There are a lot of benefits to establishing a trust in your estate plan. It can eliminate the need for probate, keep your affairs private, and reduce the chances of issues arising among your heirs regarding their inherited share. However, creating a trust is a big investment that involves a considerable amount of time and legal fees that should not be taken lightly. Here are some factors to consider when deciding whether or not to establish a trust in your estate plan.
Factors in Establishing a Trust
· How much of your estate can you shield from probate?
One of the main advantages of a trust is being able to bypass the process of probate, which can be expensive and time consuming. However, not all assets are subject to probate. Jointly owned assets with a right of survivorship and beneficiary designated assets do not go through the probate process.
· Will you qualify for simplified probate?
If your entire estate is going to a spouse or the estate is small enough it may qualify for simplified probate. You can find out what the requirements are for your state’s simplified probate here, or you can consult with an experienced estate planning attorney.
· How expensive is probate in your state?
The cost of probate varies wildly depending on the state. For example, California has one of the highest costs of probate, with attorneys’ fees starting at four percent of the entire estate. Because the legal fees can be so high, it may make more sense to establish a trust.
· Do you own property out-of-state?
If you own property out-of-state you should consider establishing a trust. The property that is located out-of-state must go through that state’s probate process or ancillary probate in addition to the probate process in your home state. Placing all of the property in a trust is a much easier and cheaper option.
· How private do you want your affairs to be?
Another downside of probate is how public the process can be. All details of your finances and final wishes are on the public record and accessible to anyone. Establishing a trust can protect your privacy and avoid public disclosure of your estate.
· Do you have a child with special needs?
You should definitely consider creating a special needs trust if you have a child that will need help physically and financially after you are gone. If you do not establish a trust for your child with special needs, the inheritance could disqualify them from receiving government support or programs.
· Do you wish to do something original with your estate plan?
If you want to add specific instructions for inheritance or do something creative with your estate, establishing a trust is the best way to accomplish it. If the estate goes through the probate process your heirs do not have to comply with your final wishes before gaining access to their portion of the estate.
· Do you have a taxable estate?
Currently, the federal estate tax limit is set at $5.34 million, and estates worth less than that are not subject to the tax. If your estate is worth more you should consider placing assets in a trust to shield them from state and federal estate taxes.
· What are the chances of issues arising within your family regarding inheritance?
If you are dividing your estate unequally, or if there is a possibility of infighting amongst your heirs after you are gone, you should consider creating a trust to reduce the chances of that occurring. You can stipulate that any heir fighting their portion is eliminated from the estate, and keeping your estate out of probate eliminates the chances of an heir using the public information to sue for a larger part of the estate.