Using trusts in estate planning

Trusts are widely used in estate planning, largely because they’re very flexible. You can create and fund a trust during a lifetime or create one by the terms of a will or trust at death. The terms of some trusts may allow it to be changed or even revoked by the grantor. Other trusts may be fixed or irrevocable at the date of creation.

In estate and financial planning, there are several common purposes for using trusts.

• Managing assets. The responsibility for making investment decisions and maintaining adequate records can be transferred to either a corporate or an individual trustee.
• Protecting assets. In certain situations, a properly drafted trust can protect the assets in a trust from creditors of a beneficiary. In addition, the assets may be protected from a spouse in the event of the divorce of the beneficiary.
• Providing privacy. The assets, terms, and conditions of a trust are generally not subject to public inspection.
• Avoiding probate. The assets that are held in a trust created and funded during the grantor’s lifetime are controlled by the terms of the trust, not by the terms of probate. In some states, avoiding probate can save time and reduce administrative expenses.
• Providing for multiple beneficiaries. A trust can be created for the benefit of multiple beneficiaries and can allow the trustee to use discretion in making distributions.
• Providing for special needs. A beneficiary may have a special need relating to education, health, and so on. A trust can be used to address those special needs.
• Tax planning. A trust can be used to help take full advantage of the combined marital deduction and the estate tax credit while assuring that assets can be available to meet the needs of the surviving spouse. For example, your will could leave all your assets to your spouse except the amount equivalent to the estate tax exemption amount. This amount would go into a “by-pass” or “family” trust for the benefit of your spouse and family. Although your spouse would be able to benefit from the entire estate, the trust assets would not be included in the estate of the surviving spouse on his/ her subsequent death.