In your estate plan, you may designate heirs to inherit your assets. This may mean giving your spouse the house and savings, your children your car and heirlooms and maybe even a friend or distant relative something special. However, using a will to allocate assets to beneficiaries has a few drawbacks.
Firstly, a will used to distribute assets may have a lengthy probate period – in other words, your heirs will have to wait for their inheritance. Secondly, your heirs may be taxed, causing your intended gifts to your family to be less than your originally desired. Thirdly, your will could be disputed, causing an heir to lose their inheritance. Lastly, you don’t have control over how your assets are given to your heirs – that means, after probate, your beneficiaries will be given all of their inheritance, which you may disagree with.
What many people do to amend these issues is to create a trust. A trust is a legal document similar to a will, however, there are several benefits. Here’s what you should know:
Avoiding taxes and probate
One of the main reasons people create a trust is because an heir doesn’t have to go through probate and, as a result, won’t have to face estate taxes. This can be beneficial for you if you want to ensure your heir is given their full inheritance.
Setting the terms for the management of assets
Another lesser-known benefit is that, as a testator, you can set the terms for how assets are distributed to an heir. In other words, you could set a parameter that an heir has to meet before they can get any assets. For example, an heir may have to marry or go to college before getting their inheritance.
When making a trust, you should ensure you know your legal options.