REALTOR® Magazine Online: The Benefits of Trusts

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The Benefits of Trusts

Because a trust exists as a separate legal entity and thus continues to function with or without you, it can offer real benefits in estate planning, says Craig Janes, director of estate, gift, and trust services for Deloitte & Touche.

One of the most common forms of trust is the so-called “living” trust, which is set up while the grantor is still alive.

The upside:

Assets can remain in the trust after you die and are thus managed according to your instructions even after you’re gone.
Assets can be managed by the trust if you are incapacitated.

Proceeds from assets—stocks, bonds, and property—placed in a trust can benefit several beneficiaries without the need to divide up the assets.

The cost and expense of probate is avoided. Your heirs can receive monies sooner and your affairs don’t become part of the public record, as they do when a will is probated.

TIP: If you own property in more than one state, your will has to be probated in each location. A trust avoids this necessity.

By acting as a trustee of your own trust, you can continue to manage your assets as before.

TIP: You can place two personal residences into a qualified personal residence trust, which allows you to live in, rent, and enjoy the economic benefits of the properties for a specified number of years before they pass to another person or legal entity. However, if you continue to occupy the residences after your use period ends, you must begin paying rent to the new owners to avoid the homes being included in your taxable estate.

Depending on the state, the costs of probate may not be as great as some portray. In states that permit an “independent administration” of an estate, the costs of probate are nominal and the services of an attorney may not be required.

The downside

Putting assets in a simple living trust doesn't avoid inheritance taxes. All the assets in such a trust are included in your taxable estate.

TIP: For a trust to provide tax advantages, you must give up all control and benefits from the assets placed in the trust, such as income, and the trust must be irrevocable.

You may incur transfer taxes when you transfer assets to a trust.

Acquiring new properties may be more complicated after the trust is established, since they must either be purchased by the trust or transferred subsequently.

TIP: In many cases, trusts don't permit you to acquire property using borrowed monies.

TIP: If you name an institution as your trustee, be sure you're clear on how much control it can exercise in managing your assets and to what extent you can advise the trustee.

Charitable Remainder Trusts >

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