When planning for your loved ones, one common misunderstanding is thinking that you have to be ultra-wealthy to need or benefit from a trust. While a common misconception, a lack of knowledge in this area can be costly. Even if your estate is fairly small, you still want to avoid the high costs and inefficiency of probate, as well as providing asset protection for your children. Family trust planning can protect your nest egg while also providing several other advantages over a simple will.
- Family Trusts Avoid Probate
Having a simple will is better than having no plan at all; however, a simple last will and testament does not avoid probate. Probate is a court system designed to administer your will and pay creditors. Unfortunately, the probate court can be costly and time consuming. In fact, according to the AARP, the average estate will lose between 5-10 percent of assets when administered through probate. Also, the minimum time to administer a will in probate court is six months, but the average time in most counties is eleven months.
If properly created, a Family Trust can seamlessly transfer assets to your heirs while avoiding probate. There is not a minimum time of administration, and there are no probate fees. Additionally, there are no court forms to fill out, and probate court has no involvement in the administration.
- Asset Protection
If you have minor children, then having a Family Trust becomes a must. A minor child cannot legally inherit your assets. Even if it were possible, most parents would consider it unwise for their seventeen-year-old child to receive a large sum of money. Family Trusts provide asset protection by holding assets in trust for your children’s benefit. Even when your children become adults, the trust still provides asset protection against creditors, litigation, and divorce. For example, if you passed away leaving a large sum to your forty-five-year-old child who has spending issues, a pending litigation, or a divorce in process, the trust would hold the assets until your child is in a better place in life.
In addition to concerns about children, another common asset protection measure, given divorce rates over fifty percent, occurs when individuals are in their second marriage. In this scenario, there is nothing preventing the remaining spouse from disinheriting children from a prior marriage. Consider this example: Husband and Wife are in their second marriage. The wife has two kids from a prior marriage. The husband has no kids except for step-children of the current marriage. The wife passes away and leaves everything to her husband, and the contingent beneficiary naming her two kids. Five years later, the husband remarries and creates a new estate plan naming his new spouse as primary beneficiary of his estate, the contingent naming his two step-children. Then the husband dies. The new spouse inherits everything and the children are accidentally (or in this case intentionally) disinherited.
Famous Last Words, “I would never get remarried!” In reality, this is a very typical example of the need for some level of control and strategy. A Family Trust in this example would solve the wife’s concerns entirely. And if this were not a second marriage, a Family Trust might still make sense for couples wanting to keep the estate within the family and avoid remarriage issues. Moreover, the Family Trust in all circumstances would provide asset protection for children as mentioned above.
In addition to probate being time-consuming and costly, it is also public information. Today, anyone can troll the probate docket observing how much money is in your estate, who the beneficiaries are, and what step in this long process you are in. This may sound harmless, but public knowledge can lead to scams against your beneficiaries, as well as placing information that you wouldn’t want available in cyberspace. A Family Trust is a private design where only you and those you want involved will have access to your financial information and bequests.
Family Trusts provide control even after you have passed. A simple will distributes assets outright as opposed to over time. Family Trusts allow you implement conditions and asset protection strategies years after you have passed. For example, you can dictate in your trust that your children will receive payments in thirds after achieving the ages of 30, 35, and 40. Perhaps you have no children and you are leaving your assets to a sibling. In that case you can dictate that assets will not be distributed if your sibling is in a nursing home or receiving Medicaid. Without a Family Trust, the assets in this second example would all go to the nursing home and/or would kick your sibling off their federal benefits.
Family trusts are efficient and cost effective. Although a Family Trust may cost more than a simple will to create, the amount of money saved after you have passed is worth the effort. Additionally, Family Trusts can be administered in a fraction of the time compared to probate. Finally, a Family Trust can be easily administered while creating a legacy for your family.
Helping You And Your Loved Ones Plan For The Future
For more information on Family Trusts or to schedule a free consultation, contact Dan A. Baron at Baron Law LLC at 216-573-3723 or firstname.lastname@example.org
About the Author: Dan A. Baron is the founding member of Baron Law LLC focusing his practice to the areas of estate planning, business law, and elder law. Dan was recently voted an Ohio Super Lawyer Rising Star, an award nominated by other competing attorneys and one that only five percent or less achieve. Mr. Baron graduated with honors from Cleveland Marshall College of Law. He holds a business degree from The University of Akron, cum laude, and is a member of the Cleveland Metropolitan Bar Association, West Shore Bar Association, Akron Bar Association, Business Networking Institute, and American Bar Association. Dan is also a member of the estate planning section at the Cleveland Metropolitan Bar Association.