Do you need a trust and don't know it?

Many people think trusts are only for the wealthy.  Not true.  While estate tax savings can be a prime motivation in creating a trust, many people create trusts to preserve control, to add protection or privacy, to aid in gifting or to simplify their finances.

For example, a trust can help to ensure that the assets you've worked hard to accumulate over your lifetime are protected and will pass on to your beneficiaries how and when you want. Trusts offer other significant benefits as well. They can:

• Supply you, or others, with income from the trust assets
• Provide management of your financial affairs if you become incapacitated
• Help avoid the expense and delay of probate
• Provide income, capital gain, and estate tax savings
• Facilitate charitable gifting.

 Every estate plan begins by asking two simple but very important questions:

1. To whom do I want to give my assets. For most individuals, there are four potential recipients:   family, friends, charities or the Internal Revenue Service.   Proper planning allows family, friends and/or charities to be the primary beneficiaries of your assets.
2. To whom do I entrust the management of those assets.  For most individuals, a family member, a financial representative, or a corporate trustee are selected. The duties of a trustee involve complicated government reporting and tax return filings, and well as specific fiduciary duties and responsibilities that can be burdensome for family members.

Do you need a trust? Consider taxes

The federal estate tax threshold has been in flux for the past several years. When determining if your estate will pay estate taxes, consider that your estate is made up of more than your house and stock portfolio. Calculate the value of all the financial investments you own, including life insurance policies, retirement plans, and annuities, as well as other property, cash on hand, and anything that can be considered an asset (cars, boats, antiques, etc.). You might be surprised to find that your estate is worth far more than you would have imagined.

But that's good news. The bad news is that it may be worth much less to your heirs after expenses and possible federal and state estate taxes have taken a big chunk. Although estate tax savings can be a big benefit of a trust, trusts are not just for the very wealthy. They should be considered for those with moderate estates as well.

Do you need a trust? Consider control

If you were to become incapacitated, would you consider giving everything you own to a friend or family member to have them manage your assets for you? Do you want your heirs to receive their inheritance in one lump sum?  After your death, do you want your personal finances to be a matter of public record?   If you’re like most people and answered no to any of these questions, a trust may be just the thing you need.

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OK, I need a trust.  Now what?

While legal assistance is not necessary to understand the basics of trusts, it is critical in their drafting. Contact a lawyer who is experienced in these matters. There are many different kinds of trusts, each with its own financial, legal, and tax implications. A professional can advise you on the benefits of each type of trust and show you how a trust can help you achieve your lifetime and estate-planning goals.

The content of this page is for informational purposes only and is not intended to offer any tax, legal or financial advice. Please consult with your personal professional advisors to discuss your situation.