Long-term financial planning includes leaving a legacy for your loved ones. The simple part is knowing you want to provide for those you care about. The more complicated part of the process is figuring out how to best do so. Common choices for legacy planning include a trust or an estate, each with different advantages depending on your situation and goals. Here is a basic breakdown to help you know which plan is right for you.
Basics of an Estate
An estate refers to the physical and financial assets that will be transferred upon the owner’s death. This is a one-time transfer that can be given to a single beneficiary or multiple. Most simple wills involve an estate and define how this estate will be distributed by an executor.
Basics of a Trust
A trust is created to distribute an ongoing sharing of assets. It may be used in conjunction with an estate plan if there are mixed assets. A trust is created as an ongoing plan to provide for the recipients after the owner’s death and is typically administered by a trustee. A trust may be created for specific purpose or for general use.
Trusts for Immediate Support
While a trust is often designed to provide support after death, it is also possible to create a trust while the owner/grantor is alive. It allows the beneficiary to receive funds on a consistent schedule or when certain conditions are met. This can be preferable to a straightforward gift because it isn’t received all at once, thus offering potential tax savings.
Trusts for Ongoing Support
A trust is the best tool to provide ongoing support, which can be invaluable in the case of a minor dependent or for family members with special needs. A trust can provide ongoing income for a party that is not yet capable of managing their own finances, ensuring they will have continued support.
While dependents are a common reason for trusts, other types of trusts may also be created to provide for family or friends of any age, including revocable and irrevocable trusts. There are specific trusts to protect assets and guard against creditors in high-debt situations. Charitable trusts can also help provide a lasting legacy, supporting a favored cause or concern after death.
Best Plan for Simple Execution
A trust may be useful for long-term financial support, but any estate plan will typically provide a simple solution for the distribution of assets. If you don’t have an extended portfolio to leave behind, your best option may be a basic estate plan that enables you to establish a will and outline your wishes for after you’re gone. A well-drafted will can prevent much of the confusion and complication that arises when managing a deceased person’s estate.
How to Set up a Trust or Estate Plan
When determining whether a trust, a will, or a combination of both best suits your needs, it pays to check with the experts. An experienced accountant or tax professional well-versed in estate planning can help you create a plan that preserves your wealth and supports your loved ones in accordance with your wishes. Consider establishing your legacy with trusted estate planners today. The sooner you have a plan in place, the greater your peace of mind will be.