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Benefits of Using Trusts in Estate Planning


We have already talked about using wills in estate planning. This post will focus on trusts. A trust is a legal entity created to hold property for a beneficiary. A valid trust consists of a trustor, trustee, and a beneficiary. For instance, a grandfather (trustor) may place the title to a lakehouse in a trust with instructions that a bank (trustee) shall transfer the title to a grandson (beneficiary) when the grandson turns 25 years old. Depending on the goals you have for your estate, trusts can be a very effective tool for distributing your assets after death.

Trusts differ from wills in that assets passed through a trust do not enter the probate process. One key aspect that estate planners like about this difference is that probate proceedings are public. Therefore, trusts are a useful tool for people who do not want information about certain assets to be made public as well as the identity of the beneficiaries of the estate. Additionally, in certain circumstances, trusts can be used to protect certain assets from creditors. The beneficiary’s creditors typically are not allowed to seize assets that are held within a trust.

There are also many different kinds of trusts which offer a wide range of benefits. For example, a charitable remainder trust allows a person to transfer a certain percentage of money and assets to a beneficiary, with the remaining money and assets transferring to the name charity. Arguably the biggest advantage to a charitable remainder trust—aside from the good karma that comes with donating to charity—is the tax implication. You can take a deduction for the monetary value of the assets actually transferred to the charity. In addition, that same value does not have to be included in your estate, meaning your estate will pay less estate tax than it otherwise would.

A special needs trust can also be quite useful. “Special needs” has a broad meaning, and can include medical expenses, transportation needs, dietary needs, spending money, and other maintenance. People with certain special needs often receive government benefits. However, the government may stop those benefits if the person receives a large inheritance. If you want to transfer a significant money or assets to a person with special needs, this trust is a nice tool. Parents of a disabled child can utilize this trust to care for their child beyond their death, and not worry that the child might lose government benefits as a result.

Another useful type of trust is called a spendthrift trust. Under this trust, the beneficiary cannot transfer his right to future income or capital from the trust, and his creditors are unable to collect or take such rights to the trust. Typically, the grantor sets rules for distributions, and the trustee controls the trust’s assets and oversees any distributions given to the beneficiary. A spendthrift trust is useful when the beneficiary is someone who may not be responsible handling a large sum of money and assets. For example, a parent might want to establish a trust to benefit their 18 year old daughter, but is scared that the daughter might blow all of the money in a short period of time. A carefully constructed spendthrift trust will ensure that each distribution the daughter receives is manageable, thus protecting the daughter from herself.

The trusts mentioned above are only a few of the types of trusts that a smart estate planner may utilize. Marc Sherwood, co-founder and principal of the Sherwood Law Group, has decades of experience in managing estates and getting clients the results they want from their estates. It is never wise to wait to think about how to organize your estate. Call the Sherwood Law Group today and let us help you fulfill the dreams you have for your family.
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