Posted in Triplett & Carothers on September 1, 2024

A will is an important way to distribute your assets, financial and otherwise. One major limitation of a will is that you have to die before it can become effective; in other words, if you’re incapacitated, a will has no legal effect, so any health care proxies or durable powers of attorney you might have will guide any decisions made on your behalf. This could create problems if you need to complete financial transactions with outside parties who have trouble accepting or even refuse to accept a power of attorney.

A will also has to be probated in each state where you have assets — a process that can be lengthy and potentially costly. Further, a will is a public document that can be scrutinized or contested, giving the public access to information you might want to keep private.

A trust is a fiduciary arrangement specifying how your assets will be distributed, usually without involvement of a probate court. Additionally, trusts can be structured to take effect before or after death, or in the case of incapacitation. They can be very specific about how, when and to whom your assets will be distributed. Depending on the type of trust, assets held in a trust will be managed by you while you are alive and/or by a disinterested trustee. After your death, your successor trustee will be appointed by the trust in a manner more private than the typical probate proceeding.

The following are among trusts’ features:

• You can use a trust to transfer property, helping to minimize estate taxes and/or preserve assets for minors until they’re adults.
• You can create a special-use trust to meet estate planning goals, such as charitable giving, that also has tax-reduction benefits.
• You may create a trust to ensure your resources are preserved, managed and spent in line with your wishes while you are incapacitated, perhaps by a long illness.
• You can use a trust to leave very specific legacies, identifying who may benefit from its resources while defining how and when.
• You can choose how to deploy a trust. You can appoint a trustee to assist beneficiaries who may struggle to manage their bequests.
• You can structure a trust to protect beneficiaries from creditors, to manage state income taxes and/or to preserve the generation-skipping tax exemption.

There are many kinds of trusts, including the following:

• Living or inter-vivos trusts allow you to plan during your lifetime and bypass the probate process, controlling decisions related to the distribution of your assets.
• Revocable trusts are often used by estate planners; they are a fundamental building block for most estate plans. With a revocable trust, you retain control over your assets, including the option to buy, sell and trade assets; you can move assets in and out of the trust at your discretion; and you can establish controls and additional designated trustees to help protect assets if you die or become incapacitated.
• Irrevocable trusts cannot be changed after the agreement has been signed. They are managed by a disinterested trustee — someone other than you. They are a way to move assets out of your estate, potentially reducing the estate’s value and its associated estate tax liability.

It is also possible to draft a will with trust provisions, known as a testamentary trust. This works in much the same way as other trusts but may still have to go through probate — and that could mean the probate court chooses to distribute your assets differently than you intended.

Paying an attorney to set up a trust represents additional front-end costs but may save your heirs significant money on the back end by avoiding probate. Some attorneys offer a basic trust package for a flat fee. Let your family and friends know the trust exists and share the thinking behind its creation to cultivate stewardship around the bequest. You’ve worked years to build a legacy, so make sure you optimize the legacy you leave to the people and causes you care about.

Reach out to Roz Carothers and her team at Triplett & Carothers to learn more.

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