Trusts have long been used, even before the time of the estate tax. They can have several benefits, but are not right for every estate plan. Trusts are often used as a means of avoiding probate. Probate can be a costly and time-consuming process wherein the probate court oversees the administration of your estate. It should be noted that some estates are small enough to be exempt from this process (the proper exemption paper work should still be filed though). Often, probate can tie up estate assets for many months before the assets can be properly distributed for the benefit of a beneficiary. Probate, however, does provide the maximum oversight to assure that your estate passes as you have directed. For more information on Probate read my Article under the Probate heading.
There are several different trusts, but they can fall into two categories: living trusts (inter vivos trusts) or testamentary trusts. Living Trusts are created and generally funded with assets during your lifetime. This is generally the most preferable trust because the probate court does not have authority over its administration. The Trustee you appoint, which may include yourself in some cases, has the authority over the administration of the trust assets and must administer and distribute the trust assets per your instructions as creator (Grantor) of the Trust. A Testamentary Trust is established in a Will, and the Probate Court will have authority over its administration, thereby eliminating part of the benefit of a trust. These types of trusts are generally disfavored in most circumstances for that reason.
Trusts, however, are not the only means of avoiding probate. Many other methods, such as owning property in Joint Tenancy with Rights of Survivorship with your intended beneficiary, or establishing a Transfer on Death Account with your bank, are other means of avoiding probate. Sometimes these methods may be more appropriate for your circumstances, other times a trust may be a more beneficial way to transfer your property. An attorney can help you make the most informed choice.
Trusts may also be a means of providing for administration of your assets should you become unable to do so yourself. The successor trustee you name could control the assets you place in trust according to your instructions, and may avoid the need for the appointment of a guardian over your property by the court. Guardianships over property can be a costly, intrusive and time-consuming process that is better avoided when possible. Durable power of attorney documents for healthcare and financial matters may also be appropriate means of avoiding the need to have a court-appointed guardian over your assets if you were to become incapacitated or incompetent. Such options should be discussed with an attorney before pursued. An appointment of a Guardian over the person who is a minor, incompetent, or incapacitated may still be necessary.