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How a Trust Can Benefit Your Family

When most people hear the term “estate planning” they think of wealthy people trying to pass on a legacy to their families while trying to avoid taxes.  However, the majority of trusts are created for the average family who simply wants to make sure that their assets are passed onto their children, their children are provided for in the event something happens to them, and their affairs are wrapped up in the cheapest, most efficient way, a.k.a. not by a probate court.  A lot of the clients I work with do not have large estates.  On average, the people creating Trusts own a house, a couple of cars, personal belongings, life insurance, a bank account or two with small balances, and some form of retirement plan.  So, how can these people benefit from a Trust?

The number one reason to create a Trust is to avoid Probate.  Probate is a legal proceeding wherein the Court determines what assets you own and how your assets should be distributed.  Creditors must be notified, final expenses & taxes are paid, and beneficiaries are determined.  Probate is a timely and costly process.  The average probate takes from 6 months to 2 years and costs approximately 5% of the estate value[i].  For example a $200,000 estate would cost $10,000.00 to probate which is much more costly than creating a Trust beforehand.

Another great reason many families choose to create a Trust is to protect minors who might receive a portion of their assets.  Minors cannot be listed as beneficiaries of life insurance policies and cannot receive an inheritance.  With respect to a life insurance policy, do you trust that the beneficiary you listed would provide for your children?  Even if you are confident that your listed beneficiary would provide for your children, there would likely be negative tax consequences on that individual for receiving the proceeds of your life insurance.  With a Trust in place, the life insurance money can be held in the Trust for the minor beneficiary and can be used to provide for their care.

With respect to your other assets, if there is not a Trust in place, the probate Court would require the money that be placed in Trust for the benefit of the minor.  When the minor turns 18, the minor would be entitled to the entire sum of money.  A large majority of my clients do not want their 18 year old to receive their entire inheritance at 18, especially an 18 year old who no longer has parents to help them out financially.  If you have a Trust you can provide provisions that stagger the payments to minor beneficiaries over a number of years and allow portions of the inheritance to be paid out after particular milestones such as graduation from college.  Additional protections can also be included wherein the Trustee has discretion to make the payments in the event the minor beneficiary is involved in a lawsuit or has some other life event occurring wherein it is not a good idea for that individual to receive a portion of their inheritance.

Another reason many Clients opt for a Trust is for privacy, a will must be probated whereas a Trust does not.  Probate is a public process and anyone can know all about your estate and who got what and who did not receive anything.

There are many good reasons to have a Trust in place even if you have a small estate.  Trusts are the only way to avoid probate[ii], offer you the most options as far as distribution of assets is concerned, and offer you privacy.  For assistance in setting up a Trust contact Grove Legal Services at 918-899-7949 or visit our web site for more information