What is probate?
Probate is the legal process of "proving" a Will, which includes: 1) a court determining that a Will is valid, 2) paying any debts from the deceased's estate, and 3) distribution of assets in accordance with the terms of the Will. Probate assets are subject to probate costs, estate taxes and, in some states, inheritance taxes. Costs can include legal and executor fees, court costs, and appraiser fees.
How can a Trust help with the probate process?
By establishing a Trust, those Trust assets are generally not subject to public scrutiny and enable the trustee to begin distributing assets according to your wishes, without going through probate. Probating a Will can be costly and lengthy — often six months or more — and is a public process available to anyone who is interested in the details of your estate. The cost of probate will vary from state to state and is based on state law.
What can a Trust do that a Will cannot?
In addition to reducing probate costs and expediting estate settlement, Living Trusts or Testamentary Trusts can provide additional estate tax advantages, as well as asset control. They are particularly useful if you have significant assets and want to provide for your grandchildren, minor children or beneficiaries who are unable to manage assets on their own.
What might the tax advantages be for using a Trust?
Federal estate taxes have marginal tax brackets that start at 18% and go as high as 35% for larger estates. There is also the possibility of state-imposed inheritance tax. If you plan ahead using a Trust, in many instances you can greatly reduce or even eliminate these taxes.
How do I know if a Trust is right for me?
Deciding if a Trust is right for you depends on your personal goals for the trust. The most common reasons for setting up a trust are:
- avoiding probate
- estate tax relief
- greater asset control
- providing for your beneficiaries after your death
- ensuring assets are distributed according to your wishes
- continuity of asset management in the event you become disabled
How do I decide which sort of Trust to use?
There are many different types of Trusts and many factors that need to be considered in deciding which one is right for you, including beneficiaries, Trust asset amount, estate tax reduction, asset distribution, and the amount of control you want. You, your attorney and/or your financial advisor should work together to determine which Trust is best for you.