What is a Trust
A “trust” is a legal entity that a person establishes to hold and maintain his or her assets. Once a trust is created, and assets are placed inside it, a person called a “trustee” manages the assets. The individual establishing the trust selects the trustee.
The trustee and type of trust decides how the assets are invested and how and to whom and when the assets are distributed when the owner of the trust dies. With an “irrevocable trust” for instance, that, once created, you cannot move money or change the beneficiary. The benefit of this is that it will most likely not be considered part of your taxable estate and heirs can gain quicker access to these funds.
One of the primary reasons people create trusts is to avoid having assets pass through the court process known as probate – the process of having the court validate your will and then authorizing your executor to distribute the estate to beneficiaries as you instructed, and pay any taxes possibly owed.
When assets are placed into a trust, these assets are in general not required to be probated. Assets in trust avoid probate because technically the maker of the trust no longer owns the assets. The trustee, the person elected to administer the trust, is the actual owner and is holding them for the beneficiaries. When the trust maker dies, the trust does not die with him or her since the trust is a separate entity and thus lives on.
You May or May Not Want a Trust
Most people create a trust in order to adequately protect their estates so it lives on after the asset owner dies. In some instances, a trust might be a good idea, but in other instances, a Last Will and Testament might be sufficient.
A trust may not be needed if your estate is not large enough to worry about avoiding probate. Each state has different rules concerning the threshold amount that triggers probate. If your estate is valued at less than the threshold amount, there are simplified probate procedures and no need to set up a trust to avoid probate.
For example, in California, estates valued at less than $150,000 can qualify for an exemption from the standard probate procedure. In other states, the threshold hold is $100,000.
Also, if your estate is going to a spouse, it might be unnecessary to establish a trust since the entire estate will most likely pass directly to the spouse.
Long Term Care
A very important exception is in cases where a spouse may need significant amounts of care – which is very costly – then, it might make sense to create a trust. For instance, if a spouse requires nursing home care, you probably would want a trust to avoid having to reduce the estate to the required $8,000 threshold so Medicaid can step in to help with expenses. and
Even after death, the family house may go to the state and not to heirs such as children if a trust is not used and money is owed to Medicaid to cover costs of care.
Another option is to remove a number of assets from probate by making certain bank accounts payable on death or having other assets like an insurance policy pass directly to a beneficiary upon your death. This action takes those assets out of probate and reduces the value of your estate. Again, look to Gentreo for tools and help in choosing what might be best for you and your loved ones.
Consider a Trust
Many families should be considering a trust as loved ones age. Trusts are an important and legal method for protecting assets after you die or if you or your spouse need long term care.
For more information, visit us at Gentreo.com. We provide a simple and affordable way to create a heath and estate family plan.
Gentreo is not a law firm or a substitute for a law firm, or attorney, or an attorney’s advice or recommendations.