If you’ve been thinking about creating an estate plan, you may have learned that wills aren’t the only tools available. In fact, in many cases, wills aren’t even the best tool in your kit.
Trusts are often better, and as Barron’s notes, they aren’t just for the ultra-rich. The fact is trusts are extremely flexible. They can do many things that wills can’t, and they can offer plenty of value for people with more modest estates.
5 reasons to use a trust
Your ideal estate plan should be created to fit your individual goals and circumstances. This is where the flexibility of a trust has real value. Trusts aren’t for everyone, but trusts can:
- Give you more control over how your assets will be used or distributed
- Shrink your heirs’ tax obligations
- Empower someone to care for your health and estate if you’re ever incapacitated
- Safeguard your assets from creditors and lawsuits
- Help your family avoid the costs and ordeal of probate
This last point is important. According to CNN Money, probate can consume as much as 5 to 7% of the value of your estate. You don’t have to be rich for that to add up. If you’re the sole owner of your home, it could be subject to probate. If your home plus your car, savings account, investment portfolio and other assets add up to $500,000, your heirs could easily face probate costs worth $25,000.
It’s far less expensive than that to set up a trust. There are some extra costs and complexities, but good trusts can pay for themselves many times over.
5 different trusts
There are several different types of trusts. Some of the more common trusts include:
- Revocable living trust. Together with a will, helps protect your estate from probate. You can update and alter a revocable living trust as you need.
- Irrevocable life insurance trust. Helps shrink your taxable estate. It can also help your heirs pay some costs linked to your estate, such as if they need to sell your business.
- Trust for minors. Allows you to plan for the needs of children under 18. You can designate funds for such things as education and health care.
- Special Needs trust. Ensures an heir’s inheritance won’t suddenly cause him or her to lose access to vital government benefits.
- Charitable trust. Ensures your charitable donations are protected and managed according to your wishes.
It’s possible to combine multiple trusts. The goal is to make sure your plan is tailored to your needs.
The right tools for the job
Once you know what you want your estate plan to do, you want the right tools. What’s right for you?