Estate Planning 101: What is a Trust?
“Risk comes from not knowing what you're doing." - Warren Buffett
"Someone's sitting in the shade today because someone planted a tree a long time ago." - Warren Buffett
Estate Planning 101: What is a Trust?
When it comes to planning for the future, setting up a trust can be a smart way to manage your assets and ensure they're handled according to your wishes. Let's break down what a trust is in easy-to-understand terms and explore how it works.
What is a Trust?
Think of a trust like a safety deposit box where you can keep your valuable assets. These can be things like your house, your savings, stocks, or even personal items like jewelry. Like a safety deposit box, you set up a trust and place assets into it during your life. Unlike a safety deposit box, however, a trust includes detailed instructions about what to do with your assets after you have passed away.
Why use a Trust?
At this point you might be thinking, how is a trust different than a will? Indeed, a will also provides instructions about what to do with your assets after you pass away. But a trust has distinct benefits not offered by a will.
No Court Proceedings. As a general rule, if you do not have a trust, your assets must go through a court proceeding known as probate after you pass away. This is true even if you have a will. Probate is notorious for being time-consuming, stressful, and expensive. But moving your assets into a trust bypasses this process altogether, facilitating a smooth transfer of your assets to your loved ones. Read more about the probate process and why it is best avoided here.
Protection. Contrary to popular belief, the type of trust used as the basis for most families' estate plans (known as "a revocable living trust") does not provide any meaningful asset protection to you during your life. But a revocable living trust can be drafted to protect your loved ones after you pass away. Read more about how you can protect your loved ones by preparing a trust here.
Flexibility & Control. A trust is extremely customizable allowing you to set detailed rules for how your assets are handled after you pass away. Trusts can also be set up to provide for special circumstances, such as caring for a family member with special needs or managing a family business.
Conclusion
Creating a trust can sound complex, but it doesn’t have to be. Think of it as writing down your instructions for how you want your most important possessions and savings handled, choosing the right person to follow those instructions, and deciding who will benefit from this plan. Just like any other part of estate planning, setting up a trust is about making things easier for you and your loved ones.
If you’re considering setting up a trust or simply want to learn more about how it can benefit you and your family, Shaka Law is here to help. Schedule a free consultation with us to discuss your specific needs and how we can assist in making your estate planning stress-free and tailored to your circumstances.
