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Why Do I Need a Family Trust as Part of My Estate Planning?

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At Baron law, we help you and your loved ones plan for the future. We provide legal advice in estate planning, real estate, business law, divorce, and landlord/ tenant law. One of the most important ways that we help you plan for the future is with family trusts.

What is a Family Trust?

A family trust is a contract or a set of instructions that you’re telling the world that you want to have followed after you’ve passed.

Many people think that a trust and a will are the same thing. However, a trust is different from a will. A will is also a set of instructions, but a will is a defined distribution, whereas with a trust you still have control even after you’ve passed many years down the road.

Why are Family Trusts Used?When are family trusts used?

Family trusts are used to avoid probate and help save on taxes. The family exemption these days is 10 million dollars or more.

Although, taxes are not as important as they were before it is important to keep in mind that that federal exemption changes all the time. Ten years ago, it was only 1 million. So, it may not be on the radar today, but it certainly could be down the road. This is important because you don’t know when your trust is going to go into effect.

The most common reason for having a family trust is for asset protection. Trusts are about having that shield for your children after you’re gone so that creditors, litigation, or a divorce, those things can’t attach interest to your estate after you’ve gone.

Why are Family Trusts Better Than a Will?

Probate:

The number one reason to have a trust is probate. According to the AARP, the average cost of probate is between 5 and 10 percent of the total value of an estate.

For example, if you have a five hundred thousand dollar estate, at a minimum, you’re going to spend twenty-five thousand dollars administering it through probate.

Privacy:

Having a trust is better than a will because of privacy; all of the information is public when going through probate. Someone could go to the courthouse and obtain the information, and now it is easier than ever to get this info because everything is online.

Cost-Efficiency:

Having a trust is more cost- effective than a will. The average time in probate is 18 months and the minimum time in probate is six months. So, you could administer your estate through a trust in a matter of months if you’d like more to carry it on for the legacy and lifetime of your family to ensure that there is asset protection.

Who Should be Implementing a Family Trust Into Their Estate Plan?

Everyone should consider a family trust. However, there are certain criteria for people who we strongly suggest having a family trust.

  • People who have children with spending problems.
  • People who have children who are special needs.
  • People who have children who have any risk of divorce.

How Soon Should I Start to Plan for My Estate?

As soon as possible. The bottom line is that no one knows when they will pass, and it is better to have these safeguards in place to protect your assets and your family, especially if you have children.

If you have not considered a will or a trust or you have any questions about a family trust, contact us at Baron Law today. You can go to our website for a free consultation so you can start planning for the future for yourself and your loved ones.

Baron Law LLC

Estate Planning – Trends Following the American Taxpayer Relief Act.

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Estate Planning – Trends Following the American Taxpayer Relief Act.

A recent survey concluded that sixty percent of Americans are afraid they will outlive their retirement.   Thus, there has been a moving trend that people are more concerned about wealth preservation compared to wealth transfer.  For example, a fifty year-old man in the top income quintile in 1980 could expect to live 31.7 more years.  A fifty year old man in the top income quintile in 2010 could expect to live 38.8 more years.  At $75,000 per-year of spending, increased longevity creates an additional $532,500 in cost. Thus, estate planning methods have changed and the American Taxpayer Relief Act has adopted new laws conforming to the wealth preservation vision.

Up until recently, many estate planning attorneys would urge clients to include a trust in their estate planning package.  A trust is a good means to avoid creditors and shield assets from other liabilities.  However, because of the recent changes in the American Taxpayer Relief Act (“ATRA”), trusts are most often not necessary – even for the wealthy.   Pre-ATRA, an estate planning attorney would set up a trust with an amount equal to the deceased’s remaining exemption.  This is often called a “bypass trust,” or B or credit shelter trust.  Assets would often not be included in the spouse’s estate.  The balance would go to the spouse outright or to marital deduction (A) trust, eliminating tax after the first spouse dies.  In the end, these assets (plus any appreciation) will be included in the spouse’s estate.

Post-ATRA no changes the landscape for estate planning by offering several wealth preservation concepts.  First, the concept of “portability” means that the surviving spouse can add to his or her own exemption whatever amount of exemption the deceased had not used during their lifetime.  Thus, a bypass trust is not needed to avoid wasting the exemption.  However, the Deceased Spousal Unused Exemption Amount (DSUUEA) is not indexed for inflation.  In addition, ATRA now permanently sets the estate, gift, and generation-skipping transfer (GST) tax exemptions at $5 million and indexes that amount for inflation.  Therefore, in 2016 a married couple could avoid the gift tax for any amount less than $10,900,000.00 ($5.4 million x 2 for married couples).

People are living longer and the ATRA has adjusted for that.  For more information, contact Cleveland, Ohio estate planning attorney Dan Baron.  Call Baron Law LLC today.  You will speak directly with an attorney who will help you with your estate planning and tax planning needs.  Baron Law LLC is a Cleveland, Ohio law firm located in Independence, Ohio.