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Posted by Daniel P Vigilante CPA and Profit Consultants

Do I Need a Trust If I Have a Will?

Do I Need a Trust If I Have a Will?

There are two types of estate planning, will, and trust. Will is like an aristocratic order to be followed after an individual dies. If there is guardianship of the individual's children and naming the executor of his or her estates then the will is usually used. Numerous individual takes advantage of revocable living trust due to inadequate approach of a will despite the fact that the individual can leave liabilities to their beneficiary. Generally, the idea of trust is often regarded as a medium for well-off only; this fallacy can coerce this planning scheme less utilized by the rich people. 

What is probate?

The court shall decide on the distribution of the properties possessed under an individual’s name, will be used to aid their distributions and other conclusions, this lawful procedure is called probate. On the other hand, it will be disputed but there is no assurance of the demand to be pursued.

The following conditions might evade probate: if there is no existing recipient registered; if earnings while alive given that recipients are registered as long as the recipient was not one’s possession; if one’s bank account have payable on death (POD) or transfer on death (TOD); and if the co-owner of the property with the entitlement of survivorship, community property, or ownership of the full will is still alive.

Including most anything else that an individual owns completely that doesn't pass via beneficiary designation or joint ownership mentioned above are, generally, the assets that don't pass directly to the individual's spouse or heir. Bank account, brokerage account, home, car, art, and privately-held business interests.

Before dispersing all probate properties according to the person’s will or the court’s discernment, these shall undergo probate court. A lot of investors opt to evade probate as much as possible due to the lengthy and pricey procedures. 

Many of these problems can be solved by a revocable living trust

The alternative of a will is utilizing a revocable living trust which implies the properties that belong to one’s trust and eventually evade probate and flow to one’s successor as described in the trust documents. A trust permits investors to have the authority even after an individual’s demise. 

    •    Suppose that you have a taxable brokerage account with $1.5 million worth. You and your spouse have two children, 20 and 22 years of age. The account could be placed in your revocable trust that after your demise, account shall be passed to your spouse and then to your kids if your spouse also passed away. However, instead of completely giving your kids the money, an alternative would be at 25, you could give them each half of the money and at 35 the money would be given to them completely. Maybe, when they reach the age milestones, you want to give the trustee discretion, to help pay for a wedding or education through making the additional distribution. It's completely your decision.

    •    Review the instance above however you and your spouse have older children from former marriages. In the time of your demise, you may wish that your brokerage account may not be fully controlled by your spouse in the fear that the kids from the first marriage may not receive anything from the inheritance at all, this depends on the dynamic of your family. In such a situation to guarantee all your loved ones are protected, the trust could be an alternative. 

Tax planning possibilities that trust can provide

During your life, your revocable trust's assets remain under your control. If they were held beyond your trust then consequently, properties are also taxed nothing more. At the time of investor’s demise, specific properties remain entitled to readjustment of the value on appreciated properties for tax purposes, even if they’re retained in a revocable trust at the time of investor’s demise. 

Reducing estate taxes can be done through trust planning. The federal estate tax is transferrable between spouses and has immunity of $23.16 M for the year 2020. A small number of states have a national estate tax. Currently, a $1M estate tax exemption belongs to Massachusetts, which is the lowest in the country and it is not transferable, unlike federal exemption. After the demise of the first spouse, a credit shelter trust or marital trust could be utilized to maintain the immunity.

In this scenario, a deceased living trust would move to a credit shelter trust with properties equal to the exemption amount using $1M as the basis and the rest of the properties would move to another trust like a family trust. Decreasing or removal of estate tax at the overall state level by means of not containing the credit shelter trust in the taxable estate on the condition that the remaining gross estate is $1M or a smaller amount, if the surviving spouse demise later in the year.

A final word on trusts

To ensure alignment with the current situation, goals, and laws, revisiting periodically your strategy with your attorney is necessary as the rest of your estate and financial plan. Legislative changes do happen as evidenced recently with the passing of the SECURE Act, which may require revisiting your plan. Additional upfront work and cost to set up and fund a trust may be a relatively small amount, but worth the benefit your loved ones and to you along the way.

Daniel P Vigilante CPA and Profit Consultants
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