Through proper estate planning, you can ensure that your estate goes to your loved ones – instead of into the deep pockets of Uncle Sam.  If you plan ahead, you can minimize the amount of taxes that your intended recipients must pay on your inheritance. 

Most people believe that a will is enough, but this is far from the truth.  In fact, there are several huge roadblocks that can appear because of the limitations placed on a will.

The drawbacks of a simple will

A will is a formal or informal set of instructions for the disbursement of your assets when you die. Before your heirs get your assets, your will usually will be presented to a probate judge for probate, which is a State legal process used to determine an estate’s value and the will’s validity. It is during this process that probate fees and taxes on the taxable portion of the estate are paid. The money that remains is disbursed to your heirs.  Depending on the state that you live in, this process can become very time-consuming and costly.

Another downside to having just a will is that it can become a public document.  This means that if it is recorded, anyone can view the contents of your will.  This means that a will can easily be contested, which can hold up the disbursement of your estate to your intended heirs for years. Thousands of dollars can be lost as legal battles are fought.

The benefits of trusts

You don’t want to your death to become a legal war among the ones that you love. More often than not, if there is confusion concerning who gets what, everybody gets mad.  One way to settle those arguments before they start and to avoid some of the costs of probate and estate taxes is through the use of legal trust agreements.  A trust is an account that directs the management and disposition of assets.

A revocable trust, directs the management and disposition of assets under an agreement that you can alter in the future.  Revocable (or Grantor) Trusts typically shelter assets from State probate costs; but not necessarily from Federal Estate Taxes.
An irrevocable trust, permanently directs asset management, income distribution and final disposition. You essentially give up all control over those assets once you have agreed to the terms of the trust.  By doing so, the assets and funds in an irrevocable trust are usually protected from probate and estate tax as well as some bankruptcy proceedings. The use of irrevocable trusts is sometimes referred to as “ruling from the grave”; since the trust can perpetuate far beyond its maker.

When you are ready to set up a trust, you need to ask yourself the following questions:

1. Which assets do you want to put in trust?
2. Do you want to create an irrevocable or revocable trust?  Do you want the ability to change the terms or disposition of the trust?
3. How do you want the income and assets to be distributed?
4. Who does the trust go to if, upon your death, none of the primary beneficiaries are still living?
5. Who do you want your trustee to be if you become injured or disabled?
   

These questions are part of the trust formation process. A good trust attorney can help you design a protective trust agreement.  Protect your loved ones from heavy taxation and court fees through proper estate management.  When you plan ahead, your family – instead of the government – can keep what you have worked hard to pass onto them.