09 Mar 5 Reasons to Love Trusts
5 Reasons to Love Trusts
1. Avoids Probate – Trusts own property in its name instead of your name. Remember that property can include everything you own (Learn more here). As a result of retitling your property into the name of your trust, there’s no assets to go through probate upon your death. It saves your family an incredible amount of time, grief and money. In my experience, the added time and grief associated with probate far outweighs the financial burden. Also remember that a will does not own property but merely documents your desired written instructions for how your property will be transferred to your beneficiaries — most notably — in probate.
2. Avoids Guardianship – As mentioned above, trusts own property in its name instead of yours. This is extremely important in the event that you become mentally incapacitated. Being mentally incapacitated simply means that you lack the necessary (legal) amount of cognitive awareness of the consequences of what you’re attempting to do via your estate planning documents. It can happen by way of head injury or illness, such as dementia and Alzheimer’s. In such an event, there’s no need to open up a guardianship to handle your financial and personal affairs because you don’t own any property in your name; it’s in the name of the trust.
By creating a trust, you’ve appointed someone you trust to administer your assets on your behalf. You’ve also chosen who you want to inherit your property upon your death and control all aspects of how and when they get it–possibly like a will. However, there’s far more advantages to you and your family to a trust than a will. The consequence of not having a trust upon becoming incapacitated is that guardianship proceedings will commence and a guardian over your property will be appointed by the court. You will have no choice in the matter. Taking advantage of a trust preserves your ability to remain in control of yourself and your property. A will offers no such solution.
3. Strength and Flexibility – As you can see, utilizing a revocable trust is advantageous to a will for many reasons. Another reason is that it is executed and administered during life, whereas a will becomes effective only upon death. Unhappy beneficiaries and unscrupulous family members unfortunately end up contesting wills all of the time. They need only prove that their claims occurred at the time of execution. In the case of a trust, dozens of actions/decisions are taken on the part of the grantor/trustee after execution and before death, each of which solidifies the defense that he or she had the requisite mental capacity at the time of execution. This is an often overlooked advantage.
4. Provides control even after you’ve passed away – A simple will generally: 1) appoints a personal representative or executor to administer your estate once you’ve passed; 2) appoints a guardian over the person and property of minor children in the event that both parents pass away; and 3)provides instructions for who will inherit your estate and in what form of ownership they will receive it. Wills can include a testamentary trust, which takes effect only upon death. However, as discussed in above, that type of trust lacks a stronger defense against claims of undue influence and incapacity. Therefore, it’s better to use a living trust, a/k/a a “revocable trust”.
Like a will, utilizing a revocable trust enables you to control who will inherit your estate and in what form of ownership they will inherit. However, because trusts are private instruments, they allow for more conditions of receipt and more control over the timing, amount and manner of distribution of assets. Additionally, you can instill your legacy of values upon your beneficiaries by conditioning receipt of property upon going to college, marrying within the faith or anything else that is important to you. You can even elongate the duration of trusts up to 360 years in Florida so they last many generations. Wills quite simply do not offer any such solutions.
5. Protection and preservation of assets for generations – Another often overlooked benefit of trusts over simple wills is that beneficiaries inheritance is protected from their creditors, which will include former spouses! If structured properly, the beneficiary’s inheritance will be protected from themselves, if financially irresponsible, or for any other reason that may place the assets at risk once you’re gone and they are in under the control of your beneficiary. The point here is that you have two choices: protect and preserve the hard earned money you intend to give to your family or don’t.
Stay tuned to learn about my world famous toothpaste tube analogy for trusts!
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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Originally posted 2013-03-05 10:00:52.