Trusts have long been a tool for the ultra-wealthy to preserve wealth and pass it down through the generations. But even those of more modest means may benefit from this powerful estate planning tool. Here are five reasons to consider forming a trust:
• To minimize the tax hit: True, the exclusion for estates and prior taxable gifts is $11.4 million, meaning most estates will not be taxable. But if your anticipated life insurance proceeds might tip you over that edge or if you intend for your life insurance to offset estate tax liability, an irrevocable life insurance trust could help to keep proceeds outside of your probatable estate and minimize the hit.
• To maintain control of how assets are distributed: While a last will and testament specifies who might receive which of your assets, it does not control how those are used. A trust can ensure that funds are used for specific purposes, such as higher education. It can limit how funds are paid out to an individual, for example to secure ongoing support for a fiscally irresponsible heir. It can even provide for your favorite charitable or philanthropic organization.
• To maintain privacy: Probate matters are public record. Theoretically, your nosy neighbor – or an estranged family member – could go to the courthouse and peek at probate court filings, read any filed will, view accounting filings, and, generally, see what you have in your estate. A trust provides a layer of privacy that the probate process would not otherwise provide. Even during life, a trust can help to provide a layer of privacy to your dealings and help to obscure certain information – the owner of real property, for example – in the public record.
• To promote efficiency: Probate matters can be lengthy. The court process does not always move quickly and can be difficult to navigate. They can also be expensive, as an executor or administration of an estate is generally paid a percentage of the total value of assets managed. Assets that are held in a trust will not need to go through the probate process and can be handled more efficiently and potentially less expensively.
• To keep wealth within the family: Perhaps you want to provide for your new spouse, but make sure that your children from your prior marriage are also provided for. A qualified terminable interest property trust can provide for a surviving spouse, but also provide for the subsequent transfer upon his or her death of any remaining assets to other selected beneficiaries. Generation skipping trusts (GSTs) are another means of preserving wealth through the generations.
Ultimately, the purpose of any estate plan is to direct your assets in accordance with your wishes and to create a legacy that is meaningful to you. A trust, properly created with the help of appropriate experts, can be an important tool in the creation of your legacy.
Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.