Estate Planning? Consider a Trust Instead of a Will

Planning for your own death can be scary. The process is existentially terrifying, of course, because it forces us to not only ponder our own mortality but to also put those thoughts into a legal document, which we then have to sign. But estate planning is an essential step all parents need to take for their family. However, what’s also scary is that as a legal document, a will is not always a superior way to protect your intentions and inheritance. The better option might be a trust.

While both are methods of distributing property, there are distinct differences between a will and trust. A will designates who will, in the event of your passing, receive your belongings and property. It also provides you with an appointed person who handles your intentions. It goes into effect after your death and only deals with things that are in your name. A trust, on the other hand, goes into effect the moment you sign it and enables you to add not only your items but also those of other family members. It’s far more modular and it’s also more private.

“In simple terms, a trust is a fictitious person in the form of a legal document that takes care of your final wishes,” says Anthony Danna, Esq., an Estate Planning and Elder Law Attorney licensed in New York, New Jersey, and Florida. “A trust allows you to formalize what you want to happen to your assets, who receives them, and how they are to receive them.”

As it goes into effect the moment of signing, a trust also takes care of your living wishes as well. While you are alive, you are the “grantor” of your trust and the “trustee” (most likely yourself or your adult child, friend, relative, or professional trustee depending on your circumstances) will manage the trust to your specified wishes. You stay in control of a trust until you’re unable to do so. Sometimes your wishes are that you want to maintain control and make changes during your lifetime. That’s a revocable trust. Sometimes, you’ll want to have less (but still some) control. That’s an irrevocable trust.

A trust offers some very significant benefits that a will does not. And, in many cases, creating one will make it much easier for your loved ones during and after your death. Here’s what to know.

A Trust Saves You Both Time and Money

A trust and a will generally require the same level of complexity, drafting, and legal counseling. While a will is a statement of your final intentions, in order for it to become effective, you have to go through the probate process in court to validate the document’s authenticity. The initial cost outlay of a will may be less expensive than a trust but becomes more expensive when you add in these additional court filing fees and billable attorney hours. Depending on the state, the probate process varies and can take, on average three to six months. It can often take longer.“A trust, on the other hand, is effective immediately and doesn’t need to be validated or approved by the court,” Danna says. A trust still pays income taxes although it can be designed to use personal income tax rates. It can minimize income taxes that are due at death as well as if it’s an ongoing trust. A will does nothing for income taxes and you’re likely to end up paying higher estate taxes.

It Also Offers More Privacy

A trust is a completely private document. Since a will goes through the probate process, it is available to the public for viewing. Anyone can go to the county court and access it. Who would do such a thing? “Well, there’s a lot of books written on the wills of celebrities and wealthy people,” Danna says. “But, the minute you file a will, the executor and beneficiaries are likely to be contacted by auction houses, real estate brokers, and individuals looking to snatch up property at a cheap price.” And let’s not forget those “long lost” family members that might come crawling out of the woodwork too. That’s a daily, robo-call level of annoyance that you’re not going to want to deal with during a time of mourning.

A Trust Protects Those Who Can’t Protect Themselves

Trusts are ideal for ensuring that those who aren’t good with money due to age (too young or too old), those who demonstrate poor financial decision making, or those with special needs or incapacities. A trust can stipulate exactly how much and when money and assets can be distributed. That can include waiting until a child is 35 and more responsible with their finances or doling it out in smaller amounts on a monthly basis like an allowance.

“We want to make sure assets help our children but money can corrupt,” Danna says. “You don’t want to dump a ton of cash on a 21-year-old. Half a million dollars can be spent in a flash and can actually ruin their lives.”A trust can also protect against creditors, both yours and your beneficiaries. “Say you want to leave money to your child but he/she has terrible credit problems. A trust can protect your offspring so that he/she benefits and not their creditors,” Danna says.

If you have a special needs child who requires government benefits and services, a trust will also allow you to leave money for that child without affecting the public benefits that he/she requires.

A Trust Provides Help Later-in-Life

Once you have real adult responsibilities (spouse, children, property, investments, life insurance) and wishes for a future that you may not be a part of, you should start a trust. A trust can stipulate exactly how much and when money and assets can be distributed. That can include waiting until a child is 35 and more responsible with their finances or doling it out in smaller amounts on a monthly basis like an allowance. If designed properly, a trust operates in the background and doesn’t affect your day-to-day life. And a trust morphs. In the beginning, it’s very simple but later in life, your goals change and become more intricate.

Money placed in a trust can strategically benefit the grantor when it comes to late-in-life healthcare costs. With a revocable trust, the successor trustee (your child for example) has the ability to handle all of the finances and pay all of the bills including assisted living. If they want to take advantage of government benefits, specifically for in-home care, then it’s easy to amend that into an asset protection trust. If a nursing home is a possibility, an irrevocable trust is the way to go. Just be aware of a five-year look-back for the movement of assets when attempting to access Medicaid benefits.

A trust has a life of its own and because of that, it can do a great many things. It doesn’t require court supervision which keeps the prying eyes of the public and extended family away. It works to ensure that your goals get implemented and that your loved ones , and sometimes even you, are always taken care of. Compared to a will, it’s a much better monetary investment.

“Any attorney can try to fit you into a templated trust. A knowledgeable attorney, after taking the time to learn about you and your goals, is going to be able to design a specific trust to achieve those goals,” Danna says. “What you want to happen will happen because this document will do it.”