Your Future, Your Way: How Wills and Trusts Can Protect Your Assets

ARTICLE | November 07, 2024

Introduction

Estate planning is a critical step in ensuring that your assets are managed and distributed according to your wishes after your passing. While many people believe that estate planning is only for the wealthy, the truth is that everyone can benefit from having a well-thought-out plan in place. Two of the most essential tools in estate planning are wills and trusts. Setting up a will and trust offers numerous advantages, from avoiding probate to minimizing taxes, and ultimately provides peace of mind that your loved ones will be taken care of according to your wishes. In this article, we will explore the benefits of establishing a will and trust, and how they can help you achieve your estate planning goals.

Understanding Wills and Trusts

What Is a Will?

A will is a legal document that outlines your wishes regarding the distribution of your assets and the care of any minor children upon your death. It allows you to specify who will inherit your property, name an executor to carry out your instructions, and appoint guardians for any dependent children. Creating a will ensures that your assets are distributed according to your wishes, rather than being determined by state laws.

What Is a Trust?

A trust, on the other hand, is a legal arrangement where you, the grantor, transfer ownership of certain assets to a trustee, who holds and manages those assets for the benefit of your chosen beneficiaries. Trusts can be established during your lifetime (living trusts) or upon your death (testamentary trusts), and can serve various purposes, such as managing assets, providing for loved ones, or supporting charitable causes. Trusts can offer greater control over how and when your assets are distributed and can provide benefits that a will alone cannot.

Differences Between Wills and Trusts

While both wills and trusts are important estate planning tools, they serve different functions and have distinct advantages:

• Probate: Wills generally need to go through probate, a court-supervised process that validates the will and oversees the distribution of assets. Trusts, particularly living trusts, can bypass probate, allowing for a quicker and more private transfer of assets.
• Privacy: Wills become part of the public record during probate, while trusts typically remain private. This means that the details of your estate and beneficiaries can be kept confidential with a trust.
• Incapacity Planning: Trusts can provide for the management of your assets if you become incapacitated, whereas wills only take effect upon death. This allows for a seamless continuation of asset management without court intervention.
• Control Over Distribution: Trusts can offer more control over how and when your beneficiaries receive their inheritance, which can be particularly useful when providing for minors or individuals who may not be financially responsible.

Types of Trusts

Main Categories of Trusts

Revocable Trusts

Revocable trusts, also known as living trusts, are trusts that can be modified or revoked by the grantor during their lifetime. They provide flexibility and allow you to maintain control over your assets. Benefits of revocable trusts include:

• Avoiding probate, allowing for a faster and more private distribution of assets.
• Providing for the management of your assets if you become incapacitated.
• Maintaining flexibility to change the terms of the trust as your circumstances evolve.

However, it's important to note that assets in a revocable trust are still considered part of your taxable estate and do not provide protection from creditors.

Irrevocable Trusts

Irrevocable trusts are trusts that cannot be easily altered or revoked once established, as the grantor relinquishes control over the assets placed into the trust. While this loss of control may seem daunting, irrevocable trusts offer significant benefits:

• Assets are removed from your taxable estate, potentially reducing estate taxes.
• Protection of assets from creditors and legal judgments.
• Ability to set specific terms for the use and distribution of assets.

Irrevocable trusts are often used for more advanced estate planning strategies, particularly for those with substantial assets or specific planning needs.

