Clients come to our firm with the hope of preserving their assets and planning distributions upon death. Regardless of the amount of assets an individual possesses, a trust may be more beneficial than a will. The pros and cons of a specific estate plan structure are generally the same for different estate amounts. If you have one hundred dollars or one million dollars, you will receive the same type of benefits or negatives. In order to avoid the strenuous and protracted process of the court probate process, we often recommend clients irrespective of estate amount to create a trust . Since trusts are administered in a private process, it is expedient and avoids the stress and uncertainty of the public court probate process. Families often endure undue pain and suffering in the probate process with wills. Since it is most families’ goal to shorten the period of grieving for their loved one and avoiding a long and arduous court process, it often makes sense to look towards out-of-court estate plans. This is a reason why clients prefer trusts.
First, a trust avoids the public court process of probating a will. This privacy brings clients comfort while also preserving their assets. If clients do not create a trust, a will may be in place. However, a will puts all creditors and third parties on notice of the assets that may be available to them, so if the third parties have claims to your monies, your assets will be diminished. This is the case for clients with a lot of assets or with little assets to begin with. The privacy that trusts create helps avoid the situation of others looking into your assets.
Second, a trust avoids a long and protracted process. If a client does not have a trust, clients must go through the probate process with a will, which leaves families with not only the process of grieving, but also a process of financial uncertainty and lack of control. This results in stress, confusion, and even internal family conflict regarding how the court is administering the decedents’ will. However, since trust administration can be planned for ahead of time, clients may choose family or other trusted individuals to serve as trustees to manage the trust. This may lead to less internal family conflict. The most common trust structure for these purposes are revocable trusts.
Third, stand-alone trusts can be created for specific purposes such as a special needs trusts for distribution of monies to disabled or chronically ill family members without having their public assistance disability benefits reduced. This applies to loved ones who receive Supplemental Security Income, Social Security, Medicare, and Medicaid. The disbursements from the special needs trust are managed by a fiduciary selected by the client, as is the case with all trusts, so clients can rest assured that the care for their disabled loved ones is in trustworthy hands.
Finally, trusts are the best way to plan for minimizing taxes on your estate With careful trust planning, clients can save hundreds of thousands of dollars. For example, in 2022, the annual gift tax exemption can be used in trusts to reduce taxes by $16,000, in addition to other federal tax benefits. In Maryland, with careful planning, close relatives and charities are completely exempt from the inheritance tax. In D.C., clients can take advantage of an estate tax exemption of up to $4 million. This leaves you with more assets left over for your family and beneficiaries. Regardless of how much you start or end with, you would be saving in tax payments on your estate.
Though the type of pros and cons of each estate plan structure applies to all estates regardless of amount, there may be unique considerations for your specific situation that would determine which kind of trust to create and how to create it. The best way to start is to speak to an experienced estate-planning attorney, who can guide you along the way. The Hill Law Group offers consultations to help determine your first step in creating the right estate plan for you.