As unhappy as it can be to think about the end of your life, making preparations for your family can save them a lot of hassle and stress. Many people simply don’t realize just how easy it is for the assets they intend to leave behind as an inheritance to get gobbled up by creditors and other financial vultures. This can leave their families with precious little.
Luckily, this is a situation that you can work around with the proper knowledge. One of the best options out there in terms of protecting assets for your loved ones after your death is to set up a trust. But how do trust work? And how do you know if you should use one?
Why Use a Trust?
As a good rule of thumb, if your assets total over $100,000, it is worth creating a trust for your children and loved ones. A trust is essentially a place where all of your net worth is “stored” until certain conditions are met, such as your death. Or an underage child reaching adulthood.
Trusts, like wills, are created while you are still alive, and can be updated with each new acquisition or increase of your net worth. It is important do remember to do this, because the more you have included in the trust, the more of your assets you can protect.
An estate planning attorney with experience setting up trusts will be able to talk to you about the various options available to you in your particular situation, as well as suggestion recommendations. Depending on the type of trust you create, there are a variety of benefits for your loved ones.
Skirting taxes. If you have a large estate, setting up a trust or trusts is a great way to keep the IRS from taking a huge hunk of money away from your beneficiaries. But trusts can benefit those with smaller estates as well if they have large life insurance policies. Why does your life insurance policy matter? Because once you die, the money from the policy becomes part of your estate. This can easily turn a small estate into a large one. In other words, it can turn your estate from one that won’t be taxed into one that will pay a lot in taxes.
Skipping probate. Probate is a legal process that most assets go through when someone dies before they can be passed on to beneficiaries. This process can take months, or even years, and it costs thousands. Simply put, it’s not pleasant, and if your beneficiaries need their inheritance quickly, it can cause a lot of trouble. Assets in trusts don’t have to go through probate.
Protect beneficiaries from themselves. Being able to manage large sums of money takes skill, responsibility, and maturity. If you die and leave your 20-year-old son a half million dollars, do you worry that it will be gone within a few years? Trusts can help you to prevent this outcome because they allow you to dole out money incrementally and specify that it can only be used for certain purposes. Which brings us to the next benefit…
Set assets aside for specific purposes. You can set aside money that is only to be used for education. Or to take care of a property. Or to care for a beloved pet. You can devote a specific portion of your assets to charity. The list goes on and on. If you have a clear vision for how you want your assets to be used, trusts can help make this a reality.
While setting up a trust may seem simple enough, it’s a rather complex system that needs proper understanding of Florida trust law, as well as the types of trusts that would be best for you to use. And you need someone who can administer it.
A knowledgeable estate planning or probate attorney can ensure that you truly get the trust that is right for you, offer help updating your trust as needed, and provide trust litigation should any troubles arise upon the event of your death.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.