Beginning in 2018, a married couple can pass away with an estate of just over $22 Million without paying any federal estate tax. That means for more than 99 percent of Americans there is no threat of a federal estate tax burden. Clients are already asking: with no estate tax, do you still need a trust? While trusts can be used to shelter assets from the estate tax, trusts have many other valuable estate planning uses.
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." The following are some of the benefits of trusts.
- Avoiding Probate. One of the biggest benefits of a trust is avoiding the probate process. Probate is the process of administering and settling an estate after someone dies. While most counties in Massachusetts now accept electronic filing which speeds up the process, it still can be a costly and time-consuming process. Even with small estates, beneficiaries may not have access to estate funds until a will is filed and an Personal Representative appointed. A trust gives beneficiaries immediate access to trust funds. If you have property in multiple jurisdictions, a trust can be especially beneficial in avoiding more than one probate proceeding in each state. Also, probate is a public process—anyone can access court records--while assets distributed in a trust are private.
- Minimizing the Massachusetts Estate Tax. While the federal estate tax exemption protects just over $22 million in assets, anyone in Massachusetts passing away with an estate of more than $1 Million (which threshold can be reduced by certain lifetime gifts) not passing to a surviving spouse or charity can expect to pay an estate tax to Massachusetts. Through trust planning, a married couple can essentially double this, allowing them to pass $2 Million to children or other beneficiaries without paying an estate tax, saving nearly $100,000 in estate taxes.
- Protection for Disability. Another benefit of a trust is to provide protection if you become disabled. If you become incapacitated, the trustee can manage your finances without the need to go to court and get a conservatorship or guardianship.
- Control. A trust allows you to specifically detail how you want to distribute your assets. For example, you can choose to dole out benefits in small amounts if you don't want your beneficiaries to receive all your assets at one time (particular useful when beneficiaries are of a young age). You can also direct how funds in the trust can be spent on a beneficiary. If you have property, the trust can specify who has the right to use the property, whether it can be sold, and how proceeds should be distributed.
- Protection from Creditors. Certain types of trusts can be set up to protect beneficiaries from creditors. A properly structured trust can create roadblocks against creditors from reaching trust funds. This can be helpful if, for example, your intended beneficiary divorces or is the target of a lawsuit.
- Providing for a Child with Special Needs. If you have a child with special needs, a trust is particularly important. A third party special needs trust, or supplemental needs trust, allows a beneficiary with special needs to receive inheritances, gifts, or other funds without losing his or eligibility for government programs.
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