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trust-based estate planningI’ll be the first to say that a trust-based estate plan is not for everyone. If you are young, have no property (i.e. you don’t own a home), and are still single, a will-based plan may suit your needs just fine.

But for married couples that own a house, have children, and have acquired some assets, (including life insurance), there are a number of reasons that you may want to consider a trust-based plan.

Here are the top five reasons frequently cited for why you may prefer a trust-based estate plan:

1. Probate Avoidance

This is a very common reason that many people choose to use trusts as part of their estate plan, but it’s not the most important reason.

When someone dies, any assets they have that are titled in their own name must go through a process called probate. In North Carolina, this process is not overly burdensome, but it still takes time, costs money in both legal fees and court costs, and is very creditor-friendly.

By placing all of your assets into a trust, you can allow your heirs to avoid the probate process entirely, saving not only time but in some cases a substantial amount of money.

2. Privacy

A will-based plan offers no privacy because a will must be filed with the court when the probate file is opened. A trust, on the other hand, is a private contract and can be administered in the privacy of a lawyer’s office through a process called “trust administration”.

If you have even a modest-sized estate, privacy could be a big concern. Here are some examples of situations where you might want to keep your affairs private:

  • You have an adult child that was disinherited
  • You have a child born out-of-wedlock who is receiving a sizable inheritance
  • You have young adult children who will be receiving a sizable sum of money

Believe it or not, there are entire businesses that regularly review the probate records to find “money in motion” so that they can target the beneficiaries of a large inheritance. In addition, debt collectors will review and cross-check probate records with their own databases to find debtors that are receiving an inheritance that they could use to satisfy a debt.

So if privacy is a concern of yours, a trust is definitely a better option than a will.

3. Asset Management

One big benefit of a trust-based plan is that you can allow anyone you want to manage your assets as a “successor trustee”. You would simply resign as trustee of your trust, and the person you have designated as your successor trustee will take over. So if you are at a point in your life where you want to travel and need someone to manage your affairs at home, a trust allows for this.

And if you ever change your mind, you can make your trust revocable so that you can take back control whenever you want.

4. Incapacity Planning

This is a major benefit of a trust-based plan. Wills do not provide any assistance if you are incapacitated – it only takes effect if you were to die. A trust, on the other hand, will provide mechanisms for what would happen when you became incapacitated, or for when you died.

This is a huge benefit in the following all-to-common scenario. Let’s say a married couple has reciprocal wills, and they own their home as joint tenants. This is a great situation because if one of them dies, the other would receive the house outside of probate. This would be good if neither spouse ever became incapacitated.

If one of the spouses became incapacitated, and it became necessary for the other spouse to sell the marital home, they would not be able to do it with a will-based plan alone. They would need to apply to the court to get permission to sell the home – a long and costly process. With a trust-based plan, however, the other spouse could step in as sole trustee and manage the marital home as they saw fit.

One big caveat here – if you had a durable power of attorney in place, that could alleviate the court’s involvement, but many people who handle their own estate planning forget about this document and only have a will in place – falsely believing that this is enough.

5. Flexibility

A final benefit of having a trust-based plan is the flexibility that a trust provides. You can use such documents as a personal property memorandum to change who would receive what property without having to re-do your entire estate plan, and the trust will cover many areas, such as incapacity, estate tax planning, and much more that a will-based plan cannot.

If you aren’t sure what type of planning is right for you, please contact our office to schedule a wealth planning session to discuss your unique circumstances.

You may call us at (919) 883-4861 or fill out our online contact form.