Top Reasons People Tell You to Get a Trust

1. To avoid probate.

Oh no… probate… the last word anyone wants to hear when settling the estate of a deceased loved one. When mourning a friend or family member, visits to the courthouse to handle stacks of paperwork is the last thing a grieving beneficiary wants. The first thing you will probably hear when you ask how to avoid probate is… ‘open a Trust!’ It’s often viewed as a magic solution, but before shelling out thousands of dollars for a Trust, understand there are other free estate planning tools that can be just as helpful.

There are ways to avoid probate on almost any asset. First, any asset held jointly between you and your spouse will go directly to the surviving spouse. From your real estate to your investment accounts, if you own it jointly, then you do not need a Trust for that asset. If you are single, almost every asset can have beneficiaries added. You can add beneficiaries to your retirement accounts, typically 401k’s and IRA’s. Additionally, investment accounts can have a Transfer on Death provision added (which is effectively a beneficiary), and the deed to your real estate can be amended with direct beneficiaries as well. These assets make up the bulk of the average person’s estate and can avoid probate if they are titled correctly.

2. To avoid taxes.

The second thing you’ll hear when a lawyer is trying to push a Trust is… you’ll save your family money by avoiding taxes. Well, for the bulk of us, this will never be a factor as the estate tax exemption for an individual is $11.58 million and $23.16 million for a married couple (any unused amount by a deceased spouse is passed on to the surviving spouse). So, unless you are worried about going over these limits, then this reason for a Trust does not apply to you.

3. What if I become incapacitated?

A great benefit that many will boast of Trusts is that your estate can be controlled by anyone you want, as “Trustee”. So, if you are ever unable to make decisions on behalf of the Trust, someone you ‘trust’ can take over. This is great, but the same thing can be accomplished for assets outside of a trust with a Power of Attorney, which allows nearly the same ability for someone else to make financial decisions on your behalf. The only caveat to this is that with a trust you can keep some control even after you have passed which you can not do using a power of attorney. With a trust, you can make stipulations on how money can be used and when it can be distributed. So, if you want to keep a grasp on your money from beyond the grave, a trust can be helpful.

4. Making beneficiary changes.

To make changes to the beneficiaries of your assets outside of a trust, each investment account and piece of property can be changed separately. This can be time-consuming, but with patience, easy to accomplish. On the other hand, one of the most convenient things about a trust is its overarching power regarding beneficiaries. You can make beneficiary changes to your assets all simply by making those instructions within the trust. So, if you find the need to change your beneficiaries often and have many different investment accounts and multiple pieces of property, a trust may be useful. However, those who prefer to save a few thousand dollars can easily and cheaply change beneficiaries without a trust.

So… Do you need a Trust?

If you are over the estate tax exemption ($11.58 million in 2020) once all of your assets are totaled up, or you have an array of assets that you need to control all at once, then a Trust is probably the right tool for you. As for those of us that are under the exemption and have a clear idea of the beneficiaries of our assets, we can accomplish everything a trust can without spending the money. Schedule a video conference with a Demand Wealth Advisor to formulate a more personal strategy and ask them how the ‘Demand Legacy’ portfolio can help you navigate this transition.

This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.