Setting up a trust can be a great way to protect your assets and ensure that your wishes are carried out after you pass away. But before you decide to set up a trust, it's important to understand the advantages and disadvantages of doing so. One of the main advantages of setting up a trust is that it can help you avoid probate court. This means that your personal and financial affairs remain private, and you maintain control of your finances even after you die.
It also reduces the possibility of a judicial challenge. However, it's important to note that switching assets to a revocable trust won't save you from income or wealth taxes. While assets held in an irrevocable trust are generally out of reach of creditors, this isn't true with a revocable trust. Another disadvantage of setting up a trust is that it can be expensive and time-consuming.
You'll need to file additional legal documents and pay the appropriate legal fees. Additionally, you'll need to re-title all of your assets in the trust's name, which can be time-consuming and costly. Trusts also don't offer any special wealth tax benefits or asset protection. If a creditor needs to gain access to assets, they can do so with those held in a trust unless certain provisions are made.
On the other hand, setting up a trust can have many benefits. For example, it can help you avoid the extensive probate process and accompanying charges in several states. It also allows you to appoint a successor trustee who can take control of your trust assets without court interference if you become incapacitated. Finally, when two spouses separate their lives through a divorce, a living trust can be used to help control a guardian's spending habits for the benefit of their minor children.
In conclusion, setting up a trust has both advantages and disadvantages. It's important to weigh these carefully before deciding if it's right for you. Be sure to rank your assets by value in order to make an informed decision regarding this important component of your estate plan.