Estate Planning: Having Faith in your Legacy

Discussing death is never a pleasant aspect of financial planning, but it's certainly one of the most important. While no one likes to discuss his or her own mortality, many of us wonder how we'll be remembered. Perhaps you want your legacy to live on through the work of a charity, or maybe you'd rather bypass the probate that is associated with a will. Whatever the reason, a trust may be an option for you to consider.

Trusts, simply put, are a way for you to transfer your assets and property into one legal entity. The person putting the property into the trust is called the trustor. The person managing the property and assets is named the trustee, and finally, the person or charity who receives any benefits from the trust, is the beneficiary. In many cases with living trusts, the trustor can hold all three roles, but most often, the trustor is also the trustee.

One of the biggest benefits to a trust is that when properly established, you can avoid probate court and legal costs associated with a will. Also, a will is a matter of public record, while a trust, when established properly, stays private.

There are other advantages to trusts as opposed to wills as well. With a trust, anyone can be named as the trustee. Also, in many states, the costs associated with probate court are extremely high and can often drastically reduce the amount of benefit left. With a trust, you're avoiding this costly legal hurdle.

There are many different types of trusts available, but here are two of the most used:

Living Trust

A living trust allows a trustor to establish a trust during his or her lifetime. This gives the trustor the added flexibility of continually managing the estate until death. During this time, the trustor can be the trustee as well as the beneficiary. Usually, trustors use this time to act as the trustee so they can actively manage their assets and the distribution of them. Assets that are contained within a living trust are often distributed more quickly than wills upon the death of the trustor.

Bypass Trust

A bypass trust, which is also known as a credit shelter, is helpful when planning for both spouses' estates. It is generally used as a technique to pass assets to a surviving spouse in the event of the death of one spouse. When carefully planned, rather than passing assets directly to the surviving spouse, the assets and property are placed in the remaining trust. The surviving spouse can then take withdrawals from the principle for qualified distributions, such as support, education and healthcare. A bypass trust avoids paying federal taxes for estates valued at over $2 million, which is the federal exemption for the year 2006.

Aside from a will, trusts may be the best options for making certain that your memory lives on. They offer many benefits over the traditional will. However, they are much more complicated, and require help from a financial professional, as well as an attorney who specializes in estate planning. These are only a few choices available for you to pick from when considering a trust. A financial professional, along with an estate planning attorney, will be able to give you many more options and tips on which estate planning technique is right for you.