A trust is an often misunderstood estate planning document. You may think that trusts are only for rich people, but that is not the case. Even people of modest means can potentially benefit. With different types of trusts available, you can choose one that is appropriate for your situation.
Creating a trust as part of an estate plan offers several potential advantages to you and your family.
- Keeping your financial affairs private
A will and a trust both serve similar purposes in distributing your property to your beneficiaries after your death. The main difference between the two is that a will has to go through probate while a trust does not.
Probate is a public process, which means that if you leave property to your family in a will, your financial affairs will become a matter of public record. A trust keeps such matters private.
- Avoiding the costs of probate
The costs of probate include both time and money. If you leave property to your family in a will, it can take months to complete the process and distribute the assets to your beneficiaries. Putting your assets in a trust typically means that your loved ones can receive their inheritance more quickly.
Monetary costs associated with probate can amount to an estimated 5% to 7% of your total estate. Leaving assets to your beneficiaries in a trust can avoid these costs and saves money.
- Decreasing the estate tax burden
Both state and federal estate taxes may apply to the property you leave behind. Oregon levies a tax against estates worth more than $1 million per person. This is a much lower threshold than for the federal estate tax, which is currently at $11 million per person.
If you fall into this category of well-off but not wealthy, you may be able to decrease or eliminate estate taxes with a marital deduction trust. Upon the death of you or your spouse, the assets automatically go into an irrevocable trust, thereby avoiding estate taxes.