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Trusts and Wills Can Prevent Complex Estate Problems

TrustsEven though it can be emotionally difficult, establishing a trust is a very important estate planning tool that can protect your family’s assets and determine what they will receive after your death. Properly designed trusts can also reduce the tax impact on your estate and help avoid probate.

Your goal is to maximize the wealth you leave to your heirs, and trusts are an invaluable tool. We will take a quick look at some basic information about common types of trusts:

  • A trust gives directions to an institution or person about how the property should be managed and distributed. The person who establishes the trust is called the “grantor” or “settlor,” while the person who manages the trust is called the “trustee.” The grantor has the freedom to appoint one or more individuals or institutions to act as trustee and often opts to appoint himself or herself. Trusts typically specify successor trustees to take over in case the trustee becomes unable to perform the duties.
  • On a very basic level, a trust can be irrevocable (cannot be changed) or revocable (can be modified by the grantor). A trust can be simple or complex. The primary difference is that in a simple trust, current income (but not capital gain) must be distributed annually to the beneficiaries, whereas this is optional in a complex trust. When the grantor dies, the assets of either type will be distributed according to the terms of the trust
  • Each state has its own laws that govern trusts, and each person has a different set of circumstances that will need to be factored in when a trust is created so that the trust will execute the grantor’s intent. Many types of trusts are available, and each has particular benefits and drawbacks. For these reasons, we strongly recommend that you use an experienced estate planning attorney rather than attempting to save money in the short run by trying to do it yourself.
  • Revocable living trusts are very popular because the trustee (usually the grantor) can amend them as needed in response to changing circumstances. The trustee also has the freedom to acquire and dispose of the assets in the trust.
  • Once a trust is established, it becomes the legal entity that owns the assets placed into the it. With a revocable living trust, almost all assets—real property, investment accounts, automobiles, bank accounts, etc.—should be put in the name of the trust. Exceptions include assets that have their own beneficiary designations (such as life insurance or IRAs) or are held in joint ownership with one or more other people. The trustee will retain control of the assets in the trust, but having the assets in the trust’s name eliminates problems when it comes time to settle the estate later on.
  • Parents of minor children should consult with an estate planning attorney about setting up a guardianship to take care of the children until they reach adulthood. This would be specified in a will, but often trusts are used in conjunction with a guardianship, especially if the parents want to limit or delay passing on assets to children until they finish college or reach a certain age.
  • Parents of special-needs children or adults will want to investigate a special-needs trust, which can be incorporated into a living trust. When a trustee controls the assets, the disabled person can have needs met while continuing to qualify for government benefits that cover services that would quickly exhaust the inheritance.
  • Avoiding probate is a huge benefit of trusts. Probate involves the court system, can take months or a year or more, and racks up hefty attorney’s fees. Assets that are inside a trust generally avoid probate.

What wills provide

While a will is an essential document, about 70% of Americans die without one. When this happens, your heirs have little control over how your assets will be distributed. State laws mandate distribution schemes that are made without any regard for family needs or any special family situations. If you do not have a will that specifies who should be the guardian(s) of your minor children, the state will appoint someone. While courts would likely appoint the next of kin, the process can be costly and time-consuming.

A will allows your assets to be distributed according to your wishes, but it does not protect them from probate the way a trust does. In states where it is allowed, which includes California, a “pour-over” clause can specify that any assets that are not already in your trust be poured over into it.

Keep your documents up-to-date

A common mistake people make is failing to update their wills and living trusts to include the names of new children, property, or other valuable assets, or other family changes due to divorce, marriage, or the death of a loved one. And choices that seemed wise 10 years ago might not seem so wise today.

If you have avoided taking care of your estate planning because you don’t want to think about not being around or because it’s just too much bother, we encourage you to take action. The repercussions of doing nothing are too great.

To learn more about estate and legacy planning, please call or e-mail us today at (925) 365-1533 or We have a network of estate planning professionals who can set up the types of trusts that can help you to pass on your legacy to the people and organizations that are important to you.

Accretive Wealth Management is not a law firm and cannot provide legal advice.

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