Why Should I Create a Trust?
When most people think about estate planning, the first thing that comes to mind is creating a will. But a will can be limited in what it can do for you, and there may be other devices that can offer greater benefits to you and your family. A trust is one of these devices.
Whether you are looking to protect and manage your assets, pass them on to your loved ones, or shield them from taxes, a trust can be a good option for anyone who is looking to the future.
What is a Trust?
A trust is a legal estate planning device that involves three parties:
- The creator of the trust, or the grantor, who funds the trust
- The trustee, who manages the trust according to its terms, and
- The beneficiaries, who benefit from the assets in the trust.
A trust is a separate entity that can hold assets of its own. When a trust is created and funded, those assets then belong to the trust and are managed by the trustee. Depending on the type of trust and its purpose, the grantor can also act as a co-trustee or even a beneficiary with complete access to the assets in the trust.
The Versatility of a Trust
Trusts are used for many different reasons. A trust can be set up to manage assets in the event that the grantor becomes incapacitated or provide a managed income stream for a surviving spouse. It can ensure that assets are properly managed if the beneficiary is not responsible or old enough to manage the assets for themselves.
Why Do People Create Trusts?
There is often a trust to match almost every conceivable financial need. People create trusts for a multitude of reasons.
- To avoid probate -- One of the primary reasons individuals create a trust is to avoid the cost and time of going through probate for their beneficiaires. Whereas a will must be validated through the probate process, a trust completely bypasses this, allowing beneficiaries access to assets without the added time and expense.
- To provide tax benefits -- There are multiple different types of trusts, many specifically used for their tax benefits. Trusts can be as simple or as complicated as necessary, depending on the needs of the grantor and their beneficiaries.
- To protect assets -- A trust has the ability to protect assets from lawsuits and creditors.
- To provide specific instructions regarding asset distribution to beneficiaries -- A trust can set out many finite conditions and specifics regarding when and how a beneficiary can have access to assets in the trust.
- To ensure asset management and decision making upon incapacity -- A trust can ensure that important decisions will be made if the grantor becomes incapacitated.
- To provide management of funds for a special needs beneficiary -- A trust can ensure that funds are managed for a special needs adult so their government benefits are not put in jeopardy.
A trust can be completely customized depending on the unique needs of the grantor and can be funded all at once, periodically, or upon the death of the grantor. Trusts can be revocable or irrevocable. While a revocable trust can be changed or revoked at any time during the grantor’s life, assets in a revocable trust will remain in the grantor’s estate and are taxable. Those held in an irrevocable trust are not subject to taxes upon the grantor’s death.
Will or Trust?
Both! While some features of wills and trusts may overlap, their functions and purpose are not the same.
A trust goes into effect during the lifetime of the grantor, whereas the will goes into effect upon the death of that party. A trust can set out very detailed financial guidelines about how assets can be distributed, but a will takes care of the important matters of child guardianship and funeral and burial wishes. While both can distribute assets to loved ones, a trust can be far more detailed and nuanced in a way that a will simply can’t.
Making Educated Decisions in California
While not everyone needs to have a trust, understanding what a trust may be able to do for you allows you to make educated decisions about your estate planning. If you have questions about how a trust can benefit you, call the Law Offices of Roshni T. Desai at (714) 694-1200 or contact us online. We would be happy to discuss any of your estate planning needs.