When most people think of trusts, trust fund kids, business moguls, and wealthy families come to mind. But here’s the thing – trusts aren’t just for the rich.
They’re actually super useful for anyone with assets, no matter the size. Whether you’ve got a family home, investment accounts, or a business, trusts can help protect what you’ve worked hard for and make sure it lasts for generations.
In this blog, we’ll chat about the top 6 perks of using a trust in your estate planning, showing you why it’s a smart move for estate planners from all walks of life.
Probate is the long legal process for settling an estate after someone dies. It often involves steep costs (legal fees can easily exceed 4% of the total estate value). And probate proceedings play out in public court records, making all details of an estate available to anyone curious enough to check.
Here in North Carolina, probate costs often exceed the national average. It’s easy to see why more and more North Carolinians use revocable and irrevocable trust structures to avoid these fees.
Unlike assets that pass via your will through probate, assets placed in a trust can avoid the process entirely. They transfer directly to beneficiaries according to your wishes.
As mentioned previously, while wills eventually end up documented in detail by the probate court, trusts allow you to share wealth quietly among heirs and outside the public eye.
Probate proceedings are public records, so everyone has access to the details of how your estate is distributed and the assets involved.
Confidentiality provides immense peace of mind for families during such an emotional time. Trusts prevent outsiders from gaining insight into asset distribution after your death.
Life has a way of throwing surprises at us, and it’s essential to be prepared for the unpredictable. Whether it’s the result of aging or unforeseen health challenges, these situations can impact our ability to make decisions.
Without proper planning, your family may have to endure an expensive court intervention called guardianship to obtain control over your financial affairs.
However, a trust built thoughtfully with contingencies for incapacity preserves your wishes without court supervision. The trustee simply follows the instructions you provided when creating your trust. That continuity gives heirs confidence assets remain protected in case of your incapacity.
A well-crafted revocable trust centralizes the administration of your assets to maximize efficiency. The designated trustee coordinates across all accounts, property, and financial instruments. They ensure everything transfers according to the trust’s terms.
Compare this streamlined administration against settling an estate through scattered probate proceedings. Without centralized control, delays and complications ratchet up quickly. And if you own property across multiple states, each jurisdiction requires a separate probate process.
Another key benefit of establishing a trust is that your wishes can live on long after you’re gone. Probate concludes when an estate closes, but a thoughtfully designed trust endures. You can include provisions to meet the needs of your beneficiaries at various life stages—even for those not yet born when you created the trust!
Special instructions can benefit minors until they reach maturity. You can dictate staggered distributions over many years to prevent reckless spending. Or include constraints around life events like marriage, graduation, etc.
Bottom Line—trusts empower you to control how beneficiaries inherit and use assets far into the future. And your guidance shapes and protects heirs in ways no will or probate process ever could.
In addition to avoiding probate, North Carolina trusts can minimize the tax burden on your estate in several ways:
While the federal exemption is over $12 million per person in 2023, placing assets in an irrevocable trust removes their value from your taxable estate. This estate planning tool can reduce or eliminate federal estate tax exposure.
Assets like real estate or investments may carry substantial accumulated capital gains when you pass away. Trusts allow heirs to receive the stepped-up cost basis from your death while spreading out taxable gains over time.
Careful estate planning, such as executing an intentionally defective grantor type of trust, can generate income tax efficiencies. Assets grow tax-free outside your estate while leveraging your lifetime exemptions.
The intricacies around estate and income tax laws mean specialized planning is essential. Our attorneys stay up to date on the latest tax code changes so we can optimize trust strategies for North Carolina residents.
By now, you know that trusts are powerful tools for managing and distributing assets. But which type of trust is best when creating your estate plan?
Well, it all comes down to your assets, goals, and beneficiary needs. In general, there are two types of trust structures: revocable trusts and irrevocable trusts.
A revocable trust, often known as a living trust, provides flexibility and control during your (the grantor’s) lifetime. The key feature is its “revocability,” allowing you to make changes or even revoke the trust entirely. This adaptability makes it a preferred choice for individuals who want to maintain control over their assets while enjoying the benefits of a trust.
Some benefits of revocable trusts include:
However, since the trust can be revoked, assets are generally considered part of the grantor’s estate and may be accessible to creditors.
On the other hand, irrevocable trusts offer a more rigid structure but come with valuable benefits, especially in terms of asset protection and tax planning. Once established, the terms of an irrevocable trust generally cannot be changed without the consent of the beneficiaries, providing a higher level of asset protection.
Some benefits of irrevocable trusts include:
However, because of the irrevocable status, you relinquish control over the assets, and changes may require the beneficiaries’ consent. Additionally, establishing and managing an irrevocable trust can be more intricate compared to a revocable trust.
Ultimately, the decision between a revocable and irrevocable trust hinges on your specific goals, preferences, and financial situation. Consulting with our North Carolina estate planning attorneys can provide tailored guidance to ensure your chosen trust aligns seamlessly with your overall estate plan.
The powerful benefits mentioned above make it easy to see why more North Carolina families utilize trusts in their estate plans each year. Trust instruments provide stability, security, and control – delivering peace of mind through post-death uncertainties.
Crafting an effective trust aligned to your unique situation is complex, but the rewards for you and your beneficiaries are immense. Start a conversation with our estate planning attorneys at Cary Estate Planning today to ensure your legacy endures for future generations.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.