Do you need a Trust?

You may have been told by an accountant, financial advisor, insurance agent, attorney, or other trusted advisor that you need to protect your assets by placing them into a “trust”.  While there are many types of trusts, it is likely that your advisor is referring to a revocable trust, which is also commonly referred to as a ”living trust” or a “loving trust”.  In basic terms this trust is a tool pursuant to which a person, during their lifetime, may transfer assets into a trust which will then be distributed to his or her family or lawful heirs at the time of death.

Revocable trusts are powerful tools which may accomplish a variety of goals including reduction of the estate tax, avoidance of probate, and the protection of assets.  Issues concerning the estate tax are discussed in more detail here and here.  Any amounts left in your estate (including proceedings from life insurance) minus the applicable exemption for the year of death ($1 million for 2011), are potentially subject to the estate tax.  A trust does not avoid the estate tax in full, but does allow a married person to delay payment at death and likely reduce the tax effect upon his or her spouse through proper use of a Bypass Trust.

A second major advantage provided by a revocable trust is the ability to avoid probate – the sometimes costly and lengthy legal process generally necessary to administer the estate of a person upon death.  Please see additional articles available on this blog concerning issues associated with probate.  Many probate lawyers will charge your family a percentage of the assets which pass through the Estate, regardless of the amount of work which may be necessary to complete the probate.  The legal costs, in addition to the wait associated with the Court system, make trusts an attractive alternative for many people.  Upon death all assets properly conveyed to a trust avoid probate entirely, and since probate records are available to the public a trust provides the additional benefit of privacy.

Finally, trusts may also provide a measure of asset protection for the family or heirs of the deceased person.  By including a “spendthrift provision” in the trust, creditors of the beneficiaries may be prevented from reaching the assets placed in the trust.  This might also be used to prevent a younger heir from reaching the full amount of his or her inheritance, which can also be accomplished by placing an age limit on the date of distribution.

There are other benefits to creating a revocable trust, such as avoiding potential issues which may arise upon a future physical or mental disability and the benefit associated with allowing your family to retain control over your assets upon death.  The largest advantage, however, may be the peace of mind associated with knowing that your wishes upon death are specifically, properly organized and detailed in a manner causing the least amount of potential stress and difficulty upon your family or heirs.  For additional information on how a trust may benefit you and your family, please contact Cox, Sterling & McClure at 501-954-8073 or via the Internet at coxandsterling.com.