For many the idea of having a Trust may be unnecessary and out of reach. Trusts have a common misconception that they are only needed for the super wealthy. After all, there is a reason why “Trust Fund Baby” is a common term used for the children of the wealthy.
While the uber rich would be wise to protect their assets with a Trust, this legal entity is not exclusive to them. Everyday folks and their families can gain huge benefits from setting up a Trust.
Another problem with Trusts is that they are confusing, as there are multiple types of Trusts, often with esoteric and intimidating names.
There are dozens of different types of Trusts. Entire books have been written distinguishing the types of Trusts, so no doubt it can be confusing. This leads to people avoiding setting one up at all.
The two most common types of Trusts are Revocable and Irrevocable. A revocable Trust can generally be amended, changed, or otherwise terminated. The Trustor can also remove assets from the Trust with a good amount of flexibility.
An Irrevocable Trust on the other hand is much more rigid and in general cannot be altered. However, these types of Trusts can be beneficial in terms of long term care, retirement planning, and as an asset protection strategy.
There are various other types of Trusts that can be beneficial depending on your and your families circumstances.
For instance Special Needs Trusts can be set up specifically to care for the needs of a special needs family member when you no longer can care for them.
Now that we have a basic understanding of the most common types of Trusts, here are the top 5 reasons to form a Trust:
1. Managing and Controlling Distribution of Assets
If your beneficiaries (the people who are going to inherit your stuff) are unable to or don’t want to manage the assets you’ll be passing onto them, A Trust can help.
With a Trust, you can assign a Trustee (person who you appoint to do your bidding after you pass) to manage the assets and or distribute them to your beneficiaries as you desire.
A Trust can be very useful for people who have minor children or if any of the beneficiaries have a disability. In these situations, you may be able to care for them and manage assets while you’re alive.
However, after you’re gone or if you become disabled, a Trust can provide for their continued care as you see fit and/or manage the assets.
If you straight up don’t trust your beneficiaries to get everything immediately upon your passing, you can distribute assets to them over time through a trust or when they reach a certain age.
This is useful for minor children, disabled children, beneficiaries struggling with addiction or if the beneficiary is just likely to blow through their inheritance immediately upon receipt.
A trust can also be effective in distributing assets to those outside your family such as providing gifts to institutions, universities, and charities.
2. Avoiding Probate
Quite simply Probate is a giant pain for your family or whoever will wind up your affairs after your gone. In California, estates with assets totaling over $150,000 in total will go through Probate.
While you may not have $150,000 lying around in cash stashed in your mattress, your assets, including any property and accounts you own, could easily surpass this amount.
Probate is also very expensive. Between the court fees and the statutory fees due to attorneys and executors can take away tens of thousands of dollars away from your heirs.
Ironically most people do not want to form a Trust because they don’t want to deal with or pay an attorney to create a Trust. If your estate is probated that money and likely more will end up going to some attorney you likely never met!
However with a Trust your assets that you put in the Trust are outside your estate. Thus, no Probate, no probate fees, and your family members can avoid months of Probate court hell.
3. Protecting Assets
As mentioned above, a Trust can be useful to shield your assets. For instance, certain Trusts can protect assets from creditors, divorce, or others who may try to come after your stuff.
This can range from very simple asset protection to very complex types of Trusts. This varies on a case by case basis, as well as the value of the assets.
Note, while you are able to protect your assets, however, scrambling to shield assets illegally or to evade creditors or litigation generally wont fly. Talk to an attorney immediately.
4. Privacy
After your death, anything in Probate becomes public record. In an extreme example, the music recording artist Prince passed without a Will or Trust and his estate went to Probate.
This all became part of the public record. Further, as of February 2020, the estate was still being litigated in Probate Court with tens of millions already spent on legal fees.
Without a Trust, your estate and all its assets, as well as where they are going, become public record. So potentially anyone can find out this information. In the most twisted cases people can use this information to target your heirs.
In addition, certain people may be entitled to receive a copy of your will. This is not the case with Trusts, which are private documents.
5. Dodging Legal Battles
If someone in your will feels they were treated unfairly they could challenge your will. This may lead to a legal battle and possibly your assets being given away against your wishes, or in a way you didn’t want or intend.
A Trust can be drafted so that challenges to your wishes may be avoided. While a Trust can be challenged, it generally should be well drafted by an attorney, notarized, and should make challenges to it more difficult than a will.
Dennaoui Law is able to help you through this process as well as prepare any and all of these documents at a moments notice.
We are able to communicate with you and prepare Trusts and all your estate planning documents 100% electronically, so that you can be protected and to promote social distancing.
Feel free to call Dennaoui Law Firm with any questions or contact us via email: info@dennlaw.co.
Best,
Frank Dennaoui, Esq