A common alternative to the traditional simple will, trusts can have a number of advantages.
Trusts can be a very effective a tool for estate planning. Often trusts may be used instead of a will (or in conjunction with a particular type of will called a pour over will) to transfer assets upon death. Trusts can also help address management of assets for purposes of incapacity (i.e. when someone cannot manage their own affairs).
How Trusts Work
The trust is created by the settlor or grantor. This is the person who creates the trust and puts assets into the trust. The assets of the trust are managed by the trustee. The assets of the trust, and the income generated by them, are distributed for the benefit of the beneficiaries of the trust. Trusts are created by a document called a declaration of trust.
How Trusts Help with Estate Planning
There are several ways that trusts can be useful in estate planning. To begin with, a trust can help avoid the probate process that would generally take place with a will. This is because the assets become property of the trust, which governs how the assets may be transferred, how they are managed, and who will receive the benefit of them. Since the trust controls all of these things, there is no need to go through probate to have assets transferred, as you might have to do with a will.
Trusts are also useful in planning for incapacity. Without a plan in place, when a person becomes incapacitated and unable to manage his or her affairs, a conservator or guardian may need to be appointed. However, with a trust, management of the assets of the trust is already taken care of – so there is no need to seek appointment of a person to do so through the court.
In some cases trusts can help with planning for estate tax. In recent years, the amount of a decedent’s estate that is exempted from estate tax has increased significantly, so tax planning may no longer be a priority for some. However, trusts can still aid clients for whom this is a consideration.