Do I Need a Trust

Most estate plans start with a will, which is a document expressing the wishes of a deceased person. A will may include instructions on financial matters, such as leaving assets to loved ones, as well as non-financial matters, like naming a guardian for your children if both parents are deceased, or disinheritance. However, just because you have a will doesn’t mean you shouldn’t explore a trust as well. For many people, adding a trust to their estate plan offers a way around the probate process, an extra level of specificity and control, and potential tax benefits as well.

What is a Trust

A trust is a fiduciary arrangement that allows you to specify how your assets will be distributed upon your death, usually without having to go through probate court. Trusts have several key differences from wills when it comes to passing down an estate. Unlike a will, assets held in a trust are not subject to the probate process. Also, unlike a will, trusts are not public and generally cannot be challenged in a court. There are two main types of trusts: revocable and irrevocable. A revocable trust can be changed in any way during an owner’s lifetime, including complete revocation of the trust itself. It allows near-complete flexibility up until death. An irrevocable trust is a trust that cannot be changed after the agreement is signed, and is generally used in strategies aimed at lowering estate taxes.

Avoiding Probate

One of the main benefits of a trust is the ability to avoid the probate process. Probate is a legal process where assets are distributed by the court after your death. The court often uses a will to guide their decisions, but that doesn’t guarantee everything will happen the way you would want it. Some types of assets won’t go through probate, mostly those with built-in succession plans such as retirement accounts with a living beneficiary, life insurance proceeds with a living beneficiary, assets with payable-on-death or transfer-on death forms, and assets held jointly with rights of survivorship. However, assets that don’t pass directly to a spouse or heir will be subject to probate. Things like bank accounts, real estate, cars, and art are all common examples of assets that must go through probate. Since the probate process can be long and costly with no guarantee your wishes will be followed, many people plan to avoid it where possible.

Other Considerations

Trusts also give you more control over how and when your assets are transferred. For example, a trust will allow you to transfer assets to your children only after they reach a certain age. Perhaps you want them to receive some of their inheritance when they turn 18 to help pay for college and the rest post-graduation. Perhaps you wish to enable your trustee to make discretionary spending decisions on behalf of your children until that time. Trusts are often a good fit for people in unique circumstances, such as those who take care of a loved one with special needs, or own a business and want to ensure a specific plan of succession. Trusts can also be used by wealthy families looking to minimize the impact of gift or estate taxes, though the efficacy of this strategy will depend on your state’s tax laws.

A trustee is named to manage the assets after your passing. You can name an individual, multiple people, or even a bank or trust company to serve as trustee. If the trustee is expected to make discretionary choices on behalf of the trust, it can be a big responsibility, so choosing a trustee is an important part of the process. While trusts can help avoid legal fees associated with the probate process, drafting trust documents can be expensive too. Taking the time to think about your goals in advance can help accelerate the process and keep the legal bills in check.

Not everyone needs a trust, but it can be helpful for a variety of cases. Those who have estates with large tax liabilities often utilize trusts in their estate plan, as do those who wish to leave specific directions for how assets from their estate are distributed and used.

The information provided is for informational purposes only. It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice. Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein. Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.

Certain of our representatives are Certified Public Accountants with the accounting firm Ben H. Crowe, C.P.A., LLC which is affiliated with Marietta Wealth Management. To the extent that these representatives provide accounting services, which may include tax advice, to any clients, including our advisory clients, all such services shall be performed by those representatives, in their individual professional capacities, independent of our advisory firm, for which services we shall not receive any portion of the fees charged by the representative, referral or otherwise. It is expected that these representatives, solely incidental to their practices as accountants, recommend our advisory services to certain of their clients. No client of Marietta Wealth Management is under any obligation to use the accounting services of these representatives. Our Chief Compliance Officer remains available to address any questions that a client or prospective client may have regarding this potential conflict of interest.