When making an estate plan, a trust is a tool that can be used to hold assets. Many people will set these trusts up long before they pass away. They can fund the trust with assets that they own, changing their ownership to the trust itself. A trustee will be appointed to distribute the assets to the beneficiaries.
How is this better than just writing a will? There are some key benefits to keep in mind.
Tax reductions
In some cases, a trust can help a person pay less in taxes. This is because the trust owns the assets, removing them from that person’s estate. If they can reduce the overall value of what they own, it can sometimes help them pay less money to the government.
Additional control
A trust also provides control over how the money is used. For instance, many people establish trusts that can be used for educational costs, like college tuition. A trust allows an elderly person to specify how they want the inheritance to be spent and what it should accomplish, even after they pass away.
Holding the money until a later date
Finally, one of the benefits of putting money in a trust is that it can then keep that money until it should be distributed. For instance, maybe your beneficiary is a minor and can’t inherit the money until they are 18. Or maybe you want to use a trust to delay payments until beneficiaries are in their 30s or even their 40s. This is often done to protect them from frivolous spending habits.
These are just three examples of the potential benefits of using a trust. Those who are drafting estate plans need to consider their legal options carefully.
