The Pros and Cons of Making a Trust

If you want to help ensure that your loved ones have as much financial security as possible after you die, you need a few key estate planning tools in place — a life insurance policy (of course), a Last Will and Testament, and, in some cases, a trust.

If you’re an eligible Haven Term policyholder, making a trust is easier than ever thanks to Trust & Will, a service offered through the Haven Life Plus rider. Trust & Will is a simple, affordable estate planning service where eligible Haven Life customers can create a no-cost single or joint trust using Trust & Will’s easy-to-follow online interface.

“A trust is a legal tool that provides a set of estate planning benefits,” explains Patrick Hicks, head of legal at Trust & Will. “A typical living trust will handle most of the most common needs in estate planning.”

Does this mean that everybody should create a trust? Not necessarily. There are both pros and cons associated with making a trust — and although the pros outweigh the cons in most cases, it’s worth understanding exactly what you’re getting into before you get started.

The pros and cons of making a trust

Here’s a quick overview of the pros and cons of making a trust, courtesy of Trust & Will’s Patrick Hicks:

Pros

• Trusts give you precise control over when and how assets pass to your beneficiaries.
• Trusts allow you to create financial security for the people who need it most, such as children with special needs.
• Trusts give you the opportunity to specify what should happen if you become incapacitated during your lifetime.
• Trusts offer multiple tax advantages before and after your death, including the ability to minimize estate taxes.
• Trusts allow your loved ones to avoid probate after your death — making their lives easier during what can be a stressful and sorrowful time.

Cons

• Trusts take time to create, whether you’re working with an attorney or using an online service like Trust & Will. Much of the time commitment comes from deciding what type of trust to create and how to distribute your assets.
• If you have a relatively small estate, the benefits of a trust might be minimal. Creating a trust to avoid estate tax, for example, is less useful if your estate is unlikely to be taxed.

A revocable living trust is not only a helpful estate planning tool, but it also gives you the option to revise your trust while you are still alive — that’s what “revocable” means, after all. An irrevocable trust can only be revised after getting permission from the grantor’s named beneficiaries. When you’re thinking about the pros and cons of making a trust, keep that key difference in mind.

How a trust can benefit your loved ones

One of the biggest pros of making a trust has to do with the benefits it can offer — not only to you and your estate, but also to the people you care about most. Whether you’re using a trust as an estate planning tool that allows for probate avoidance or as a way to preserve Medicaid eligibility for a loved one with special needs, a good trust allows you to be the trustee — literally — of your own assets.

Trusts can also help you and your loved ones solve problems associated with income tax, estate tax, real estate, probate planning, small business succession planning, and more. Setting up a trust fund, for example, can help ensure that your heirs have access to financial resources when they need them most. Creating a charitable trust or a charitable remainder trust can help you donate a portion of your assets to a good cause while simultaneously deferring or avoiding capital gains tax.

“There are some times that a trust is the only reasonable solution,” says Hicks. “Individuals with high net worths may see that a trust allows for tax planning techniques that would not be possible otherwise. Parents of children with special needs may see that some trusts preserve eligibility for governmental support in ways that would not be possible without a trust. Parents of young children find that a trust gives more control over how children receive an inheritance than any other mechanism.”

Is a trust right for you?

Now that you understand the pros and cons of trusts, it’s time to ask yourself whether a trust is right for you. Hicks suggests starting the process by asking yourself whether a trust can help you achieve a long-term financial goal.

“In evaluating whether a trust is appropriate, it’s probably best to start by identifying what needs you want to address — avoiding probate, planning for incapacity, dealing with young children, etc.,” explains Hicks. “Once you know the issues that matter to you, you can then decide whether a trust is the right solution for your concerns or if your planning would be more effective without adding a trust.”

If a trust seems like the right option, don’t procrastinate — especially if you decide to make a revocable living trust. A living trust’s pros and cons are fairly simple. On the plus side, a revocable living trust gives you full control of your assets while you are alive while helping your loved ones avoid expensive probate costs after your death. On the minus side, well — you have to set aside the time to create the trust, which includes making decisions about how you want to distribute your assets after you die.

Luckily, a revocable living trust can be revised as often as you want. This means that any decisions you make today can be adjusted as your circumstances change — a new house, a new child, an unexpected divorce or widowhood. That’s why a revocable living trust is such a popular choice, and why it’s a good idea to ask yourself whether it’s time to get the trust-making process started.

“If you determine a trust is appropriate for you, the time to set up a revocable trust is now,” says Hicks. “Assets in a revocable trust are fully accessible and remain your assets, so there’s no loss of control or access to your property.”

The pros and cons of a trust are fairly easy to evaluate, which means that all you have to do is decide whether a trust can help you manage your assets. If the pros of making a trust outweigh the cons, set aside the time to create your trust — and trust that you’re taking another step to help provide long-term financial security for the people you care about most.