While
trusts
have a wide variety of uses, there are three major reasons to use a trust for wealth transfer purposes:
1.
Avoiding probate
Assets
held in trust fall under trust law, not probate law. If you anticipate a difficult probate process — for example, a likely challenge to your will — or you prefer to keep the details of your
estate
out of the public probate record, you could avoid probate by using a trust. A trust can be especially useful if you hold real property in more than one state and your estate would have to be probated in each state.
2.
Minimizing taxes
Assets held in an
irrevocable
trust
aren’t counted as part of your estate — and aren’t subject to
estate
taxes. The drawback is that it can be difficult, if not
impossible, to amend an irrevocable trust.
3.
Exercising control
Unlike leaving an inheritance outright in a
will,
leaving assets in a trust lets you direct their management after your death. For example, you may be concerned that your child might not be mature enough to handle a large inheritance at 18 or even 25. You could choose to have the inheritance held in a trust that pays out smaller amounts over time.
Trusts are often
marketed as a way to avoid probate costs. However, the cost
of setting up and administering a trust might be substantially
greater than the costs of probate.
