A trust is an estate planning tool that someone can use to pass money, property, and other assets to their chosen beneficiaries. One benefit of using a trust is that a trust avoids probate — the court process where a deceased person’s assets are legally passed on. Similarly, any asset in a trust avoids probate.
Trusts created and funded during the grantor’s lifetime can avoid probate
Assets in a trust almost always avoid probate
A testamentary trust isn’t created until the will and the estate assets have gone through probate
Regardless of whether you have a revocable trust or irrevocable trust, the trust avoids probate as long as it was created and funded before the grantor’s death. For that reason, a testamentary trust, which is created according to the language in a will, does not avoid probate like other types of trusts. Assets for a testamentary trust must go through probate proceedings before the trust is created and funded. But like all trusts, the assets won’t go through probate after they’re in the trust. For that reason, any type of trust can give someone greater control over how their assets are passed to heirs without assets having to be passed on during the probate process.
Should you use a trust or a will?
Trusts and wills are both powerful tools that you can add to your estate plan. Everyone can benefit from having a will, because a will removes all ambiguity about what should happen to assets in your estate. Without a will, state laws (called intestacy laws) may dictate who gets your things and how much they get. You should also create a will if you have minor children because a will allows you to name a future guardian for them.
Many people can also benefit from a trust because in addition to avoiding probate, trusts give you greater control over how your assets are distributed than just a will. For example, a trust may allow you to place conditions on when or how assets are distributed, like if you want to prevent a beneficiary from spending all of their inheritance in one shot.
Unlike a will, which always goes into the public record after probate, the terms of the trust usually stay private. If you are planning with a spouse or partner, there are also options for joint trusts.
A revocable living trust is a good option for many people because it offers flexibility — you can change its terms, remove or add assets, and even close the trust if you want — plus revocable living trusts are a more cost-effective option than some other types of trusts.
Do trusts avoid taxes?
Certain types of trusts can help your estate diminish or entirely avoid estate tax. Generally you need an irrevocable trust if you want to limit your estate tax bill, but you should talk with an estate planning attorney to ensure your trust accounts for all federal and state tax laws. Trusts may also help your heirs to avoid inheritance taxes, though again you should talk with an estate attorney about the specific laws in your state.
Learn more: How to find an estate attorney