Basic Estate Planning Should Begin with a Will. However, wills do not cover all possibilities and may not be the best option for every estate, which is why many individuals, families and business owners can benefit from establishing a trust. Although estate planning is sometimes considered only for the ultra rich,1 alternatively, trusts can be useful planning vehicles regardless of age or net worth. A trust is a legal agreement intended to ensure that a person's assets eventually go to specific beneficiaries.
The person creating the trust places the assets in the trust's name and authorizes a third party to manage those assets for the trust creator and beneficiaries. A well-designed trust can help save time, paperwork and other headaches when liquidating an estate. In some cases, trusts can also help reduce the amount of estate taxes that beneficiaries have to pay when they inherit assets. They may be a low-cost option, but you may pay with time and effort.
You may have to do some extra paperwork during tax season because trusts sometimes have to file their own tax returns. In addition, how the trust is managed and invested can be a big determinant of whether or not the trust succeeds in the purposes for which it was established in the first place. Properly investing trust assets is key to preserving and growing trust assets. This means that most trusts must have at least one trustee who is extremely capable and experienced in making financial, business, and investment decisions.
Your net worth may not have to be as significant if you plan to appoint a person as a trustee, and it wouldn't be a factor at all if you form a revocable trust and act as your own trustee. Therefore, if you want your assets to pass to your heirs quickly, specifically and privately, it is worth considering a trust. For married couples with substantial net worth, a credit shelter trust (CST) can help them or, more precisely, their heirs avoid estate taxes. The best method to determine the minimum net worth you should have to benefit from a living trust is to review the laws state small estates.
Of course, if you need a revocable living trust, make sure you deposit your assets into your trust and update your beneficiary designations; otherwise, your trust will not be worth much less the money you spent on it. The minimum net worth necessary for a single person to consider using a revocable living trust will vary from state to state. You may be able to benefit from a living trust even if your net worth doesn't qualify you as prosperous. Regardless of your net worth, and particularly if any of your assets are titled in your exclusive name, you should consider the possibility of a revocable living trust if you provide for the need to plan for possible mental disability.
Trusts can be useful estate planning tools for many people, but they may not be worth the expense for people who don't have many assets. Estate planning can be difficult and very challenging, especially if you are a high net worth person (HNWI). Each state determines the net worth that can be passed on to its beneficiaries by an affidavit rather than being handled by a probate court. Trusts are often mistakenly associated with people who might have higher net worth, but trusts aren't just for rich people.
Living trusts aren't beneficial or necessary for everyone, but they have certain uses that can make it worthwhile to have one. I retired a few years ago and have a will and power of attorney, a reasonably good net worth, mutual funds, annuities, cash, a house without a mortgage and a long-term health policy. Your individual net worth is consideration for a living trust, mainly if you want to hire a corporate trustee, such as a bank, trust company, or investment firm. .
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