When you think of estate planning, your mind likely goes to will creation. While wills are an essential part of legally-binding estate plans, living trusts are also beneficial.
Despite popular sentiment, trusts are not only for the very wealthy. People with moderate wealth can also benefit from them when it comes to estate planning, provided they have the right information before getting started.
What are trusts?
A trust establishes an agreement between you as the owner of the assets and a trustee, meaning the person who oversees the trust. You fund the trust with assets like life insurance policies, property and bank accounts, and the trustee manages them after you die. This highlights the importance of choosing a responsible and well-organized trustee. You can also select a lawyer or financial institution to serve as trustee, as opposed to a loved one.
Why do people use them?
Most people include trusts in their estate plans to avoid probate. Probate is a legal process that involves proving that a will is valid, paying creditors and distributing assets to heirs. All wills must go through probate before the estate provides inheritances, but a trust allows your assets to pass directly to heirs without probate.
Another benefit offered by trusts is the ability to control the way heirs receive their assets. You can provide inheritances in increments as opposed to one lump sum. You can also establish benchmarks, such as requiring an heir to reach a certain age before they receive their inheritance.
One of the biggest upsides of living trusts is that you can amend them should your estate plan change over the years. Along with revisiting the trust after major life events, you should also review it every five years or so to make sure it continues to meet your needs.