In my previous entry I set out the definition of a trust and discuss some basic types of trust agreements. Understanding the basic definition and types of trusts is important, but what are the advantages of a trust versus creating a simple will? The focus of this entry is on the advantages and disadvantages of creating a trust in an estate plan as compared to other estate planning tools.

Advantages Creating a Trust in Your Estate Plan

• Greater control over distributions: Perhaps one of the most significant benefits of a trust is the ability to have greater control of the distribution of your assets. A trust allows you to set out exactly when, where, and how much each of your beneficiaries will receive from your estate, over time, rather than requiring immediate distribution of your entire estate.
For example, if you wanted to leave your estate equally to your two children, but wanted to ensure that they did not receive all of their inheritance at once you could specify in your trust that each of your children receive a percentage of your estate upon reaching a certain age, or achieving a certain life milestone (such as completing college).
• Probate Avoidance: Probate is a court proceeding whereby your personal representative (also called an “executor”) is responsible for gathering your assets, paying debts and expenses, and distributing your property either pursuant to your last will and testament, or by state law if no will is in place. However, if you have a trust in place, so long as you properly transfer title of your assets to your trust, probate will not be required for your estate. In Montana, the probate proceeding takes a minimum of six months before closing and distribution. However, with a trust, distributions can occur more quickly, privately, and without the costs associated with a probate court proceeding.
• Privacy: As mentioned above, probate is a public process. Probate requires filing an inventory listing all of your assets with the court as well as filing your original last will and testament which sets out your plan of distribution. This also means that the public could obtain and view copies of this information. A trust, on the other hand, allows for the private distribution of your assets.
• Reduce Potential Conflict: Because trusts are private documents not subject to probate proceedings, the use of a trust can help to reduce the potential for conflict surrounding your estate. While the purpose of a probate proceeding is intended to be administrative rather than adversarial in nature, probate does provide a forum for heirs to contest terms of your will or dispute with other heirs and beneficiaries.
• Incapacity Planning: A trust is a great mechanism for ensuring/providing that your property will be managed for your benefit during any period of incapacity or prolonged mental or physical illness. The terms of your trust can set out how to determine your incapacity, who is responsible for managing your assets, and how the assets should be managed upon a disability.
• Estate Tax Planning: While having a revocable trust does not necessarily mean that you can avoid taxes or estate taxes, they can be helpful vehicles in maximizing the estate tax exemption available to your family upon the distribution of your estate. For example, you may decide to create a “credit shelter trust” (also known as “bypass trust” ) within your trust, whereby you can take advantage of certain tax exemptions upon your death to reduce the overall amount of estate taxes paid.
• Caring for a Beneficiary with a Disability: If you have someone in your family with a disability, special needs, or who receives any type of disability benefits, they could risk losing these benefits if they inherit from your estate. A trust can provide for the basic needs of a disabled beneficiary while also maintaining their current benefits and care.

Disadvantages of Trusts

While trusts can be beneficial estate planning tools, they are not necessarily advantageous for everyone. If you have a fairly simple estate, both in the type of assets and value, a trust may not be necessary to accomplish your estate planning goals. The main drawbacks of trusts to consider are the costs associated with creating a trust and the increased administration required for a trust.
• Increased cost: Trusts typically cost significantly more to create and administer than an estate plan with only a will. Often a trust will cost three to four times as much as a basic will, depending on the complexity.
• Administration: For a trust to be effective the grantor’s assets must be re-titled in the name of the trust, or otherwise transferred to the trust. This means that upon initially executing a trust you would have to execute deeds for any real property to your trust and change bank and other financial accounts. While this often is accomplished upon initial execution of a trust, for some people the administration of a trust is enough to be a deterrent.

Trusts can be very effective estate planning tools if properly executed and funded. Consider your assets, family situation, and personal preferences with your attorney and tax advisers carefully before proceeding with a trust.
If you have additional questions regarding trusts contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373(406) 752-6373/ www.measurelaw.com