Illinois Trusts Lawyer
Benefits of a Trust

There are many benefits to choosing a trust including the following:

Avoiding Probate
Providing for Long-Term Needs (Minor Children, Special Needs)
Increasing Flexibility of Dispositions
Utilizing Special Tax Provisions (in certain cases)
Increasing Privacy for Estate Disbursements and Life Time Needs

The use of a trust for estate planning can help achieve the following goals: (1) it provides a means of avoiding probate (2) it provides long term asset management potential to assist with the care of minors; (3) it provides flexibility with regard to modifying asset disposition; (4) it can take advantage of certain tax-saving provisions; and (5) it can prove to be far more private than a will or a general power of attorney.

1. Avoiding Probate:

A trust provides a means of avoiding probate. Assets held in trust name are no longer "owned" by the person in control of the trust. Therefore, to avoid probate with a trust, you must not only form the trust, but it must be funded prior to the death of the settlor. To fund the trust, assets should be put into trust name. The procedure for accomplishing this generally is not difficult. Furthermore, the fact that the assets are placed in trust name will not affect your ability to utilize them. In a revocable trust where the settlor is the trustee and beneficiary, the settlor may sell, transfer, deplete, etc. the assets asif they were not placed in trust. Not all assets may be owned by a trust. You are advised to seek specific advice of legal counsel and financial advisors as you determine which assets should be held by a trust.

2. Long Term Asset Management:

The use of a trust can provide significantly increased flexibility regarding the timing of the disposition of property.

First, a trust can delay the placing of assets in the hands of a beneficiary. Assets that pass only by will (or by the intestacy statute if a will is not left) become the property of the minor recipients upon reaching their 18th birthday. This result can be avoided through the use of a trust. For example, instead of a certain beneficiary receiving large amounts of property on his or her 18th birthday, the trust could state that income will be paid on regular intervals, such as quarterly, and that mandatory distributions of principal will be made when the beneficiary reaches certain benchmark ages. In this case, the beneficiary may receive a distribution of principal on a schedule similar to the following: 25% on his or her 25th birthday; 25% on his or her 30th birthday; and 50% on his or her 35th birthday. During this time frame, beneficiaries could have the ability to receive principal for certain other expenses such as education and medical expenses, and may request a discretionary distribution from the trustee prior to a mandatory distribution. The flexibility of timing payments by the trust can represent a significant planning advantage for people with young children.

Second, in the case of certain assets, the use of a trust can enable a beneficiary to access funds. For example, if a young couple has large life insurance policies payable in the event of both of their deaths to their minor children, the life insurance company may refuse to payout on the policy until a guardian ad litem is appointed by a court of competent jurisdiction. The company may determine to "hold" the proceeds of the policy until the child reaches age 18. By using a trust as the beneficiary or the owner of the life insurance policy, this result can be avoided. In that case, the successor trustee takes control over the proceeds of the policy.

3. Tax Saving Provisions:

One of the most significant advantages of a trust is that it can utilize tax savings provisions. Specifically, a trust can be drafted as to ensure that each spouse is able to utilize his or her unified credit. This can save taxes in the amount of the tax rate multiplied by the unified credit. Tax laws are constantly changing as are tax rates. Each year, it becomes important to review what the current law is. By taking advantage of existing tax laws, a client can save hundreds of thousands of dollars in tax.

Under current law, if the assets are likely to exceed twice the estate tax exemption amount (in so far as it is currently ascertainable), even with using both spouse's exemptions, estate tax is likely to result. In this scenario, it is important to reduce the size of the estate and therefore the estate tax, this can be done through the use of a charitable contribution trust, through annual gifting to beneficiaries, and through life insurance trusts. Furthermore, gifts and devises from parents and grandparents augment the estate. To minimize the estate tax impact of generational wealth, a generation skipping transfer in favor of grandchildren may be employed. Other options also may exist depending on the facts and circumstances of a particular situation.

4. Flexibility of Asset Disposition:

A trust can provide flexibility with regard to modifying asset dispositions. Unlike with a will, which must be modified through a duly executed codicil, a trust may provide for dispositions of tangible personal property to be done by letter. This letter may be changed at the convenience of the make of the trust and does not have to be executed with the formality of a will. This letter may detail who receives certain personal items and can be changed without further legal expense.
Furthermore, the assets may be distributed in the body of the trust in a more flexible arrangement than can be found in a simple will. For instance, the trust may provide for the assets to be distributed in a staggered payout structure, or according to beneficiaries achieving goals (college graduation for e.g.). The trust may also provide for assets to be distributed according to gift letters. This increased flexibility may be very important to distributing personal assets.

The above listed benefits of a trust are not the only benefits that may arise. Other benefits, such as insuring assets are handled privately, may also accrue.

Learn more about trusts:

Trusts
- What is a Trust
- Special Needs Trust