Pros and Cons of Trusts in Estate Planning

Estate planning that involves revocable living trusts has become popular these days. Other names for estate planning trusts are lifetime trusts or property protection trusts. A person that creates a revocable living trust in his/her life and can cancel it anytime. However, with a revocable living trust, a person distributes their assets while they are alive. Upon death, a “successor trustee” will distribute such assets according to specified instructions. Generally, the person keeps control of the trust’s assets as they act as both the trustee and the beneficiary. 

Trusts work by keeping your property in the trust. You can add trustees who will have control over the property after your death. When the owners pass away, the property is then inherited by the beneficiaries chosen by the owner. 

Trusts do have advantages as well as disadvantages. You must be fully aware of pros and cons before committing yourself to anything. Included are pros and cons of including trusts in estate planning efforts.

Pros of Trusts in Estate Planning

There are many benefits of estate planning trusts including:

Estate planning trusts protect property

A person’s property is one of their biggest assets. Surely, every person wants to keep such assets safe to later be inherited by beneficiaries. With estate planning trusts, you can protect property and be sure that it is safe. Most people employ trusts for optimal asset protection.

When a person creates trust with good health, they can potentially limit home care fees. Otherwise, one may face deliberate deprivation of property and assets. In the case of your beneficiaries getting divorced or filing for bankruptcy during your lifetime, using trusts as a planning method will work to protect your assets. 

Avoids sideways disinheritance

Estate planning trusts avoid sideways disinheritance, which means accidentally disinheriting your intended beneficiaries. This concept may seem quite confusing, but this practical example helps make the point clear. Imagine a person owns property with their spouse. They later want their children to own that property after death. But, in the case one spouse passes before the other, the remaining spouse may get married to someone else and fall out with children. Consequently, the children may not be able to inherit that property as the new husband or wife will. With estate planning trusts, you can get peace of mind that your property will go to your chosen beneficiaries.

Prepares property owner for potential loss of mental capacity

Though it is very hard to think about, a number of health issues can occur in a person’s life. A person can lose mental capacity either through illness, injury, or old age. In the case of a person losing mental capacity, loved ones may face difficulties. Such loved ones will likely not have any legal authority to manage assets or property.

A person can save loved ones from such difficulties in various ways. Creating a Lasting Power of Attorney can save individuals in such situations. The owner can give trustees the ability to manage the home upon incapacity. Such protection will become possible only by creating estate planning trusts.

Trusts simplify the probate process

After a person's death, the distribution of assets is done through the probate process. Probate is a legal process that gives recognition to a will and distributes assets to intended beneficiaries. Sometimes, trusts can simplify the probate process for loved ones after an individual's death. The reason being that the individual has transferred the ownership of property in their life. The heirs will not have any need to go through probate. By employing the use of a trust, a person can save heirs from additional probate hassles.

Cons of Estate Planning Trusts

There are also some drawbacks of trusts which include:

Deliberate deprivation of assets

Most people are told that estate planning trusts will protect them against care home fees. But that's not necessarily true. If a person needs to go into a care home, a local authority will assess whether or not they qualify for funding. In this assessment, they will check if property has been transferred into a trust. If the individual had, they may be accused of deliberate deprivation of his assets. In such circumstances, the individual will be assessed as the owner of that property. Thus, they will not be eligible for funding. This way, estate planning trusts can be a futile practice for individuals who created it for reducing care home fees.

Tax liabilities

Getting tax advice before creating a trust is necessary. Otherwise, it can have adverse tax implications either for you or your beneficiaries. You or your loved ones could face unexpected bills for taxes. These taxes may include Income Tax, Capital Gains Tax, Stamp Duty Land Tax, and Inheritance Tax.

Lack of control

The whole control of the estate planning trust is put into the hands of trustees. Although the individual still has the right of occupation, they may feel uncomfortable with the home’s abandoning control.

While thinking of creating a trust, you might need the help of both a financial advisor and estate planning attorney. Contact us now! Our experienced attorneys are happy to help with planning and the decision making process. 

Potential Issues with Trusts

Trusts have been used correctly for a very long period; however, in recent years, trusts have become a source of many scandals. In most of these cases, companies mis-sold estate planning trusts to older people. To convince them, such companies made a promise that having a trust would limit the charges of caregiving fees.

Due to this reality, a person should seek advice from a trusted legal professional before creating a trust. When creating an estate plan, there are many planning options. A person may not only create a will,  he/she may also want to add a trust. In both cases, you will be able to clarify how your assets will be distributed after your death. 

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