I'm not Richie Rich, so why would I need a trust?
One of the most common misconceptions about trusts and estates is that they are a complicated and expensive resource reserved only for the rich and famous. You might have only heard of trusts in the context of their favorite TV drama, and thought, "well I'll never have enough money to need one of those!"
In fact, you don't need to have mega millions in order to benefit from a trust. This misconception stems from one of the very basic elements of a trust: revocability. There are two main types of trusts, revocable (which can be changed at any time), or irrevocable (which must be operated according to its terms for the entire duration and cannot be changed). The type of trust most people are thinking of when they think of what wealthy people use is an irrevocable trust. An irrevocable trust is a great tool for those with lots of wealth that want to plan for estate tax purposes.
"But wait! I'm worried about the estate tax too! I want my money to go to my kids, not the government!"
While this is a completely fair and valid thought, the estate tax will only apply to those over a certain net worth. As of 2021, the Federal Estate Tax per capita is $11.7 million, and $4 million per capita for Illinois residents. As much as we all wish we were rolling in dough like that, the fact of the matter is that the overwhelming majority of people will never come close to having that amount of wealth to pass on to their loved ones when they die.
"So why do I need a trust if I don't have $5 million?"
The answer is that you don't likely need an irrevocable trust, but you might need a revocable Trust. A revocable trust is an estate planning tool that has a wide variety of benefits for the average person. Two of the largest benefits that it can provide are for homeowners, and parents of underage children.
"I do own my home! Why should I have a trust?"
Real estate is a highly regulated sector, mostly to ensure that when one person is selling land, that they have the right to do so, and that there won't be any surprises for the buyer that the seller didn't disclose.
The same principle applies to transfer of real estate after you die. Absent any planning on your part, any real estate you own will have to pass either through a probate court proceeding, waiting two years to sell, or with a bond in lieu of probate within two years of the date of death (usually 2% of the value of the home, which comes out of your children's pocket). A probate proceeding usually takes a minimum of six months and will most likely require an attorney, whose fees can rack up remarkably quickly.
However, if you plan ahead, and put your home in a revocable living trust, a probate proceeding can be avoided altogether. That means no waiting period, no costly attorney's fees, no public court case, and no hassle and heartache for your family after you pass away. This is why at AvoidProbate, we recommend that ALL homeowners place their real estate into trust.
"But how can a trust protect my young kids?"
The second big benefit that a trust can provide is to protect your children from poor financial decisions. Say for instance, you and your spouse each have a life insurance policy of $250,000, as well as retirement accounts and bank accounts. You also have two children aged 13 and 16. If you just named your children the beneficiaries of those policies and accounts, their inheritance would be administered by a custodian until they each reached age 21, after which they would have free access to everything that was left to them! Now we all would like to believe that are children will grow into responsible adults, but handing them a six figure check the day they turn 21 is not the smartest. In this case, a revocable living trust would set terms for which your children would be able to access their funds, only allowing it for certain costs and life expenses until they reached a more responsible age, like 30 or 35. At AvoidProbate, we strongly recommend that parents of young children create a trust to protect their children from poor financial planning.
These are just two of the many reasons a trust can be a valuable tool in your estate planning kit. Other reasons you may want to have a trust include:
having a special needs child
providing for pets after you die
providing for your grandchildren
planning for periods of incapacitation
"But aren't trusts expensive?"
Absolutely not! At AvoidProbate, we offer a variety of trust-centered estate planning packages that fit a variety of needs and budgets. Our Basic package starts at just $495! You can get started with a package right now by scheduling a free 15-minute consultation with one of our top-notch estate planning attorney; just click HERE to get started on your estate planning journey today!