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FAQs about Trusts Part 1

September 25, 2023

In part one of our frequently asked questions about trusts, we explore the differences between wills and trusts, what assets should be included in a trust and more.

The decision to create a trust is a weighty one and inevitably comes with a great deal of questions. In this blog, we anticipate and answer some of the most common questions about trusts. Because individual circumstances differ, you will likely need to consult with an attorney about situations that are specific to you.

General questions:

  1. Should I have a trust or a will? The answer to this question depends on your circumstances. If you have a large or complicated estate, would like to avoid a hefty estate tax, or want to keep your distributions private, then a trust might be in your best interests. If you have a small estate or would prefer court supervision in distributing your assets, then a will might be preferable. In some circumstances, you might have both.
  2. What are the main advantages of a trust over a will? The most significant advantage of a trust over a will is that trust assets are not subject to probate. Probate is the sometimes lengthy and expensive process in which a court proves the will “valid.” Circumventing probate means that your beneficiaries are likely to receive the assets faster, which can allow them to pay bills without interruption or maintain their lifestyle. Trusts also are private documents, and your distributions to beneficiaries will remain private. By contrast, the contents of a will are part of the public record.
  3. Do I still need a will if I have a trust? Sometimes a will does not necessarily replace a trust and vice-versa. Depending on your assets, you may need both instruments to fully protect your assets and ensure that they’re distributed according to your wishes. In most cases, a “pour-over will” is recommended when you have transferred most of your assets to a trust. A pour-over will is an instrument that captures any qualified assets that you haven’t transferred to or included in a trust, whether intentionally or unintentionally. You should speak to a lawyer to find out whether a pour-over will makes sense for your situation.
  4. What kinds of assets can be included in a trust? Most assets that can be retitled can be included in a trust, including: cash accounts, tangible personal property, real estate, nonretirement investment and brokerage accounts, stocks and bonds certificates, non-qualified annuities, business interests, funds owed to you, royalties, copyrights, trademarks and patents, gas and oil rights and more. You can also put life insurance policies into a trust. Remember that you must change all titles, deeds, and beneficiary designations to the name of the trust to include these assets. Your trust will be worthless if you do not fund it. Certain assets cannot be included in a trust, including qualified retirement accounts, health and medical savings accounts and uniform transfers to minor accounts, among others. Consult with your attorney to discuss the merit of including a particular asset in your trust.
  5. What happens if I forget to transfer certain assets to the trust before passing away? Funding your trust is an essential step in creating a trust. If you do not transfer title of the assets to the trust, these assets will be left out, even if you’ve clearly expressed your intention to include them. Courts will treat assets that fail to make it into the trust as part of your estate. Failing to fund your trust can have a number of consequences. Among other things, those assets not included in the trust will have to pass through probate, which will cause a delay in their distribution. The assets also might not pass to the beneficiaries you intended. If you don’t have a will, the assets will flow to your legal heirs, who might be different from the beneficiaries named in the trust.

Questions? Contact us.

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