Specific Types of Trusts

Within these main categories, there are various specialized trusts designed to meet specific estate planning objectives:

• Asset Protection Trusts: Designed to protect your assets from creditors and lawsuits, often established in specific jurisdictions that recognize these protections.
• Bypass Trusts: Allow a surviving spouse to benefit from the trust's assets while keeping them out of the taxable estate, ultimately passing them to other beneficiaries tax-free.
• Charitable Remainder Trusts: Provide income to the grantor or other beneficiaries for a specific period, after which the remaining assets go to a designated charity.
• Charitable Lead Trusts: Assets are given to a charity for a set period, after which the remaining assets are passed to beneficiaries, potentially reducing estate taxes.
• Family Trusts: Set up to benefit family members, these trusts can help manage and protect family assets across generations.
• Special Needs Trusts: Provide for a disabled beneficiary without disqualifying them from receiving government benefits.
• Spendthrift Trusts: Control the distribution of assets to beneficiaries who may not be financially responsible, protecting the assets from being squandered.
• Testamentary Trusts: Created through a will and established upon death, providing control over asset distribution but still subject to probate.
• Totten Trusts: Also known as "payable on death" accounts, these are simplified trusts held in bank accounts that pass directly to a beneficiary upon death.

The Benefits of Setting Up a Will and Trust

Avoiding Probate

One of the most significant benefits of establishing a trust is the ability to avoid probate. Probate can be a lengthy, costly, and public process that delays the distribution of your assets to your beneficiaries. By transferring assets to a trust, they can be distributed immediately upon your death by the trustee, without court intervention. This not only saves time and money but also keeps your affairs private.

Maintaining Privacy

Since wills become public record during the probate process, anyone can access the details of your estate. Trusts, however, are private documents, and the distribution of assets is handled confidentially. This privacy can be important for those who wish to keep their financial matters and family information out of the public eye.

Tax Efficiency

Trusts can be an effective tool for minimizing taxes, particularly for those with larger estates. By strategically using trusts, you can reduce estate taxes, gift taxes, and generation-skipping transfer taxes. For example:

• Irrevocable Life Insurance Trusts (ILITs): Remove life insurance proceeds from your taxable estate.
• Charitable Trusts: Provide tax deductions and reduce the size of your taxable estate.
• Generation-Skipping Trusts: Reduce taxes when passing assets to grandchildren.

Proper tax planning with trusts can preserve more of your wealth for your beneficiaries.

Control Over Asset Distribution

Trusts offer greater control over how and when your assets are distributed. You can set specific terms and conditions, such as:

• Distributing assets at certain ages or life milestones.
• Providing income over time rather than a lump sum.
• Protecting assets from beneficiaries' creditors or from being mismanaged.
• Supporting a beneficiary with special needs without affecting their government benefits.

This level of control ensures that your assets are used in a manner consistent with your intentions.

"Setting up a trust allows you to dictate not just who receives your assets, but also how and when they receive them, providing peace of mind that your wishes are carried out precisely." — Jamie Miller, CPA and Partner at MBN & Company LLP

Planning for Incapacity

A revocable living trust can include provisions for the management of your assets if you become incapacitated. In such a case, a successor trustee can step in to manage the trust assets on your behalf without the need for court intervention. This ensures continuous management of your financial affairs according to your instructions, protecting you and your assets during a vulnerable time.

Asset Protection

Certain types of trusts can protect your assets from creditors and legal claims. By placing assets in an irrevocable trust, you effectively remove them from your personal ownership, making them inaccessible to personal creditors. This can be a valuable strategy for protecting family wealth and ensuring that assets remain available for your beneficiaries.

When to Consider Estate and Trust Planning

Life Milestones

Estate planning is not just for the elderly or the wealthy; it's important for anyone who wants to ensure their wishes are honored. Key times to consider establishing or updating a will and trust include:

• Starting a Family: Appoint guardians for your minor children and provide for their future needs.
• Significant Asset Growth: As your wealth increases, estate planning becomes crucial to manage potential tax liabilities and protect assets.
• Business Ownership: Protect your business interests and plan for succession to maintain continuity.
• Property Investments: Owning property in multiple states can complicate estate matters; trusts can help manage and transfer these assets smoothly.
• Changes in Family Structure: Marriage, divorce, or the birth of a child are important times to update your estate plan.

