Estate planning is a critical step in securing your financial legacy. A common tool used in this process is a trust.

But what exactly is a trust, and how do you know if you need one?

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What is a Trust?

A trust essentially functions as a legal rulebook that dictates what can be done with your assets. It is a legal agreement where one party, known as the trustee, holds and manages assets for the benefit of another party, the beneficiary. The person who creates the trust is called the grantor or settlor, and during their life they often act as the trustee. 

Trusts can be used to manage and distribute assets during the grantor’s life and after death, making them a powerful tool in estate planning. They can be structured to operate in perpetuity, allowing income to be used for reinvestment, or they can simply be vehicles for distributing assets to family upon death.

There are two primary types of trusts:

1. Revocable Trusts: These can be altered or revoked by the grantor at any time. Revocable trusts allow flexibility, and they are commonly used for asset management during life and to avoid probate upon death.
2. Irrevocable Trusts: Once established, these cannot be changed or revoked. They provide stronger asset protection and can help with tax and Medicaid planning, as assets transferred into an irrevocable trust are no longer considered part of the grantor’s estate.

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Why Create a Trust?

Creating a trust offers several benefits:

• Avoid Probate: One of the biggest advantages of a trust is avoiding probate, the court-supervised process of distributing a person’s assets after death. Probate can be time-consuming, costly, and public. A trust allows assets to be distributed privately and more quickly.
• Asset Management: Trusts allow for the management of assets by a trustee, which is particularly beneficial if the beneficiaries are minors, have special needs, or require help managing their finances.
• Estate Tax Benefits: For those with significant assets, trusts can be designed to minimize estate taxes, preserving more of the estate for your beneficiaries.
• Protect Beneficiaries: If you are concerned about a beneficiary’s ability to manage assets, a trust allows the trustee to control distributions according to the terms you set (age, achievement, etc.), ensuring that funds are used responsibly.

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Do You Need a Trust?

Deciding whether you need a trust depends on your individual circumstances. Trusts are particularly beneficial if:

• You want to avoid probate and ensure a smooth transfer of assets.
• You have minor children, special needs beneficiaries, or individuals who need assistance managing assets.
• You own multiple properties or assets in different states.
• You are concerned about creditors or estate taxes.

Not everyone needs a trust! For those with more simple estates, a will may be sufficient. However, as your assets grow or your family circumstances become more complex, a trust can provide a higher level of control, protection, and tax efficiency.

Trusts can provide peace of mind, ensuring that your assets are managed and distributed according to your wishes, without the delays and complications of probate. Whether or not you need a trust depends on your estate planning goals. Consulting with an estate planning attorney is the best way to determine the right approach for your specific situation. 

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Call 316.265.8591 to see if a trust is right for you.

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