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I can’t tell you the number of times a client has said, “But aren’t trusts only for the very rich?” “Trusts” hold a place in our collective imagine as something reserved for the uber-wealthy. We all know or have heard of a “trust fund baby,” those lucky folks who have inherited so much family wealth that working is optional and there are no worries over how to pay for college!
And while it is true that the very wealthy do use trusts to pass down family wealth and protect money from estate taxes, trusts – specifically revocable living trusts – offer significant benefits for average people.
Privacy. Having a revocable living trusts allow you to avoid having your estate pass through probate. Probate is a judicial process in which the court oversees the distribution of assets in an estate. Probate filings are public records and available to anyone who petitions the court. The terms of a trust, in contrast, are kept private. With a trust, the only people who know the value of your estate are your beneficiaries, and, if you so choose, the beneficiaries may only know the amount they have inherited, and not the total value of your estate.
Lower, predictable costs. Revocable living trusts enable you to predict and control administrative costs. With trusts, the main cost is in the creation of the trust, which you’ll know in advance. Once the trust is created, the costs to maintain it are negligible. More importantly, when you pass, the cost to distribute and administer your trust is small. In contrast, if your estate goes through probate, it’s impossible to predict how much the attorney fees, court costs, and filing fees will be. Currently, probate fees in Idaho range from $3,000 to $6,000.
Control over your assets. Revocable living trusts allow you to set up guidelines for how and when your heirs receive their inheritance. This is particularly important when you have minor children. A trust allows you to set up a timeline for when your children (or grandchildren) receive their assets – for example, you can give them chance to “practice” managing a portion of their inheritance with the security of knowing that a levelheaded trustee is keeping the remainder of the inheritance safe. You can also direct how the assets are used, for example for college instead of for a gap year in Bali.
Ease of administration. Living trusts are easier to administer after your passing. With a trust, your trustee will distribute your assets pursuant to your instructions. In contrast, with a will, your executor must wait for the authorization of the Court before distributing assets.
Faster administration. Probate takes an average of six months in Idaho, as certain statutory deadlines have to be met. With a trust, your trustee can begin to distribute your assets without meeting any statutory deadlines and on a much faster pace.
Lower likelihood of being contested. Revocable living trusts are less likely to be contested. During probate, attorney’s fees are given priority of payment from the estate. This means that attorney’s representing an heir who is contesting the will are guaranteed to be paid. Attorneys are often willing to defer their fees in this situation, meaning an heir can contest the will with few, if any, out-of-pockets costs. In contrast, a person challenging a trust has to pay their attorney upfront, making the challenge much more costly.
Protections for blended families. Revocable living trusts are great vehicles for blended families – allowing spouses to provide for each other while also balancing the needs of children from an earlier marriage.
Tax reduction. Revocable living trusts can help with estate tax avoidance, if this is a concern.