3 Reasons Why a Trust Protects Your Family Better than a Will Does
When most people think about estate planning, they assume their best or only option is a Last Will & Testament combined with some joint tenancy or transfer-on-death arrangements for their financial accounts. However, for a large majority of people, there is a superior method to estate planning that has existed for several hundred years and allows you to peacefully and privately transfer your wealth after you die to your loved ones. This method is an estate plan built around a Revocable Living Trust
Like a will, a trust addresses how your estate will be administered and disposed of after you die. However, there is an important difference. A will is a testamentary document signed by you that does not take effect until after you pass away. When you do die, the will must be qualified publicly before your local probate court as part of a potentially very expensive government administration.
Unlike a will, a trust is a private contract between you as creator of the trust and you as the manager of the trust assets. The trust is effective immediately upon you signing your trust agreement and will successfully manage your estate upon either your incapacity or death, so long as your assets remain titled in the name of your trust or the trust is designated as a beneficiary of your assets. And unlike what some may assume, trusts are perfect planning mechanisms for middle-class Americans, and you don’t have to be a Gates or a Rockefeller to afford this type of planning.
The three main advantages of estate planning through a revocable living trust over other basic estate planning options are the following:
- Avoids probate.
Avoids probate. Since a trust is a private contract which determines the terms of how its assets are to be managed upon your incapacity and death, there is no need to have a third party bureaucratic entity administering your estate via a potentially lengthy, expensive, and very stressful process called “probate”. The main reason for the probate process is to change title to property from a dead person’s name to that person’s living beneficiaries. With a trust, however, you already retitled your assets during your lifetime out of your individual name and into the name of your trust. Thus, when you die there are no assets owned in your individual name. Therefore, your estate has no reason to go through probate.
Privacy. Because a trust is private and is administered privately, there is no need of the public process of probate. No need to have your assets sold at a public estate auction nor will your loved ones be bothered by people looking to take advantage of your estate because they could review your will and your list of assets at the probate court.
Flexibility. As you have read, a trust is a versatile and flexible document. This flexibility is further apparent in how it can work with your transfer-on-death (TOD) accounts in leaving a lasting legacy to your children and grandchildren.
For example, suppose you have two adult children. One is very responsible, but the other not so much. Typically, most parents designate their children individually as the beneficiaries of their financial accounts without considering how they can protect their hard-earned wealth from a child’s creditors or future ex-spouse. Instead, you can establish trusts in your revocable living trust agreement for each of your children (and potentially grandchildren). The share you leave to each child resides in the trust created for them and protects such assets from that child’s creditors or ex-spouse. It just depends on the terms you want drafted. Therefore, you designate your trust as the beneficiary of your TOD accounts instead of the children in their individual names.
If you have more questions about whether a trust may be appropriate for you, give us a call at (703) 865-6100 or send us an email at email@example.com.