, they can drag the inheritance process on for years. This can also be a serious drain on the final value of your estate, which means your heirs will receive less.
By contrast, a trust is a private contract. Placing your assets in a living revocable trust gives you access to them up until you die. Then, a person you designate as a trustee is responsible for carrying out your wishes, which you articulate in a trust contract. This person is most often the representative of an institution, such as someone from Hughes Federal Credit Union
There are several reasons why a trust might be better for your estate plan than a will. Here are four reasons to consider a trust account.
The process of probate turns wills into public documents. They're a matter of record that anyone can look into. This includes the size of the estate and who got what. In many states, certain parties are entitled to copies of a will.
A trust, on the other hand, is a private document that never sees a courtroom. No one, other than the trustee and the people you designate, gets to see a copy of the trust contract. This can help to prevent quibbling over who got what.
2. Tax treatment
Under normal circumstances, your life insurance benefits are included in your estate. This payment can push an estate over the threshold for federal income tax. Because of the peculiarities of estate tax law, this can be the difference between paying no estate taxes and writing a substantial check to the IRS out of your estate. Trust accounts can also spread the capital gains from an estate among several parties, lowering the amount of taxes paid in total on the proceeds of the sale of a house or other significant assets. There are a variety of other ways in which a trust can be used to lower individual and estate taxes, too.
3. Greater control
A will is a single document specifying a single action. It involves making a single disbursement of assets to a collection of heirs. If some heirs are not financially responsible, or are unable to make decisions on their own, this can be a serious problem.
A trust, on the other hand, allows you to pay out inheritances in smaller payments, and can even condition them on certain milestones. For example, you might specify that a grandchild gets a payout for graduating from college. This lets you continue to be a part of your family for years into the future.
4. Ease of use
A trust doesn't require an attorney to set up. It never has to see the inside of a courtroom, and it can't be challenged for as many reasons. A trust does not need witnesses. In short, a trust lets you gift your assets to heirs in the ways you think most appropriate without a lot of complicated legal maneuvering.
While it may not be right for everyone, you owe it to yourself and your heirs to look at every option for estate planning. Make sure your final days are a chance for remembrance, not mountains of paperwork. A trust account can help you do just that.