When it comes to estate planning, trusts and wills are two of the most popular options. While both have their advantages and disadvantages, trusts are often seen as the more advantageous option due to their ability to avoid probate court. In this article, we'll explore the pros and cons of trusts versus wills, so you can make an informed decision about which is right for you. The biggest advantage of a living trust is that, unlike a last will and testament, it allows you to avoid probate court.
Probate can be a lengthy and expensive process, so avoiding it can save your family time and money. In addition, assets held in an irrevocable living trust are not attributable to the grantor, although the trust itself may be taxable. This can provide a substantial tax benefit to the grantor. Wealth taxes can also be avoided with a living trust.
Revocable living trusts are sometimes used to help eliminate the problem that arises when certain entities (such as title insurance companies in some states) only recognize lasting powers of attorney for a limited period of time after execution. Other benefits cover revocable and irrevocable living trusts. If a living trust covers all of the grantor's assets, you may not even need a will. Many people want to keep their family members from going through probate, and living trust assets are not subject to probate.
Because there is no probate probate, survivors do not have to disclose the extent of living trust assets through a public filing, as is the case with legalization. If the grantor has real property in more than one state, a living trust covering that property may allow survivors to avoid probate in those states. In addition to survivor benefits, a living trust can help the grantor manage its financial affairs because a trustee takes over the administration of the trust's assets. Some people are particularly concerned about how their finances will be managed if they get sick.
A living trust can provide peace of mind because a trustee can continue to manage trust funds should the grantor become mentally or physically incapacitated. Switching assets to a revocable trust won't save income or estate taxes. While assets held in an irrevocable trust are generally out of reach for creditors, that is not true with a revocable trust. Unlike a will, a living trust doesn't have to be proven, which can be a time-consuming and costly process. A living trust is established for the life of the grantor, while a testamentary trust becomes effective upon the grantor's death. Because a testamentary trust is effective only after the grantor's death, the grantor may make changes to its terms at any time before the death. The trustee is obligated to handle trust assets in accordance with the terms of the trust document and solely in the best interest of the beneficiaries.
When analyzing a will or trust, it is important to understand that a living trust is often more difficult to challenge in court than a will because it is more difficult to prove its incompetence. Any income you receive from the property you have in the Trust will simply be reported on your personal tax returns. In addition, trusts give you the freedom to appoint yourself or an industry expert, such as a financial planner, as the first trustee. An individual should consider including most of their valuable assets in their living trust to avoid this obstacle. Special needs trusts are legal agreements that allow such individuals to receive financial support from the trust for private purposes without jeopardizing their eligibility for federal and state public assistance programs, such as Supplemental Security Income (SSI) and other benefits. For many families, the disadvantages of a trust are far outweighed by advantages, making it one of the best, simplest and most commonly used methods of avoiding financial disasters and transferring assets to loved ones after their death. When the term of the main charitable trust expires, the remaining assets are distributed to non-charitable beneficiaries, for example, the grantor's family members. Generally, a revocable living trust is a type of trust that can be canceled at any time and the grantor of the trust is both the trust and the beneficiary (allowing control of the trust assets).
Upon death, assets held in the revocable trust evade succession, meaning that assets can pass to heirs without involving the courts.