Published on June 30, 2023

A trust can be an important part of your overall estate plan and a way to ensure your loved ones and assets are protected for the entirety of your life and beyond. We outline what we believe are some of the top benefits of adding a trust to your estate planning portfolio.

What is a Trust?

A trust is a separate legal entity (like a company) into which you transfer your assets to help meet your financial needs and goals. Unlike a will, which is only executed upon your death, a trust is active upon its establishment, can be amended throughout your lifetime, and involves several specific roles. A grantor first establishes the trust, which is then managed by a trustee (this could be you or someone you designate). The beneficiary(ies) will ultimately receive the assets held in the trust in accordance with terms set forth in the trust. 

There are many different types of trusts, and the most appropriate trust for you will depend on what you want the trust for and often the beneficiaries’ circumstances or tax situation. A common form of trust, which we will focus on here, is a living trust (also referred to as a revocable trust) because it is funded during your lifetime and can be changed or revoked. This type of trust becomes irrevocable upon your death when management of the trust transfers to your successor trustee.

So why establish a trust and not just a will? 

Below we highlight a few benefits of establishing a trust:

Avoid Probate Process

One significant difference between a will and a trust is that a will is subject to probate, a court-supervised process of distributing your estate. The probate process becomes part of the public court record and can be both lengthy and costly, taking up to a couple of years to finalize, with fees reaching up to 5% of the value of your estate. During this process, your beneficiaries will also likely not have access to the assets. Conversely, the terms and administration of a trust are a private and confidential process. If privacy is important to you, establishing a trust will ensure the affairs of your estate remain a private matter. Additionally, by avoiding the probate process entirely, trusts offer a quicker and simpler way to have your assets distributed when you die, allowing for a seamless and private transfer of assets from one person to another. 

Maintain Control & Flexibility

Another benefit of establishing a trust is that it allows you a higher level of control over your estate than does a will. Trusts are an excellent way to divide your assets among your loved ones, especially if those assets are more complex, such as a family business or shared vacation home. Trusts also offer more control over how the assets should be transferred and maintained over time. They can also reduce potential conflict between heirs when an estate is being settled, since they allow for a higher level of customization and control, specifically when it comes to complex family situations like leaving assets to a married beneficiary or if someone remarries or their family structure changes down the line.

Under a trust, you can also include conditions, such as age attainment provisions or rules around how the assets will be used. For example, you can specify that money in the trust can only be given to your grandchild once he or she reaches age 18, and the money can only be used for his or her college tuition. Establishing how much money the trust distributes to a certain beneficiary per year is another type of possible customization. Flexibility is also built in because you can change the terms of the trust agreement at any time, such as if you would like to have a new grandchild written into the trust. Life can be unpredictable, but creating a revocable trust allows you to adapt your estate plan as needed and provide the peace of mind of knowing there is a clear plan for your assets and that your estate will be handled exactly as you wish.

Incapacity Planning

Unlike a will, which only goes into effect when a person passes away, a living trust provides protections should you become incapacitated. In the event you become mentally or physically incapacitated, the trust can designate a successor trustee to manage your assets on your behalf, make distributions on your behalf, pay bills, and even file tax returns for you. You can choose ahead of time who to appoint (through the trust) to manage the assets. This ensures a smooth transition without the need for a court-appointed conservatorship, saving time, money, and potential family conflicts. Though no one likes to think about these scenarios, building in provisions like these can safeguard your family from having to make decisions without knowing your wishes during difficult times.

Consolidated Asset Management & Continuity

With a revocable trust, you also have the ability to consolidate your assets within the trust, making management and organization more efficient. The trust allows for the oversight and management of your assets in the case of your passing, ensuring that your chosen successor trustee can efficiently administer and distribute the trust assets according to your wishes. 

Minimization of Estate Taxes

While revocable trusts do not provide direct tax benefits for estate tax planning, they can be structured to include tax-saving provisions. By working with an experienced estate planning attorney, you can explore strategies to minimize estate taxes, such as incorporating credit shelter trusts or marital deduction planning within the revocable trust framework.

Setting up a Trust

You will likely need the assistance of an estate planning attorney to set up a trust, and the fees will depend on several factors, including how complex the trust will be. 

You can set up your trust to hold many types of assets. A few examples are a home or vacation home, rental property, savings or checking accounts, brokerage account(s), ownership of a closely held business, vehicles, etc. However, you should discuss this with an estate planning attorney and tax advisor, as some items are subject to state laws. In order to fund the trust, you will need to get the assets retitled in the name of the trust.

If you are interested in getting more information about or setting up a trust, the Private Client Group is happy to refer you to estate planning attorneys.

Christopher Zand, J.D., CFP®

Vice President & Director of Private Client

Osterweis Capital Management does not provide tax, legal, or accounting advice. In considering this communication, you should discuss your individual circumstances with a professional in those areas before making any decisions.