Some individuals mistakenly believe that if they have a will, they do not need to be bothered with creating a trust. Nevertheless, a will and trust can achieve quite different goals.
A will is perfect for smaller assets, such as your grandmother’s furniture.
However, if you own more costly possessions, such as vacation properties or an investment portfolio, a trust might be much better matched for you, together with a legally valid Will.
The main advantage is that a trust will save your family and loves ones from having to go through the probate process when you pass away. Additionally, putting your home in a trust will protect your heirs from costly probate fees, which can be up to 3% of your asset’s value, depending on what state your property is located in.
Also, if you have several properties, as is the case if you own a vacation home, your family needs to then deal with each state’s probate laws and their required fees if you leave the properties to your family and loved ones in a will.
This also means that they will be responsible for hiring attorneys in each state as well as traveling back and forth to each state for court hearings, etc.
On the other hand, when you set up a trust, your lawyer will take care of these issues.
When you pass away, your family will be taken care of.
Keep in mind, you’re not restricted in what you can contribute to your trust. Any high-dollar possessions you own should be added to a trust. This includes but is not limited to
- Patents and copyrights
- Stocks and bonds
- Art or antiques
- Precious metals
- Collectibles (cars, coins, stamps, and so on)
- Grantor: A grantor(s) is the person establishing, funding, and putting their property in trust with their own properties.
- Beneficiary: A beneficiary is a specific person or entity that is designated to eventually get all or a part of the possessions in the trust.
- Trustee: A trustee is accountable for managing the assets in the trust according to the wishes of the grantor, as detailed in the trust documents. When the grantor is likewise the trustee, successor trustees will take over after death or incapacitation.
If you choose to put your home into a trust, there are two kinds of trusts you can pick from:
1. Revocable (or living) trust.
2. Irreversible trust.
As the name suggests, an irreversible trust cannot be changed. You will not be able to take assets out or even dissolve the trust if you subsequently change your mind.
Despite these restrictions, an irrevocable trust can save your family money in taxes after your death, given the fact that it won’t be included in your estate’s value.
On the other hand, if you choose a revocable trust, you can include and remove possessions whenever you want. You can likewise liquify the trust entirely should your life or financial circumstances change.
You will have complete control over your trust up until your death.
In the unfortunate case of incapacitation, your spouse or another designated co-trustee can take control of and manage the trust for you.
There are two downsides to think about with a living trust. First, your asset is still included in your taxable estate at the time of your death, and a living trust will do not protect your assets from ending up being taken by creditors.
May Save on Estate Taxes
While putting your home in a trust generates no further beneficial tax treatment, you might conserve some estate taxes if your trust is created correctly.
A lot of living trusts are structured to avoid probate and its expenses. Many homeowners wishing to avoid probate and transfer title to their home to their beneficiaries quickly find that avoiding probate through a trust is beneficial.
Future Incapacity Protection
Should you end up being ill and not able to effectively handle your finances, another trustee can be selected to manage your trust to protect your home. If your co-trustee is your partner, this is an easy way to secure your home upon death or incapacitation. Your partner can remain as trustee, managing your home, and any other properties you’ve moved to the trust.
During your lifetime, you must pay attention to the properties that are held in trust. Specifically, you may want to include more than just your home. As such, you must be consistent about transferring other possessions to the trust as you acquire them and likewise eliminate those you no longer own or want in the trust.
If you put just your home in a trust, your other possessions will still undergo probate. This is true whether you have a will or not. Even smaller bank or investment accounts named in a trust must go through the probate procedure. Likewise, after you pass away, your estate might incur additional expenses as the trust must file an income tax return and value assets, potentially negating the expense savings of preventing probate.
Every person’s circumstance is different and has its own complexities. That’s why it’s vital to deal with your lawyer to understand your options and whether a trust is your best legal option. A lawyer can guide you with selecting a revocable or irrevocable trust based upon your assets, objectives, and pre-existing will or estate preparation already created.
Also bear in mind that laws change frequently. Likewise, your life and financial circumstance will also change. What might be the absolute best strategy for you today may no longer be your best option years from now. As such, you should evaluate your trust frequently, at least every two years, with your legal team.