7 Reasons to Create a Trust

You might think trusts are irrelevant to your lifestyle. After all, trusts are really only for the uber-wealthy to leave funds for their children, right? Wrong! Contrary to popular belief, trusts are not only for the very rich, and they do far more than simply leave nest eggs for heirs (although they are highly useful for that purpose). Trusts are versatile estate planning instruments that allow those who create them to accomplish a wide range of goals. Here are seven of the most common reasons why clients ask our Springfield estate planning attorneys to create trusts:  

1. Avoiding Probate 

One of the primary benefits of trusts is that the assets within them pass outside of probate — a costly, public, and time-consuming ordeal that most families rightly want to avoid. When a person dies with only a will, that will is subject to probate, which generally requires a personal representative to file the will with a court, inventory the assets, notify creditors, distribute the assets to beneficiaries, and file periodic reports. On top of that come court fees, attorney fees, and executor fees, which can quickly add up. Trusts avoid all of that. With a revocable living trust, for example, assets can pass directly to beneficiaries without court involvement. The trustee or successor trustee simply distributes the assets according to the terms of the trust, which is faster, cheaper, and more private than probate. 

2. Managing Assets During Incapacity 

Incapacitation refers to a situation in which a person is unable, due to a physical, mental, or cognitive condition, to manage their affairs, including financial matters. In such situations, and without a proper estate planning tool in place, the incapacitated person may be placed under a conservatorship wherein a court appoints a conservator to handle the incapacitated person’s finances. That person may or may not be a person whom the incapacitated person would want to handle their finances. However, conservatorships can often be avoided through trusts. If the settlor of a trust becomes incapacitated, the trustee or successor trustee can manage their assets without the need for a court-appointed conservatorship. Of course, conservatorships can also be avoided via a durable power of attorney. To determine which estate planning tool would work better for you, contact a Springfield estate planning attorney. 

3. Protecting Beneficiaries From Themselves

As we mentioned, trusts are highly useful for passing estates to heirs. But sometimes it’s wise to exercise more control over how and when such assets are distributed — for example, you may want to limit an heir’s access to their inheritance due to their young age or unwise spending habits. Trusts allow for such control, giving settlors options on how to distribute their assets (e.g., in staggered amounts by age or by a certain amount each year). Trusts can also incorporate spendthrift provisions, which prevent beneficiaries from accessing the trust assets or transferring their interest in them, thereby shielding those assets from creditors. 

4. Minimizing Estate Taxes 

While Missouri does not have an estate tax, Missourians with larger estates are still subject to the federal estate tax. Certain types of trusts — including irrevocable life insurance trusts, credit shelter trusts, qualified terminable interest property trusts, and others — can remove assets from your taxable estate, which can allow you to minimize your estate tax exposure and leave more of your wealth for your heirs. And even for those whose estates fall below the current federal exemption threshold, trusts can still offer tax advantages, particularly if the current threshold decreases in the future. 

5. Protecting Assets From Creditors 

Another common reason to create a trust is to shield assets from creditors, lawsuits, and other financial risks. Irrevocable trusts — i.e., those that the settlor cannot change unilaterally once executed — can be structured to protect the assets within them from such liabilities, as the assets placed into the trust are no longer legally owned by the settlor. Keep in mind, however, that trusts cannot be used to avoid existing debts or to defraud creditors, and not all trusts offer asset protection. For more information about the pros and cons of using an irrevocable trust for such purposes, please speak to a Springfield estate planning attorney. 

6. Supporting a Family Member With Special Needs

For families who have a child or other loved one with a disability, special needs trusts can be essential. Special needs trusts allow for the provision of financial support to a special needs person without jeopardizing their eligibility for government benefits like Supplemental Security Income (SSI) or Medicare/Medicaid. Those programs have strict income limits, so if a person who receives them receives a large inheritance outright, they could lose access to their benefits. Special needs trusts can be either first-party (i.e., funded with the beneficiary’s own assets) or third-party (i.e., funded by parents or relatives as part of a larger estate plan). Of course, there is a catch — special needs trusts may be used only to pay for certain expenses that are not considered “countable” income for SSI and Medicare/Medicaid, such as insurance, vehicles, home furnishings, and education, among others. 

7. Providing for Blended Families 

Blended families — i.e., those in which one or more of the spouses have children from a previous marriage — present unique estate planning challenges. Generally, if a person dies intestate (that is, without a will or other estate planning instrument), their assets are distributed according to Missouri’s rules of intestate succession. This can result in the decedent’s estate being distributed in ways they did not intend. Leaving assets in trust to children of a prior marriage can help to ensure that they are provided for in a manner consistent with the settlor’s wishes, unaffected by intestacy laws or divorce. 

Make Your Trust Work For You With a Springfield Estate Planning Attorney 

No matter what you seek to accomplish through the creation of a trust, our experienced attorneys can craft an instrument that gets you there. To get started, please contact a Springfield estate planning attorney at the LifeGen Law Group by calling 417-823-9898 or using our online contact form.