As a financial advisor, I help my clients navigate through many questions about estate planning. I encourage all of them to create a will stating how they want their property distributed in the event of their death. But I also recommend my clients consider another legal document, a trust. A trust may be a good fit for your estate plan if preserving wealth for the next generation is a top priority.
What is a trust?
A trust is a legal arrangement that protects your estate for your named beneficiaries, which can include yourself. By creating a trust, you transfer assets to a third party (“trustee”) who is responsible for managing and distributing those assets while you are living or after you pass. In general, large and complex estates have the most to gain from establishing a trust.
Types of trusts
Trusts come in different shapes and sizes. First, you can choose a revocable or an irrevocable trust. A revocable or living trust can be changed, modified or revoked during your lifetime. An irrevocable trust is locked in until your property is distributed. Beyond this distinction, there are different trusts for a variety of specific circumstances. For example, a special needs trust is ideal when you want your assets to provide services for a child or other relative with special needs. If you wish to leave some or all of your estate to charity, a charitable trust can help reduce or eliminate estate and gift tax. An asset protection trust keeps assets safe from claims of future creditors.
How a trust can help
Consider these general benefits of trusts:
- Added privacy. By establishing a trust, your estate does not have to go through probate court, which is a public process. Instead, your financial matters are managed privately. This protects new heirs from unscrupulous people who search public records, looking to target new heirs.
- More control. A trust provides more control than a will can achieve. This is especially helpful if you are concerned about the financial responsibility of your beneficiaries. For example, you can configure a trust to limit the age when inheritance is received, whether it is distributed as a lump sum or in installments, and how it is spent. You can even protect inheritance if a beneficiary gets divorced. Some trusts safeguard assets from the claims of future creditors.
- Lower fees and taxes. Because a trust avoids probate, your estate can be settled more efficiently and with fewer fees. Also, most trusts are set up so that they help reduce or eliminate estate taxes that can eat into an inheritance. These benefits can be substantial, particularly for large estates. On the other hand, the costs associated with creating a trust can make this option less attractive for smaller estates.
Consult the experts
Talk to your financial advisor about how to best secure your estate for future generations. When a trust makes sense, consult an experienced trust attorney.
Andrew R. Petty, CRPC®, APMA®, CLTC®, is a Private Wealth Advisor with Nona Wealth Advisors, a private wealth advisory practice of Ameriprise Financial Services, Inc. He offers fee-based financial planning and asset management strategies and has been in practice for 19 years. To contact him, please call 407-249-4006, visit his website at https://www.ameripriseadvisors.com/team/nona-wealth-advisors or stopover at his office at 10917 Dylan Loren Circle, Suite A, Orlando, FL 32825.
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