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Trusts can be a good estate planning tool

On Behalf of | Aug 4, 2016 | Elder Law, Estate Planning, Firm News |

A Trust in Michigan

trust funding and estate planning

One of the most common questions is whether an individual needs a trust. The simple answer is that each individual’s circumstances are different. A better place to start may be what is a trust and what are its advantages and disadvantages. A trust is an agreement for an individual — a trustee — to hold property for another individual—a settlor—for their benefit and the benefit of others named in the agreement.

One of the most often cited advantages is that a trust avoids probate. Probate is the court process by which property is transferred to your heirs. Usually, the probate process is guided by a will. A properly funded trust will avoid probate. Probate has some built in costs that are paid to the Probate Court. Avoiding probate is an often misunderstood but commonly held belief. Avoiding probate has benefits and disadvantages of its own, and true benefits should be discussed with an estate planning attorney. A properly funded trust does provide the advantage of avoiding probate.

One of the most underrated benefits of a trust is that it provides for seamless management of property in the event of an incapacitation. Individuals often have powers of attorney, but a properly funded trust is a smoother method for the management of assets.

A trust is also much more flexible than a will. It provides for immediate management and can react to changing circumstances, which a will cannot do.

Trusts also come with disadvantages. First, a trust is a greater expense than a will. Second, a trust likely will incur additional expenses for the administration of a trust both during an individual’s life and after death. Third, a trust requires more responsibility than a will does. Fourth, a trust that is not properly funded will not avoid probate, which eliminates one of the main advantages. These reasons are often overlooked when determining if a trust is right for an individual.

A trust can be a powerful tool in estate planning and incapacity planning for an individual. However, it is also not something to enter into lightly. It requires a thorough analysis of the advantages and disadvantages to each individual.