People shy away from trusts when they plan their estates for a number of reasons. They might think that trusts are unnecessarily complicated. They might view them as expensive when they actually offer a lot of value compared to the cost to create them.
People also fail to understand that trusts offer benefits to almost anyone planning an estate. It is a common misconception among those drafting a last will that trusts are only for families with children that have special needs or those who are exceptionally wealthy. Truthfully, most families have at least one situation that might justify the use of a trust in an estate plan.
If any of the three following situations apply to your family, you might benefit from integrating a trust into your estate plan.
You want your property to bypass probate when you die
Probate courts serve an important purpose, but they can delay the administration of an estate. They also diminish what people can leave to their loved ones because probate proceedings are often expensive.
Using your biggest assets, like your investment accounts or real estate, to fund a trust can effectively prevent the need for those assets to pass through probate for your loved ones to use them after your death.
You have family circumstances that make an inheritance a risk
A lump-sum inheritance can be so problematic for the recipient that it causes years of hardship. There are tax implications for very large estates, as well as the potential to lose state benefits like Medicaid.
Additionally, people who suffer from addiction, those with compulsive shopping habits or a history of gambling dangerously could use a large inheritance to fuel their worst vices. A trust gives a testator more control over how and when beneficiaries use assets.
You want to skip a generation or intended to disinherit a family member
Perhaps your children have already established themselves professionally and have no need of a financial windfall. You might want to pass your inheritance on to your grandchildren. You might also have a family member that you don’t want to include in your legacy.
Especially if you choose to disinherit one child while leaving something for other children in your family, the risk is there for the disinherited party to challenge your estate plan. A trust makes it harder to bring a challenge against the estate and makes it easier for you to protect your loved ones from the risks that come with a large inheritance.