Updating Your Estate Plan

Estate planning is not a one-time event; it should evolve with your life circumstances and changes in laws. Regularly reviewing and updating your will and trust ensures that they reflect your current wishes and that your assets are protected accordingly. This is especially important when:

• Experiencing Major Life Changes: Births, deaths, marriages, divorces, and other significant events can impact your estate plan.
• Changes in Financial Situation: Acquiring or disposing of significant assets, changes in income, or receiving an inheritance.
• Legal or Tax Law Changes: New legislation can affect estate taxes and planning strategies.

By keeping your estate plan current, you can avoid unintended consequences and ensure that your wishes are honored.

How MBN & Company LLP Can Help

At MBN & Company LLP, we understand that estate planning is a crucial component of preserving and transferring wealth efficiently across generations. Our comprehensive estate planning services are designed to provide you with a tailored strategy that safeguards your assets, minimizes tax liabilities, and ensures that your legacy aligns with your long-term goals and values.

Customized Solutions for Complex Estates

High net worth individuals often face unique challenges that require a personalized approach. Our team provides customized strategies that consider your entire financial picture, from business interests and investments to real estate and philanthropic goals. We work closely with you and your advisors to create a cohesive plan that secures your wealth for future generations.

Tax Efficiency and Wealth Preservation

Our estate planning experts are deeply knowledgeable in the latest tax laws and regulations. We stay at the forefront of tax planning strategies, ensuring you maximize the tax advantages available to you. We focus on minimizing estate and gift taxes, as well as capital gains, allowing you to preserve more of your wealth for your heirs.

Comprehensive Wealth Transfer Planning

Effective estate planning is about more than tax savings—it's about ensuring your wealth is transferred according to your wishes. We help you establish robust structures like family trusts, charitable foundations, and other vehicles that align with your philanthropic and familial goals. Our expertise ensures that your wealth is protected and distributed seamlessly.

Experience with High Net Worth Families

With decades of experience serving high net worth individuals and families, we understand the unique needs and concerns that come with substantial wealth. Our expertise in multigenerational wealth transfer, business succession planning, and asset protection provides peace of mind, knowing that your estate will be managed and distributed exactly as you envision.

Ongoing Guidance and Adaptability

Estate planning is not a one-time event; it's an evolving process that needs to be revisited as laws, family dynamics, and financial circumstances change. We offer ongoing support and advice, ensuring your estate plan remains up-to-date and aligned with your goals as your life evolves.

Choosing MBN & Company LLP means choosing a trusted partner who will work with you to create an estate plan that preserves your legacy, minimizes tax burdens, and ensures a smooth transition of wealth. Our commitment to your financial well-being, combined with our technical expertise, makes us the ideal choice for individuals looking to protect and pass on their assets.

Conclusion

Establishing a will and trust is a vital step in securing your assets and providing for your loved ones according to your wishes. The benefits are extensive, including avoiding probate, maintaining privacy, minimizing taxes, protecting assets, and having greater control over the distribution of your estate. By proactively planning and working with experienced professionals like MBN & Company LLP, you can ensure your estate plan reflects your current wishes and adapts to life's changes. Don't wait to start this important process; protect your legacy and provide peace of mind for yourself and your loved ones.

About the Expert

Jamie Miller
Certified Public Accountant (CPA) and Partner at MBN & Company LLP
Email: jmiller@marketingbynumbers.io

Jamie Miller joined MBN & Company LLP in 2011 and brings over 15 years of public accounting experience. Specializing in tax services for construction, real estate, and not-for-profit clients, Jamie is passionate about advising clients on tax planning and business growth. He guides clients through every stage of the business lifecycle, from startup processes and tax compliance to retirement and succession planning. Jamie's expertise in estate planning and tax strategies ensures that clients' estates are managed and distributed according to their wishes, while minimizing tax liabilities. In his leisure time, he enjoys spending time with his family, fishing off the Crystal Coast, and golfing at the Morehead City Country Club.