Why Do I Need a Trust? – Kiplinger’s Personal Finance

There are some simple estate planning techniques that you can use, such as adding beneficiaries to your retirement accounts or adding transfer on death (TOD) designations to after-tax accounts. When you pass away these assets will avoid probate and can be transferred directly to the listed beneficiary. Once the beneficiary receives the proceeds, they can do whatever they like with the funds.

If having assets distributed outright to a beneficiary could cause potential problems, there are several reasons to think about creating a trust.

Conditions on Distributions

If you prefer to place specific conditions on the funds, you should have a trust in place. Many trusts state distributions can only take place at future ages – for example one-third of the inheritance received  at age 30, one-third at age 35 and the rest at age 40. Some clauses require that the beneficiary pass a drug test or have stable employment before the trust will pay out.

Trusts can be especially important with second marriages where one spouse wants to leave their assets to their kids and not their stepchildren. For example, a client with a large IRA may want to pass the account to his wife for use during her lifetime, but through a trust, which ensures that the remainder of the assets go to his kids or whichever beneficiaries he has chosen prior to his passing. If he leaves the account outright to his wife, she has the ability to add whomever she chooses as beneficiary and ultimately bypass his wishes.

Creditor Protection

If your profession has a high probability for liability, having assets passed down in trust (once the trust becomes irrevocable) may shelter funds from being attached in a lawsuit. This can be very specific with respect to state law and the type of lawsuit, so discussing this with your attorney before making any decisions is advisable.

Passing Funds Outside the Estate

For large estates that are expected to grow even larger, creating trusts during your lifetime and gifting assets can remove the growth from your estate and lower future estate taxes. If your estate is likely going to be higher than the exemption (currently at $12.06 million per person for federal estate taxes, but often much lower than that for some states) and you have more funds than you need to live on, funding an irrevocable trust now may be beneficial.

Also remember, revocable (or living) trusts become irrevocable on your passing, so anything in the revocable trust will be out of the beneficiary’s estate.

Complex Beneficiaries

If you have many beneficiaries in different proportions and want to specify who gets what – …….

Source: https://www.kiplinger.com/retirement/estate-planning/605155/why-do-i-need-a-trust

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