6 Things to Know About A Trust-Based Estate Plan

Estate planning can seem tricky. It is a big responsibility to ensure that your descendants are secure and content when you are not around anymore. It is also important to make sure that your hard-earned assets are not wasted away in taxes and land up in good hands. 

Apart from the fact that estate planning helps you manage your assets for the future, it is also a great way of keeping your taxes in check. There are several methods of estate planning, one of which is a trust-based estate plan. 

What is a Trust?

A trust is an agreement that allows a trustee or third party to hold assets on behalf of a beneficiary. A trust can be based on several arrangements. The passing or holding of assets can also be specified with respect to the beneficiaries. There are broadly two types of trusts:

• Testamentary Trust: A testamentary trust is generally created using a will.
• Living Trust: A living trust on the other hand, is primarily built-up to avoid the probate court.

In trust-based estate planning, estate owners essentially entitle a trust to behold the title to their assets while they are still alive and facilitate easy transfer of these assets in case of the estate owner’s death or incapacity. In simple words, when you opt for a trust-based estate plan, you facilitate a transfer of your estate to your family without having to go to court.

Trust-based estate planning can be valuable as it not only helps with a planned estate transfer but is also helpful in tax planning, life insurance, property handling for minors, marital deduction bequests, charitable transfers, and credit shelter bequests. 

A trust-based plan is convenient as not only does it provide for a well-thought-of estate plan for beneficiaries and descendants, but is also exercisable for adult beneficiaries who can be made a part of the trust to hold the title till the estate owner’s demise.

Before you go down this road, it is vital to know how a trust-based estate plan can affect you, your family, and your estate. Here are 6 things to know before starting:

1. It Ensures Financial Security of Beneficiaries and Descendants

A trust-based estate plan ensures the protection and coverage of your beneficiaries when you are not around anymore. Setting up a clear and unambiguous estate plan can empower your descendants without unnecessary hassles. In a lot of ways, estate planning works in the same manner as life insurance. It helps the family overcome a period of grief in their lives and minimises the need for lengthy procedures. 

With a trust-based estate plan, you can protect the interest of your inheritors as mentioned in your trust agreement. 

In case of minors, the assets can be distributed after the age of 18 or 21 depending on state laws. As instructed in the trust agreement, the trustee, guardian, or parent is supposed to look after the estate and other financial matters for the minor. The same agreement can also be used to clearly define the inheritance process of an adult beneficiary. 

2. It Protects Your Assets 

Very few people understand and realize the need for a solid estate plan. However, when it comes to distributing assets, it is always better to be proactive than delay things out of ignorance. Setting up a robust trust-based estate plan not only protects the interest of your beneficiaries when you are not around but is also an excellent tool to manage your assets and estate when you are alive.

3. It is Useful in Avoiding Probate 

Probate is a judicial process that helps in determining beneficiaries and evaluating the assets and estate of the deceased. The probate process can be time-consuming, costly, and challenging for a grieving family. A trust-based estate plan is a good alternative to a probate as it ensures that the beneficiaries are not exposed to lengthy legal processes. 

4. It Helps in Managing Personal Finances 

An estate plan can also double-up as a personal finance plan. A trust-based estate plan can be helpful in managing assets while the estate owner is still alive. 

5. It Can Reduce Tax Liabilities

Estate taxes can be extremely burdensome and if planned poorly, you can lose a significant amount of your estate to taxes. A well-devised trust-based estate plan can reduce both state and federal estate tax to a great extent.  

6. It Facilitates Better Planning

Matters of asset distribution can lead to major disputes. Hence, setting up things in order is important to maintain harmony in a family. It is crucial to streamline the transition into a smooth one. A trust-based agreement clearly defines who inherits which assets and avoids disagreements that may occur over inheritance. 

To Sum it Up

Setting up a trust-based estate plan can ease things for the estate owner as well as the inheritors. A robust estate plan ensures that the beneficiaries get to enjoy well-managed assets with little or no taxes liabilities. It also offers better peace of mind and eliminates the costs associated with a probate. 

Do you want to keep your loved ones away from lengthy court procedures? Get in touch with financial advisors to know more about how you can set a trust-based estate plan for the well-being of your family.