Probate can be a difficult process even with the simplest of estates and few heirs. That process can quickly become much more difficult with larger estates, children by former spouses and heirs who are unprepared for the responsibility that comes with receiving an estate’s assets. As a result, trusts with family members as beneficiaries are becoming a popular tool in estate planning. These trusts can ensure that your heirs receive the assets you want them to but in a way that protects the overall value of the property.
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Living Family Trust
As part of your estate planning, you can create a trust with yourself and family members as beneficiaries. This is known as a living family trust. To create the trust you must transfer the trust property to an individual who will manage it for the beneficiaries’ sake, known as a trustee. Often you, as the trust creator, will serve as the trustee for the rest of your life. In that case, you would transfer property to the trust by recording on all relevant property deeds and titles that you are holding the property as trustee for the trust. The trustee manages the property subject to the terms you define. When you die, a new trustee will take over and manage the property subject to the trust terms. One benefit of a trust is that the property is not included in your probate estate when you die; thus, the beneficiaries will have immediate access to the property, subject to the trust’s terms.
A testamentary trust is created by a will. The will identifies the beneficiaries and trustee and establishes the term of the trust as well. This doesn't avoid probate since the trust is created by the will. However, a trust may still be a good idea if you believe your beneficiaries will not be able to manage the property on their own. The trustee handles that burden while your beneficiaries still benefit from the property.
Pour Over Will
The downside of a trust is that you have to relinquish ownership of your property; thus, you may be hesitant to transfer all of your property into a trust even though you want all of your property to eventually be distributed through it. You can create a living family trust with some property during your life, then draft your will so that all the property you kept ownership of is "poured" into your trust after you die. A will that does this is known as a pour over will. By using such a devise, you can retain some property during your lifetime while also making it possible for your beneficiaries to have immediate access to a portion of your property upon your death with them eventually receiving all of it subject to your trust’s terms.
Qualified Terminable Interest Property Trust
A Qualified Terminable Interest Property Trust (QTIP) is a special type of trust often used by someone who has remarried but wants to ultimately leave his property to his children from a prior marriage. The QTIP allows your current spouse to benefit from your property for the rest of her life. When she dies, however, she retains no ownership and your property is ultimately transferred to your children. A QTIP also allows any estate tax on your property to be deferred until your surviving spouse dies. QTIPs are difficult to create, so consider hiring a local licensed attorney to help you prepare it.