Wills are considered the cornerstone of estate planning, but they are not the only tool at your disposal. Trusts can also be effective for dispersing your assets after you are gone, but many people think trusts are only beneficial to the very wealthy.
The truth is, trusts offer many benefits to estate planners, regardless of how many assets a person owns. In fact, many estate planners use both tools to ensure maximum benefits.
Trusts help you avoid probate
Probate is the process of authenticating a will, paying off debts, and dispersing assets to your heirs. Not all assets go through probate. Items left to surviving spouses avoid probate court, as do proceeds from life insurance policies and retirement accounts (provided the beneficiary designations are filled out correctly). However, other property and assets typically do pass through probate, which can be a long and costly process if the will is contested.
Assets placed into a trust are not subject to probate. Once the trust is funded, which entails changing deeds and titles to show ownership by the trust, assets are no longer owned by the trustee. This prevents some of the hassles associated with probate, along with avoiding some of the costs.
Trusts also help in other ways
Unlike wills, trusts give you more control over the way your assets are distributed. When providing your assets to heirs, you can set up certain stipulations about how they are distributed. Instead of providing inheritances in one lump sum, you can make them conditional by providing them at certain ages or after certain actions or taken (such as graduating college).
Trusts can also be beneficial from a tax perspective. Placing assets into a trust is a way to reduce estate taxes, which occur on both a federal and state level. When coupled with probate avoidance, this greater level of control afforded by trusts makes them very attractive to many people.