In our travels we are constantly finding that the people around us seem to have no idea what a trust actually is. The term “trust fund baby” led many to believe that trusts are just for the ultrawealthy – and in reality, this is not the case.
Do you have a trust? And more importantly – do you need one?
It may seem like a matter of non-importance. It matters because there are circumstances in which you may need the legal protection a trust structure offers, and if it’s not in place, there could be risks to your wealth.
Avoiding the probate process is another important role that trusts can fill. Trusts can reduce the waiting, labor and costs of probate.
It’s also common for people to have a trust in place, but for it to not be serviced correctly. It may be improperly funded or not handled appropriately from a tax standpoint.
Let’s start with the basics.
Do I have a trust?
Many people confuse having a will with having a trust. The two are not the same thing.
A will is a legal document that designates who the beneficiaries are for your assets, and how and when those assets will come to pass to them. However, a will does not allow you to avoid probate, a lengthy and expensive court process in which your assets are analyzed and handed over to the executor for distribution.
Remember also that a will only becomes effective upon death. If you were to become incapacitated before dying, it’s possible that the court could assume control of your assets. For most people this is not optimal.
A living trust can help you avoid all this.
Here is an open secret many do not know – your will might also contain a trust, but it only comes into effect upon death.
Should I have a trust?
If you have dependents and a sizable amount of wealth – over a couple hundred thousand dollars – and you do not want the court interfering, you should think about a trust.
This can get pretty technical and we don’t want to bore you – so that’s all we’re going into for now. Stay tuned for future newsletters in which we delve into how to set up a trust, etc.
If you wish to discuss anything we’ve covered here, please reach out.