A will is the vehicle that usually collects instructions to distribute property and belongings. However, the job of passing substantial financial assets should be left to a Trust.
Trusts combine investment and possible tax-saving opportunities to provide for your heirs after death. They can be used to ensure that your assets will be used exactly as you intended. Trusts can make certain your heirs are not forced to liquidate assets to pay estate taxes.
There are many different reasons for establishing a trust.

  • Avoid probate
  • Provide for your minor children
  • Avoid estate taxes
  • Reduce income taxes
  • Protect your assets from creditors.

Avoid probate

Assets in both a revocable and irrevocable trust do not pass through probate at your death. The assets are distributed in accordance with the terms of the trust, which may even continue past your death. Your estate, therefore, avoids the cost and delay of probate. A further benefit of using a trust is that you will have increased privacy. A will is a public document (i.e., anyone can go down the probate court and review the contents of your will). However, a trust remains private.

Provide for your minor children

You may want to use a trust if you plan to leave your assets to minor children (generally, under age 18). Because you cannot predict when you might die, you may want to set up a contingent trust in your will in case you die when your children are still minors. The assets could then be transferred to the trust, and the trustee could manage the assets and make the necessary distributions when your children reach an older age.

Avoid estate taxes

Assets that have been transferred to an irrevocable trust are not included in your gross estate when you die for estate tax purposes. (This result assumes that the creator of the trust is not a beneficiary of the trust. Furthermore, if the creator is also the trustee, then his or her ability to make distributions to the beneficiaries must be limited to ascertainable standards.) It is important to note, however, that gift taxes may have to be paid at the time of the original transfer to the trust. However, any appreciation in the assets after the transfer will avoid both estate and gift taxes.

Caution: One exception to the general rule that assets transferred to an irrevocable trust are not included your gross estate is a life insurance policy. If you transfer a life insurance policy to an irrevocable trust within three years of your death, then the insurance policy will be pulled back into your gross estate.


Reduce income taxes

By transferring income-producing assets to certain types of trusts, you may be able to transfer income to those heirs who are in a lower income tax bracket than you. By doing this, you may be able to reduce your own income taxes.

Benefit a charity

There are certain types of trusts where you transfer assets to the trust, receive income from the trust for a period of time, and then leave the assets to a charity upon your death. These types of trusts may provide you with both income and estate tax benefits, and also allow you to give to your favorite charity.

Protect against old age and disability

Another reason to use a trust is to protect yourself in case of a mental or physical disability or other age-related problems. You can set up a trust, name yourself as the beneficiary, and then name yourself and another person as the trustees. If you become infirm or mentally incapacitated, the other trustee can manage your assets for you and distribute those assets in a way that is in your best interest.

Other benefits

There are numerous other reasons why you may want to transfer your assets using a trust. Please consult an estate planning attorney or other resources.

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