I've mentioned before that estate planning is a whole 'nother language--and most of us aren't born speaking it fluently.
But as your helpful translator to the world of estate planning, I'm going to introduce you to a big one today . . .
If you’ve been considering estate planning for any length of time, you’ve probably come across several mentions of trusts.
But, um, what is a trust?
First, let's get something out of the way: Trusts aren't just for "trust fund babies" (you know you were thinking it; I just said it).
Even if you're not the next Richie Rich, it can actually be an amazing tool for us ordinary folks as a way to preserve our legacies, protect our assets, and provide for our families.
Second, a confession: I did not know what a trust truly was until the last few years. For real. I'd heard about them (I'm assuming you have too), but I assumed they were something for the rich (not me) and famous (thankfully, I'm not that either). But, boy, was I wrong.
(Spoiler: I now most definitely have my own trust. Call a job perk. But you can too.)
What is a trust?
Official definition: an entity that holds assets for the benefit of certain other persons or entities.
Translation: You can think of a trust as an account (in truth, it's not, but it can be a helpful analogy) that you transfer your assets into. So the trust becomes the "owner" of what you put into it (e.g., maybe your house, your extra cash, your business interests, etc.). The trust is managed by a trustee, and the trust document will control how the trustee manages the trust property is managed for someone's benefit--could be you, your spouse, your kids, your favorite charities, and more.
How are trusts created?
A trust is created by drafting a legal document often called a trust agreement, which contains all the “terms and conditions” of the trust. A trust can be a few pages long (rare!) to hundreds of pages long (also rare), but most are in the middle.
The trust agreement will lay out who is in charge of the property, who receives the property, how and when they receive the property, and much more. A knowledgeable estate planning attorney will use many different techniques and drafting strategies to ensure the trust does exactly what it is intended to do.
After the trust is drafted, Missouri requires it to be notarized in order to be effective. Then your trust is created. Hooray!
But wait! There's one more super important step: you must then change the title of your assets to the trust (for example, changing the title on your house to be the name of the trust rather than YOUR name). This process is called "funding the trust" and we'll talk through this a bit more another day.
But why use a trust?
Short answer: Using a trust allows you a much higher degree of control over your property and estate plan.
Long answer: While I won't get into specifics in today's post, when used properly there are a many benefits to using a trust that some families find appealing. Whether or not to use one will depend on your unique situation: your assets, your family, and your goals!
Here's a sneak preview of the most important benefits, even for those of us that aren't ultra-wealthy:
1. Trusts allow you to control what goes to whom, as well as how and when they will receive it (for example, you can specify that the trust will hold onto property until your beneficiary reaches a certain age or milestone).
2. Trusts allow you to avoid the probate process.
3. Trusts help you save money (mainly by avoiding probate).
4. Trusts allow you to maintain your privacy and that of your beneficiaries (mainly by avoiding probate--are you noticing a theme here?).
5. Trusts allow for quicker, smoother asset transfers to your beneficiaries (by, you guessed it, avoiding probate).
I'll dive into these topics a bit more soon, as well as explaining a few different kinds of trusts and all the key players. So stay tuned!
(Wanna get a jump start? Check out this post to learn how a trust can help you pass your home to your children!)
Want to learn more about whether a trust is right for you, or if a different estate planning strategy would be better? Emerald Law offers highly customized estate planning, and for some families that may include the use of one or more trusts. Send me a message or schedule a free, 15-minute consultation so we can chat about your family and goals!
Looking forward to it!