Before addressing (in future columns) the reasons a trust can be extremely helpful, it may be helpful to know some reasons that people are told they should have a trust . . . but which may not be true.
People are sometimes told to have a trust to avoid probate. Most people don’t know what probate is or why they should avoid it, although the cost of probate is usually mentioned. However, they don’t know what probate would cost or how that cost compares to the cost of a trust.
Probate is a process, supervised by a judge, which ensures a deceased person’s affairs/assets are handled in an orderly manner. And while it is true that assets in a trust do not need to go through probate, I disagree that it is always better to have a trust than go through probate.
It is not necessarily true that the cost of creating a trust is cheaper than going through probate. Also, if the trust is not properly funded (which I will explain in a future column), probate may still be necessary!
I have also been asked to create a trust in order to protect assets from creditors. However, there are two important points to remember. First, if you have a current debt or a dispute that may result in a judgment, placing your assets in a trust will not protect you from that judgment.
Second, if you place your assets into a trust, but still retain the ability to get at those assets yourself, your creditors can get at those assets as well. There is a place for asset protection trusts but they are effective only in limited circumstances.
Trusts are also used to help minimize or avoid estate taxes. However, the vast majority of people do not need to worry about avoiding estate taxes.
There are, however, several very appropriate reasons to consider a trust. Starting next column, I will begin addressing those reasons.
Estate planning is far too important to leave to good intentions. Come to a free presentation to find out how a few simple steps will help ensure your estate is handled the way you want.