Trusts are some of the most misunderstood legal documents commonly used by people planning their estates or hoping to protect their access to government insurance programs as they age. Many people think of trusts as a way for wealthy parents to leave money behind for their children or provide for cost of living expenses while their children are young and potentially irresponsible.
However, not only the mega-wealthy can benefit from the creation of a trust. The average family can also utilize them to streamline the handling of an estate. A trust can be something you fund early in life and use to protect your assets if you own a business as well.
There are many different kinds of trusts, and each one has its own unique benefits for individual circumstances. However, there are also universal benefits that any kind of trust can extend to you and your family. Once you understand those benefits, you may realize that creating a trust could be a smart move.
Trusts protect your family from estate taxes
If you have accumulated significant wealth during your lifetime, you likely want to pass as much of it as possible on to the people you love. Unfortunately, larger estates can also leave heirs with significant tax obligations.
If your estate is worth more than $4 million, the state of Maryland may tax it. The federal government will likely apply an estate tax to your assets before your heirs and beneficiaries can access them if your estate is worth more than $11,400,000. Assets placed in a trust can reduce the overall value of your estate, thereby helping you avoid estate taxes.
Trusts can make it harder for people to challenge your wishes
The sad truth is that no matter how careful you are in planning for your legacy, it is still possible for the people you love to challenge your wishes in the hope of securing a larger portion of the estate. Challenging a last will, particularly one that you make later in life, is often easier than you might imagine.
Challenging a trust, provided that it has been properly funded and managed, is much more difficult. By placing assets that you believe will result in family contention into a trust, you minimize the potential for probate conflicts later on.
Trusts can help you give to charity
Creating a trust is a great idea if you hope to give money to a nonprofit organization or perhaps establish a scholarship at the college or university you attended. Creating a trust with a charity or nonprofit as the primary beneficiary will help ensure that those assets go where you want and reduce the likelihood of other people seizing or using those assets during the administration of your estate.
Trusts can protect you while you are alive, too
If you worry about the potential for spending all of your assets as you age to cover the costs of your care, such as nursing home care, a trust could help you connect with the benefits you need without completely depleting your legacy. Creating and funding a trust years before you intend to apply for state benefits can help you qualify for Medicaid when you potentially need it in the future.