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5 potential benefits of setting up a trust

When it comes to estate planning, many people create a will to have their assets distributed after they pass away. But there’s another aspect of estate planning that may offer unique benefits to you and your family: a trust.

A trust is a legal contract drafted by an attorney with a named trustee who ensures your assets are managed according to your wishes both during your lifetime and after your death. While people usually set up a trust during their lifetime, you can also stipulate in your will that you want to create a trust upon your death.

Here are five benefits of adding a trust to your estate planning portfolio:

1. Trusts avoid the probate process

While assets you control must go through probate to be verified and distributed according to your wishes, trust assets usually don’t. A will becomes a part of the public record, while a trust agreement stays private. When you establish a trust during your lifetime, you only need to deal with your attorney and trustee to execute the agreement.

Privacy is important to keep your family’s financial matters outside of public view. Plus, by avoiding the probate process, trusts are often quicker and simpler to distribute assets when you die. You may even decide to have your will state that any assets held outside of a pre-existing trust at your death transfer into the trust when you pass away. When you’re dealing with the death of a loved one – or the transfer of assets from one person to another – you likely want the change to be as seamless and private as possible. Creating a trust can help you achieve both of those goals.

2. Trusts may provide tax benefits

Trusts can be revocable or irrevocable, essentially meaning that they can be amended after they are created—or not. A revocable trust gives you the option to make changes to it after it’s signed, but depending on its terms, it may or may not lead to tax advantages later on.

An irrevocable trust, however, is one that you cannot usually change after the agreement is signed. Setting up this kind of trust may bring about transfer tax benefits because you have transferred assets out of your estate. Contributions to the trust are generally subject to gift tax requirements during your lifetime. However, if certain conditions are met, assets placed in this type of trust (and appreciation on those assets over time) will be sheltered from estate tax after your death.

In addition to initial funding, you can make an annual exclusion gift (currently up to $15,000 for individuals or $30,000 for married couples filing a joint return) to an irrevocable trust each year without paying additional gift tax on that contribution. Speak with your trust administrator and attorney about whether a revocable trust and/or an irrevocable trust might be a good estate planning option for you and your family.

3. Trusts offer specific parameters for the use of your assets

Whether you establish a trust under your will and/or create a separate trust agreement during your lifetime, trusts truly allow you to customize your estate plan. You can include conditions such as age attainment provisions or parameters on how the assets will be used. For example, you can state that you’d like the money in a trust to be given to your grandchildren only once they turn 18 and only to be used for college tuition. Or you might limit how much money a beneficiary can receive from the trust each year if they need extra help managing money.

Your trust administrator can help you discuss different possibilities and scenarios before your attorney drafts your trust document.

4. Revocable trusts can help during illness or disability – not just death

Wills only go into effect when a person passes away. Still, a revocable trust established during your lifetime can also help your family if you become ill or unable to manage your assets. If that happens, your trustee can make distributions on your behalf, pay bills, and even file tax returns for you. You can choose ahead of time who to appoint (through the trust) to manage the assets.

Though no one likes to think about these scenarios, building in provisions like these can safeguard your family from making decisions without knowing your wishes during difficult times.

5. Trusts allow for flexibility

If you choose to create a revocable trust, you can change the terms of the trust agreement at any time by executing an amendment to the document. This allows you to be adaptable and flexible to life’s changing circumstances. Maybe down the line, you become involved in a charitable cause you’re passionate about. Or perhaps you have a new grandchild you’d like written into the trust. If so, you can add them as future beneficiaries to your trust then.

Life can be unpredictable, but creating a revocable trust allows you to adapt your estate plans appropriately.

Invest In a Life You Love,

Donovan Carson - founder of Carson Capital



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