A Trust-based estate plan is not for everyone, but there are some specific things to think about when determining whether you need a Trust versus a Will.
Owning Real Estate
If you own real estate, transferring that real estate to a Trust is the best way to avoid having that asset go through probate. A house is generally the largest value asset in an estate and it can cause an estate to be subject to longer, more costly estate administration if it is included in the probate estate. If you transfer real estate (primary residence, vacation homes, interests in an LLC that owns a rental property) into the name of your Revocable Living Trust, your beneficiaries will not have to include it in your probate estate.
Minor Children or Children with Special Needs
If you have minor kids, you can prevent them from gaining control over assets when they turn 18 (the worst possible time to get a large lump sum of money) by placing your assets in a Trust. You can spread distributions out over a period of time that you determine, you can designate who will manage those assets, you can place restrictions on access to the assets based on drug or alcohol test results, all while still making sure their health, education, and general needs are taken care of. If you have a child with special needs, you can place assets in a special needs trust to take care of their supplemental needs so that they will not lose government-based benefits.
Transferring all of your assets (not just real estate) into the name of a Trust will prevent your estate from going through probate. Probate can be costly, cause a delay in the distribution of assets, and is a public process (allows predatory individuals to find out what is in your estate, who will be receiving those assets, and when). The administration of a Trust can be done in a matter of hours or days depending on the plan. Trust administration also can be done by the successor trustee rather than a lawyer, and is a private process.
Assets in Multiple States
If you own assets in multiple states, your beneficiaries will need to go through probate in each state in which you own those assets. That will multiply the cost and delay involved in probate substantially. If you transfer assets from multiple states into a Trust, you will eliminate the need for probate of those assets in multiple jurisdictions.
Minimizing, Delaying, or Eliminating Estate Tax
With the federal estate tax exemption being increased, most people will not have to worry about being subject to estate taxes (the federal estate tax exemption is $5.45 million as of 2016). However, if you live in a state like Maryland (as of the writing of this Guide) that is not coupled with the federal estate tax, your estate may still be subject to state estate tax. Maryland's estate tax exemption is currently being increased each year to match the federal exemption, but in the interim, a trust plan can minimize, delay, or eliminate the estate tax by using each spouses available exemption.
Preventing Guardianship Proceedings
If you become incapacitated, your Successor Trustee can manage your trust assets on your behalf and based on your instructions while you are alive. Successor Trustees can act during your lifetime not just after your passing. This is important because having the legally designated power and ability to manage your assets, if you are unable to, will prevent you from being subjected to guardianship proceedings.
Specific Family Circumstances
A well-drafted Trust can address a host of specific family circumstances such as second marriages, unsophisticated beneficiaries, etc. For example, you can require that a beneficiary complete a financial management course or meet with a financial advisor prior to receiving a distribution from the Trust. If you have a child whose career will not offer a good retirement, you can hold that child's distribution until retirement age or whatever age you determine. You can even plan for multiple generations. Significantly, you can provide asset protection for beneficiaries who might be going through a divorce, tax issue, or creditor issue at the time of recieving a trust distribution by providing a withdrawal right and Independent Trustee language.
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