Thursday, October 11, 2012

What is a Trust and Why do I Need One?

What is a trust? 

Why do I need one? 

Aren’t trusts just for rich people? 

Aren’t trusts expensive?

           These are typical questions clients ask when we are discussing estate planning. Let’s start with the easy questions: 
What is a trust? 
           A trust is a written document that creates an entity and provides a set of rules for administering assets owned by that entity, during your lifetime and after your death. It is important to note that executing a trust without funding assets to it is a waste of money. The trust is an “empty bucket” when signed, but if you do not fill the “bucket” with assets the trust is of little use to you. Fortunately, transferring assets to trusts is relatively simple 
Why do I need a trust? 
           The trust states your instructions for how assets transferred to the trust are used. It contains your specific desires about how assets are invested, how income and principal are distributed during your lifetime and how your spouse and children are taken care of after your death. 
Aren’t trusts just for rich people? 

           Many people believe that they do not have sufficient assets to require a trust. While some aspects of a trust are more beneficial to a wealthier client, a benefit of a trust that is useful to everyone is the additional control you have over when your heirs receive their share of your estate. 

           If you have children, minors or otherwise, are you comfortable with the idea they will receive their share of your estate immediately at your death (or when they reach age 18 in the case of minors)? Using a trust to spread out distributions and help them control their assets is a useful tool even if you aren’t “rich”. 

           People with large amounts of assets aren’t the only ones who need trusts. Take a moment to add up your assets. Do you have any of the following? 

  • Home 
  • Cottage 
  • Investments 
  • IRAs 
  • Company retirement plans 
  • Life insurance 
  • Potential inheritances 
           Surprisingly, the value of your assets begins to add up quickly. By placing these assets into a trust, you ensure that when you pass away all your assets are in one place and pass to your loved ones in an orderly fashion according to your instructions. 

Aren’t trusts expensive? 

           The benefits of having a well-drafted estate plan do not come without a cost. However, creating a trust is more than just a one-time transaction with an attorney. The time and money spent creating a trust are an investment in your and your family’s future. A trust can: 

  1. Control your wealth during your lifetime 
  2. Protect your legacy 
  3. Help avoid Michigan Probate 
  4. Protect your loved ones after you are gone 
  5. Protect minors and special needs children 
  6. Help reduce or eliminate estate taxes. 
           A trust can save far more in probate costs and estate taxes, while providing security and protection for your loved ones, than it costs to prepare. 


           If you are not sure you need a trust, or any other estate planning documents, make an appointment with an estate planning attorney. Many attorneys are willing to meet with you, explain estate planning and, after determining your needs, quote you a fee before you have to make any commitment.

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