When most people think about estate planning they focus on creating a Last Will and Testament. While your Will can accomplish much in your estate plan, it may not be the best tool for accomplishing all of your estate planning goals and objectives. One of the most common additions to a well thought out estate plan is a trust. One reason trusts are so popular is the flexibility a trust offers along with the numerous varied estate planning goals that can be accomplished using a trust. Learning more about the benefits of trusts for estate planning may help you decide if a trust is right for your estate plan.
Before discussing the benefits of a trust, it helps to learn some trust basics. A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiaries of a trust can be individuals, charities, or even family pets. In addition, a trust can have both current and future beneficiaries.
Benefits of Trusts for Estate Planning
Understanding some of the many benefits a trust provides may help you to decide if a trust will fit into your estate plan. The following are some general trust benefits:
- Probate avoidance – when you die, many of your estate assets must pass through the legal process known as probate. Assets that must go through probate are unavailable to beneficiaries until the probate process concludes. Assets held in a trust, however, bypass the probate process, making them immediately available to beneficiaries.
- Staggered distributions – when you make gifts in your Will, the beneficiary receives the gift in one lump sum. For some beneficiaries who are not good with money, this is not a good idea. Gifting through a trust, however, allows you to make staggered distributions, thereby decreasing the odds that the beneficiary will squander the gift.
- Continued control – once a gift is made in a Will you lose all control over how the gift is used. The same is true for gifts made during your lifetime. With a trust, however, you have the ability to use the trust terms to retain a certain degree of control over the gifts you make. For example, you could include a trust term that stipulates that trust funds are only to be used to pay for a beneficiary’s tuition or medical expenses.
- Asset protection – whether you are worried about losing assets to creditors, a spouse in a divorce, or bankruptcy, by transferring assets into the right type of trust they are protected. Assets transferred into a trust become trust property, meaning they are legally owned by the trust. As such, they are no longer yours and, therefore, not accessible to creditors nor available for division in a divorce.
Along with the numerous general benefits a trust can offer, there are also a number of specialized trusts that can be used to reach very specific goals, for example:
- Medicaid trust – at some point you may need to qualify for Medicaid to help pay for long-term care. In order to protect your assets and ensure eligibility, you may need to create a Medicaid trust ahead of time to hold your assets.
- Special needs trust – if you are the parent of a child with special needs you may wish to create a special needs trust to hold assets intended to help care for your child when you are gone because direct gifts made to your child can jeopardize your child’s eligibility for much-needed assistance programs.
- Charitable lead/remainder trust – if you wish to include philanthropy in your estate plan, a charitable lead or remainder trust allows you to make gifts to both a charitable and a non-charitable beneficiary with one trust. Distributions are made to either the charitable or non-charitable beneficiary for a specific period of time with the remainder going to the other beneficiary at the end of the specified period of time.
If you have additional questions about the benefits of trusts for estate planning, contact an experienced North Carolina estate planning attorney at The Law Offices of Cheryl David by calling 336-547-9999 to schedule an appointment.