Estate planning can be a stressful process because it involves not only exploring your own mortality but also the various connections you have with other people and the ways that they depend on you. You will need to complete an assessment of your current financial circumstances, including looking over all the assets you’ve acquired and any debts or liabilities you carry.
Whether you worry about protecting major assets, like your family home, from creditors or want to protect your children from losing their inheritance to your ex-spouse, using a trust as part of the estate planning process can be a way to protect your wishes, your loved ones and your legacy.
Trusts are excellent estate planning instruments that offer a host of benefits for people in all kinds of circumstances. Trusts can be beneficial for just about anyone, not just for the super rich. In fact, if properly structured, a trust could help your heirs avoid probate court and the complications it can bring.
Trusts protect your assets from seizure by creditors
Did you know that if you die with substantial outstanding debt, the administrator of your estate must pay your creditors prior to distributing assets to your loved ones? In some cases, such as if you receive Medicaid benefits prior to your death, the government themselves may come after your most significant assets.
Using those significant assets, including your home and your life insurance payout, to fund your trust will protect those assets from creditors who might try to take them, thus diminishing the legacy you can potentially leave behind.
Trusts protect your loved ones from estate taxes
If you are in a position where you have enough assets to have to worry about estate taxes, a trust can be a great form of protection. The assets that you use to fund a trust will diminish the value of your overall estate and reduce the potential that your loved ones will have to worry about estate taxes after you die.
A trust can give you more control over how people use the assets
With a standard inheritance, beneficiaries receive control over the assets left behind to them, which can be particularly problematic if they wind up going through a divorce later or if they have a history of issues such as addiction or unnecessary spending.
The way that you create and structure a trust can limit how people use the assets or how much they can withdraw from the trust. There are many different kinds of trusts, ranging from a special needs trust to a bypass trust. Careful examination of your circumstances, your family and your assets can help you determine what kinds of trusts and rules would function best in your estate plan.