When you hear the term “trusts,” you may think of wealthy families, generational wealth, and “trust-fund babies.” But the truth is that anyone with assets can benefit from forming trusts as part of their estate plan.
Trusts offer flexibility and several advantages throughout your lifetime and after you pass away.
What is a trust?
A trust is a legal arrangement in which one party transfers their assets to another party, the trustee. The trustee will then hold and manage the assets for the benefit of a third party, the beneficiary.
While there are a wide variety of trusts, such as charitable, special needs and spendthrift, they can typically be categorized as either revocable or irrevocable. A revocable trust allows the asset owner to alter or cancel it during their lifetime.
On the other hand, an irrevocable trust cannot be changed or terminated without the beneficiary’s permission once it has been created.
Here are some reasons why you may want to include trusts in your estate plan:
Avoiding probate
One benefit of a trust is that it allows your estate to avoid probate. Probate is the legal process of validating a will and handling the distribution of the estate’s assets. It is time-consuming, costly and public. By transferring assets into a trust, these assets do not go through probate, allowing for a quicker and more private distribution to beneficiaries.
Control over asset distribution
You can stipulate how your assets are distributed to your beneficiaries, such as when they reach a certain age or for specific purposes like education, buying a home or traveling. This can be beneficial if you have minor children or beneficiaries who may not be financially responsible.
Tax advantages
Certain types of trusts, such as irrevocable ones, remove assets from your taxable estate, potentially reducing the amount of Pennsylvania’s inheritance tax.
These are just a few of the benefits of incorporating trusts into your estate plan. However, establishing a trust can be complex. You may want to work with someone to create a plan that suits your needs.