As a lawyer, you probably get a lot of questions about estate planning, especially if you work with a lot of older clients.
You probably have people asking you questions like, "What is a trust?" or "Which is better, a trust or a will?" on a regular basis.
Do you have clear answers to these questions? Or, do you find yourself struggling to explain, in laymen's terms, how people should begin the process of estate planning?
If you fall into the latter category, keep reading. Here is some simple information you can pass on to your clients to help them begin planning their own estates.
What is a Trust?
If a client asks you for some basic information on opening up a trust, do you know what to tell them?
If it's been a while since you explained the basics of a trust, or if you just want to make sure they fully understand it, here are some simple facts you can share with them:
- A trust allows your client to pass assets onto a trustee
- The trustee then holds these assets and passes them on to a third party (a beneficiary)
- Trusts allow your client to minimize taxes, avoid the probate process, and protect your assets
- Trusts allow your client to control how their assets are disbursed and who gets to disburse them
- Trusts make things easier for their loved ones after they've passed away
You should also let our clients know that they can use a trust to pass on money to a charitable organization as well.
Types of Trusts
There are a few different types of trusts that people will use to manage their assets, including the following options:
Marital trusts (also known as "A" trusts) place assets into a trust when one partner dies. The income from those assets will get passed on to the surviving spouse, and the principal will then go to the couple's heirs after the surviving spouse dies.
Credit Shelter Trusts
Credit shelter trusts (also known as "B" trusts) allow both spouses to take advantage of estate tax exemptions. When one spouse dies, the surviving spouse can receive income from the trust's assets until they die as well. Then, the beneficiaries receive the assets tax-free.
Charitable Remainder Trusts
These trusts allot a certain amount of income for beneficiaries and the rest goes to a specified charity (or charities).
Revocable vs. Irrevocable Trusts
Trusts can be revocable or irrevocable. Revocable trusts, or living trusts, can be altered or dissolved as long as you're living. These keep assets out of probate, but the trust will likely still be subject to estate taxes.
Irrevocable trusts can't be altered once they're created. You give up control of your assets once you create this kind of trust.
Reasons to Open a Trust
Once you've informed your clients about the details of what a trust is, you'll need to take things a step farther to convince them that it's a good idea to actually open one.
Here are some reasons for opening a trust that you might want to share with them:
1. Maintain Control of Your Wealth
One of the greatest benefits of a trust is that it allows your clients to maintain control over their wealth.
When they open a trust, they get to dictate its terms. This includes controlling when the distributions are made, and who gets to make them.
If they open a revocable trust, they can also make changes as their life situation changes (if they get remarried, for example, or have more children).
2. Maintain Benefits for a Beneficiary with a Disability
If your client has a child or grandchild with a disability, that individual may receive government benefits.
If your client leaves that child or grandchild money in a will, they may no longer qualify for those benefits. If they leave them money in a trust, though, they will still be eligible for disability benefits.
3. Avoid Probate
This is another big reason why people choose to open a trust. A trust allows your client's beneficiaries to avoid the probate process.
The probate process involves changing the title on various assets when the original owner passes away.
The probate process can be long, arduous, and expensive. With a trust, your client's beneficiaries get to avoid probate since their assets automatically are accessible to the trustee.
4. Assist in the Event of Incapacitation
If your client becomes ill or incapacitated, their trustee can step in and manage their affairs without court intervention. This can help your client avoid having a court-appointed conservatorship for their affairs.
5. Safeguard Inheritance from Beneficiaries' Creditors
When your client sets up a trust, they can ensure that their assets actually go to their beneficiaries, rather than their beneficiaries' creditors.
A trust keeps the inheritance out of the beneficiaries' names. As a result, that inheritance cannot be seized by their creditors.
Your client will be able to rest easy knowing that their beneficiaries actually get to enjoy the money they worked hard for during their life.
6. Protect Your Privacy
A trust is a private document. A will, on the other hand, becomes a part of the public record.
Anyone can look at a will and learn the details of your client's estate distribution. With a trust, though, the information remains only between the parties involved (the trustee, legal representation, and beneficiaries.
7. Enjoy Peace of Mind
Finally, a trust allows your clients to enjoy peace of mind.
They get to enjoy the confidence of knowing that their loved ones are cared for and won't be set up for any unpleasant surprises after they pass on.
Open a Trust Today
Now that you have a clear, easy-to-explain answer to the question, "What is a trust?" are you prepared to help your clients open up one of their own?
There's a good chance that they'll ask for your help with this, so it's important to be prepared.
Our estate planning software is a great tool that will make it easy for you to help your clients set up a trust.
Contact us at Beyond Counsel today to learn more about our software or to set up a demo for your firm.