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Estate planning can be a complicated process. A trust can be a way to have your wishes carried out in a structured way, and beneficiaries can begin receiving the benefits of the trust while you are still alive. Trusts, which are frequently used by those with substantial assets, can help families with difficult dynamics avoid costly probate litigation. However, while there are many advantages to establishing a trust, there are always disadvantages that you should consider before you decide what is best for you, your family, and your assets.
Setting up a trust is a form of estate planning. It is frequently used by those who have a large number of assets and want to provide a specific structure for how those assets should be handled. Working with their attorney, the grantor (the creator of the trust) will establish a trustee whose responsibility it is to oversee the distribution of the assets listed. The trust will be labeled as revocable or irrevocable, which is determined by whether the grantor would like to make any modifications to the trust after it is established.
One of the most significant disadvantages of a trust is its complexity. Generally, trusts use very specific language, which can be difficult to understand for those who are not often involved in estate law. Because trusts were once written in Latin, there are many legal terms that still carry over. However, when they are “modernized,” there is often a greater deal of explanation involved to ensure that everything is described the way the grantor wishes it to be, which can result in legal documents that could be up to 80 pages or more.
The reason a trust uses such detailed language comes down to a matter of circumstances. While verbally explaining your trust could take minutes, there are many scenarios that a trust must account for, such as when the grantor is living, incapacitated, or deceased. Additionally, a trust is administered without the involvement of the court, which means it must be as specific and accurate as the grantor wishes it to be to ensure that it is properly executed. Any vagueness or uncertainty could result in the trust being legally contested.
Other disadvantages of a trust include:
A: There are many assets that could be included in a trust. Most often, assets include:
However, understanding how taxes could impact your assets can help you determine what you should or should not include.
A: The purpose of the trust you establish for your child will help determine the assets you wish to put into it. Within the trust, you can also control when the assets you have listed are provided to your child. For example, if you have a large sum of investments in the trust that you wish to pass to your child on their eighteenth birthday, the trust will specifically structure that.
A: While most financially linked assets will be in a trust, there are some items you should not include, such as:
The tax implications that your assets may have will often determine whether you decide to put them in a trust. An attorney can help advise you concerning these implications.
A: Determining if a trust is right for you comes down to the level of control you seek over how your assets are disseminated and the value of your assets. Because of their structure and privacy, trusts are generally preferred by those with larger sums of money. Those with fewer assets may find that a will is a viable and less expensive option.
If you are considering a trust as part of your estate planning, be sure that you consider all the advantages and disadvantages. It is always wise to consult with expert professionals to help you understand which options may be best for you. At Ken R. Ashworth & Associates, we have the answers to help you protect your assets and provide for your family. Contact our offices today and let us help you start your estate planning.