We discuss ways in which a trust could be supplemental to your will in your estate planning.
Whether you’re a young entrepreneur or a business leader with decades of experience, estate planning is an important element of wealth planning. For most people, a basic will is the starting point of their plan, but 33 percent of adults don’t have one, according to a survey by caring.com. In some cases, a will is all that’s required to share your wishes with your beneficiaries. But for more complex estates, a trust can be a valuable tool.
“A will manages what happens to your assets after death, but a trust goes into effect as soon as you sign the paperwork,” says Cyndy Ranzau, wealth strategist with RBC Wealth Management-U.S. “A trust can dictate what happens while you’re alive. You can put in provisions to address what you’d like to happen if you become incapacitated, such as spending your wealth on long-term care in your home.”
People may be more familiar with a will than a trust and assume that a will alone represents a complete estate plan, says Leslie Williams, wealth strategist with RBC Wealth Management-U.S.
“Many people think they don’t have enough money to open a trust, but anyone with assets to manage could benefit from a trust,” says Williams. “If you have insurance policies, retirement plans with designated beneficiaries and real estate with joint ownership, you don’t need a will or a trust to ensure those assets go to your heirs when you pass away. But if you have assets outside of those items, a trust provides a way to effectively administer them.”
For some, having both a will and a trust is ideal, says Williams.
Trusts are a common way to manage more complex estate planning. A revocable trust, also known as a living trust, can be created by an individual or jointly by a couple. The creators of the trust, known as grantors, are typically the same as the trustees, says Ranzau. The grantors should identify successor trustees who will manage the assets if the grantors become incapacitated or pass away. The grantors also name the beneficiaries of the trust when it’s established.
“The beauty of a revocable trust is that it can be changed while the grantors are alive,” Ranzau says. “An irrevocable trust, on the other hand, cannot be changed.”
Irrevocable trusts are typically used to manage gifts and mitigate taxes, says Williams.
A will is the simpler option for estate planning, but it needs to go through probate after you pass away, which can take time. Assets in a trust don’t need to go through probate and can be distributed according to the trust’s terms more quickly, explains Williams.
Here are some ways in which a trust could be supplemental to your will in your estate planning:
Typically, your wealth planner and estate planner will discuss options for how you want to manage your assets in the context of your family configuration, dynamics and goals.
“As soon as you have assets to manage, you should be talking about a will and trusts,” says Williams. “We talk with our clients about whether they want to make gifts to charities and family members during their lifetime and about how they would like their beneficiaries to inherit their assets.”
Once the decisions have been made about a will, revocable trust or an irrevocable trust, clients have their attorneys prepare the documents.
“A simple will can be done quickly, but a trust may take days, weeks or months to complete depending on the circumstances, the clients and their lawyers,” says Williams. “It’s important to remember, too, that a living trust is not a permanent document. People can make changes anytime they want to the terms of the trust and the assets in it.”
Protecting your assets and caring for your beneficiaries are essential components of intergenerational wealth management, and creating an estate plan that’s tailored for your specific situation can help to ensure your wishes are carried out appropriately.
Trust services are provided by third parties. Neither RBC Wealth Management nor its Financial Advisors are able to serve as trustee. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.
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