Although most people know what a last will and testament is, not everyone knows what a trust fund is. And those that have heard of a trust fund often associate it with people who are very wealthy. But you do not need to be rich to establish a trust fund, and they offer advantages over a will. The following are among the most significant advantages of a trust fund instead of a will.
1. Trust funds allow you to place conditions for asset distribution
Although wills do allow for some room to stipulate conditions, they are nothing like the possibilities that exist for a trust fund. One common example is the timing of the distribution of assets. You may want to leave a grandchild a large portion of your assets, but you do not want them to have it all when they become an adult. A trust fund can provide a small amount of income until they reach an older age, such as their 30s. The purpose of this is so they will not be as irresponsible with their wealth at an older age.
2. Trust funds bypass probate
Probate is the legal process of the courts that gathers the deceased's assets and then pays off outstanding debts and taxes. The remaining assets of the deceased are transferred to the heirs named in the will. The only way probate is avoided is if the deceased had few assets or there was a trust fund. This is because a person can transfer assets to a trust fund while they are still alive.
The trust fund now owns the assets and not the individual. Therefore, there is no reason for a court to supervise the transfer of assets from the deceased to his or her heirs. Any outstanding debts or taxes will be paid by the trustee.
3. Trust funds allow more of your wealth to be inherited
The simple process of not going through probate court will save your heirs a lot of money on fees. The exact amount of probate fees is determined by state law, but they include such things as lawyer fees, accounting fees, appraisal fees for real estate and personal property, as well as a fee for the appraisal of a business. The total amount of fees can be high for someone with a large estate.
There is also the issue of federal estate taxes. These can be quite high too, but by using a trust fund, there are a variety of techniques available to reduce the amount owed. Some of your wealth, for example, can be used to buy life insurance with the trust fund named as the beneficiary.
There are many options and possibilities that exist with a trust fund. It is always best to speak to an estate planning attorney to find out what is best for your finances.