Think of a trust as a box in which you put your property; your house, boat, cars, bank accounts, etc. Trusts serve several purposes:
1. Avoid probate;
2. Avoid or eliminate estate taxes;
3. Guardianship in the event of incapacity;
4. Continuity of asset management; and
5. Asset Protection
Most people use a trust because they want to spare their family and heirs the time and expense of a probate proceeding. If you put your property into a trust, the court will not be needed when you die to pay your creditors and distribute your property according to your wishes. Avoiding probate can save thousands of dollars, money which can go to your heirs instead of a lawyer.
Properly drafted trusts can also reduce or eliminate estate taxes for married couples. Currently, an individual can leave all of his or her assets to anyone they want and there are not estate taxes. However, in 2010, if your assets at the time of death are worth more than $1,000,000, any amount over that will be taxed at the rate of 55% before the balance can be distributed to your heirs. When determining the value of your assets, the IRS includes the value of all property, including insurance policies and retirement plans. When you add these amounts together with your house and other property, $1,000,000 isn't hard to reach. Married couples can eliminate or reduce the amount of estate tax by using a properly drafted revocable living trust. Taxes can also be reduced with certain charitable deductions.
Trusts are also helpful if you become incapacitated. If you are unable to handle your financial affairs, the person you select as your successor trustee can step into your shoes and take care of you and your finances according to instructions that you specify in the trust. Without such a trust, someone would need to be appointed by a court to be your guardian. Again, too much time and expense are wasteful and burdensome on your loved ones.
Not everyone needs a trust. Many of the objectives of a trust can often be met using other planning techniques. What everyone does need, however, is good counsel. You don't know what your individual and family needs will be until you talk with a qualified professional.