Some people today feel that the only people who need a revocable living Trust are those with more than $12,060,000. This is because the estate tax exemption has been raised to that amount*, so that anyone with less will not pay federal estate taxes when they die. However, many people who focus only on the financial benefit of Trusts miss other benefits that a Trust can provide families. Sometimes Trusts can save you from paying estate taxes if you own more than the exemption amount; that is a financial benefit to having your money in a Trust. However, there are still many reasons why a revocable living Trust may make sense for you and your family.
1. Avoid probate.
Let’s start with probate. In California if you own more than $166,000 outside of a Trust in your name alone without a Beneficiary designation, and if you want to pass that money to someone else on your death, your loved ones will need to go through probate to get the assets. If you own a house, the calculation is done on the fair market value of the property, not the equity that you have in the house. So, if you own more than $166,000, a Trust can help your loved ones avoid the delay, expense and hassle of probate.
2. Choose who inherits from you.
Another benefit of creating a Trust is that you have control over who inherits your assets after your death. Not only do you choose who will inherit from you, but a Trust can be created to extend the duration of the inheritance so that gifts to a minor, a disabled Beneficiary or a Beneficiary who has troubles managing his or her finances can be distributed in small, measured amounts with a Special Needs Trust. So, a Trust can help manage your money after your death.
3. Operates during your lifetime.
However, one of the less obvious benefits of a Trust is that it also operates during one’s lifetime. So, it can help pass your assets after your death as we have discussed, but it also can help manage your affairs during your lifetime if you can no longer do it for yourself. This can be an important benefit for seniors, for people with diseases such as Alzheimer’s and dementia and for people who simply don’t want to (or can’t) handle their financial affairs on their own.
While the financial aspect of estate planning is important, these other considerations may be a benefit to you. What concerns do you have for your senior years and beyond? What goals do you have for your loved ones after your death? Are they more than just financial?
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*Note: This is the amount for 2022 and it changes every year.