While it isn’t what most American families prioritize, estate planning using trusts can help protect your spouse and family should anything happen to you.
Trusts are arrangements to own and manage the allocation of your properties and money following your death or incapacitation. There are a contract between the settlor (aka grantor) and the trustee(s) for the benefit of the beneficiaries.
At a basic level these roles can be the same people; and that is typically what is done for a young family looking to protect their assets for the benefit of their children. Trusts provide a separation of the benefits and ownership and a continuity of ownership. The trust will own your assets for your benefit and then for your children’s benefit. Once you are no longer available a trustee (a family member, trust company or law firm) will manage and own your properties on behalf of your children (beneficiaries) but won’t benefit from them.
A trust can help your family avoid probate.
Probate is the legal process of establishing the authenticity of the deceased’s will. The process is court-supervised and often attracts hefty legal fees. Furthermore, it typically involves substantial paperwork and can take a long to conclude.
If you set up a trust for your young family, there won’t be a probate need. It means they’ll begin to benefit from what you left them more quickly.
Establishing trust also enables your children to access their inheritance faster. The will-validation process can be time-consuming and can take up to even more than two years. Imagine your children having to suffer for years before accessing the financial support they direly need!
Nonetheless, organizations such as McGinn Law, PC can help hasten the process. Contact us for estate planning services.
It offers flexibility in wealth distribution.
Something can happen to you when your kids are still too young to manage your properties efficiently. Moreover, one of them may be living with a mental disability or other forms of incapacitation—or may even get it later on in their life.
A trust can give you the option of releasing money and other forms of help to your kids in small installments. This can prevent them from accessing a lump sum (which is more prone to misuse) when they still haven’t developed proper financial management skills.
A trust can also enable you to set a limit on the amount your children can spend, for instance, on healthcare, rent, entertainment, food, and travel, hence ensuring a sustained utilization of your assets after your death.
Reduced estate taxes
When you die, the government will levy taxes (estate taxes or death taxes) on your estate. Your beneficiaries may end up paying both the federal government’s estate tax and the state government’s inheritance tax. It means your wealth will be subject to double taxation—which can be costly.
The estate tax is calculated on the value of the deceased’s total assets. Fortunately, trust can help avoid or reduce estate taxes significantly.
Assets you place into a trust aren’t subjected to estate tax. Moreover, you can seal other tax payment loopholes by establishing a children’s trust fund. With such arrangements, you can make regular monetary gifts from what you own to your children without paying exorbitant taxes. Moreover, it reduces the total taxable value of an estate hence decreasing the tax burden further.
Trusts reduce sibling fights over the inheritance.
A trust can help evade the possibility of conflicts among your children during the apportionment of your estate. For example, a trust offers you an opportunity to specify the exact monetary amount or properties to go to each of your children.
Customizing your wishes is essential and can help avoid conflicts that are likely to arise when distributing properties that dependents are likely to argue over. Siblings often fight over ownership of properties that have a sentimental value, for example, a family home, painting, or business.
A trust can also come in handy in other complex family situations. For example, you can use it to protect your assets from a greedy spouse. Unlike a will, you can customize a trust so that it’s only your child and not their spouse who can inherit or benefit directly from your estate.
Planning for incapacitation
You never know what tomorrow might bring; you could become chronically ill, disabled, or incapacitated and live that way for some time before you die. When you are in such a state, you won’t manage your affairs effectively, and a good trust company can help you do it.
When you are setting up a trust to manage your affairs, you need to set up a revocable living trust. You will also need to name a trustee to take over the management of your estate in the event of your incapacitation for your benefits and that of your young family.
A trust can also help you plan for the payment of your children’s tuition fees up to the college level. You can set up a college trust fund and specify how your money will be released for your kid’s education. You can customize and determine how much funds should be allocated for your kids’ educational needs, after which the trust should divide what remains evenly among the beneficiaries.
Other tools that work together with trusts to help in estate planning
Other than trusts, other methods of estate planning include:
- Life insurance
- Powers of attorney
- Appointment of guardianship
- Financial planning
Wills: your lawyer can help with drafting a will and specify who, when, and how your wealth should be allocated to your children in the event of your demise.
Life insurance: life insurance can offer your dependents a quick income source (that is tax-free) after your death. Your family won’t have to sell your properties to get money for upkeep or pay taxes.
Powers of attorney: a power of attorney is a document you sign to allow someone else to manage your estate and take care of your family’s health and financial needs should you die or be incapacitated.
Guardianship appointment: guardianship is an arrangement where you appoint a trustworthy and responsible person to take care of all your family responsibilities, for example, education, feeding, housing, and providing medical care upon your death.
Financial planning: Unlike estate planning, financial planning has immediate goals. It allows you to make immediate financial decisions to protect the financial future of your family. It can involve, for example, saving for retirement, kids’ education, or purchasing a family home.
The bottom line
Estate planning tools, for instance, trusts, are effective ways of securing your young family’s future financially and protecting them from both outsiders and themselves. However, today’s evolving legal system, complex money markets, and your unique needs call for a coordinated approach among all your advisors and professionals working for you.
At McGinn Law, PC, we can help you customize your estate plan and coordinate with all professionals working for you and work hard to ensure all your wishes are respected, implemented fully, and your legacy lives on. Contact us at (617) 229-9974 now to speak to one of our experts.