When creating an estate plan, you might only create a will or you might also want to include a trust. Both can help clarify how you want your assets distributed after your death, but each has its pros and cons. Here are some pros and cons of setting up a trust.
The Pros for Setting up a Trust
There are several reasons setting up a trust might benefit you, depending on your goals:
- Trusts can help you plan for how your estate’s property and wealth will be distributed, whether to individuals or organizations. When transferring assets through a trust, you have more control over how the assets are given away. You can have the entire amount paid out at once or you can stagger payments of an inheritance, for example to children who might otherwise spend the money rashly.
- For beneficiaries who have special needs, a trust can allow them to receive their inheritance from your estate without barring them from receiving government assistance.
- Trusts can also help you manage your assets while you’re still living.
The Cons Against Setting up a Trust
However, setting up a trust does not reduce capital gains tax if the estate is worth less than $11 million. And since trusts are taxed at high rates, the cost of creating and maintaining a trust could outweigh the tax benefits if the estate falls below that $11 million threshold. That said, setting up a trust could still be helpful if you have goals other than tax breaks.
Trusts are just one part of estate planning, which should include other elements such as a will or power of attorney. If you’re considering establishing a trust, you should think about what you wish to achieve. This helps narrow down the type of trust that might work for you.
You might also want to consider the help of a financial advisor or estate planning attorney. Our experienced attorneys would be happy to clarify the differences between wills and trusts, and can help you decide which estate planning elements are right for you.