Trusts and Estates – What you Should Know

Trusts and Estates – What you Should Know

One of the most significant pieces of your financial plan is your estate plan. No one likes to think about dying and what will happen afterwards, but if you plan now, you take the stress off your shoulders.

Wouldn’t it feel better to know your loved ones are well cared for financially, and your assets will be distributed how you want rather than rushing at the last minute to make significant financial decisions?

A trust and estate plan should be a part of everyone’s financial layout – here’s what you should know.

What is a Trust?

A trust is an arrangement with a third party to hold your financial assets on your behalf. In the trust arrangement, you state how your assets pass down to your beneficiaries and when. Trusts are often a preferred way to pass assets down to heirs because they avoid probate or the courts getting involved in your estate.

Reasons to Set up a Trust

Many people create a Trust to make the act of passing down their assets easier on everyone. Other reasons to set up a trust include:

  • Help minimise taxes
  • Speed up any estate issues
  • Protect your assets from lawsuits or other liabilities
  • Avoid probate

The Types of Trusts

There are two main types of trusts you should consider – a revocable or irrevocable trust.

  •    Revocable Trust: Also known as a living trust, you can still control your assets while you’re alive, even distributing them as you want throughout your life. This Trust doesn’t avoid estate taxes, so that’s a consideration if you have a large estate, but it allows you to make changes throughout your life rather than locking up your assets until you die.


  •    Irrevocable Trust: As you can guess by the name, this Trust cannot be changed. Once you place assets into it, they remain there until you die, and the assets are passed onto your heirs. The positive side, though, is your beneficiaries can avoid probate and estate taxes.

Why Consider a Revocable Trust?

An irrevocable trust can’t be changed, which makes it a big decision for anyone. But why would you consider a revocable trust over an irrevocable trust? Here are the top reasons:

  • You want someone else to manage your estate, especially as you age. If you worry about making financial decisions, putting your assets in a Trust gives someone else the responsibility.


  • You own a business and worry about what will happen to it if/when you die. If it’s in a Trust, it can continue to operate and produce income (with the correct supervision).


  • It protects your assets from anyone who may have less than your best interests in mind, especially once you die.


  • It protects your assets should you be involved in any legal issue.

Is a Trust Right for You?

 Anyone can open a Trust. But should you? Here are the main reasons it may be right for you:

  • You want someone to control how and when your beneficiaries receive their payout upon your death. This is especially important if your beneficiaries are children. You can keep the assets in the Trust until they reach a specific age.


  • You want to avoid your assets from paying your heirs’ creditors or worry about how your heirs will manage the money. You set the parameters of how they receive the money.


  • You want to set up a plan for financial decisions should you and your spouse become incapacitated. The Trust will have your instructions and proceed on your behalf.

Is a Trust Better than a Will?

It’s not a case of is a Trust better than a Will, but rather, you need a Will and a Trust. A Will takes care of the more minor details – your wishes for things like material possessions you want to be passed down to your beneficiaries. But, it also determines what happens to your children. If you have minor children, a Will is a must.

A trust handles the ‘big stuff’ like your house, bank accounts, and investment accounts. Having your big-ticket items in a Trust keeps the assets out of probate, keeps your estate private (Wills are public), and avoids certain taxes and fees.

So it’s not a matter of one being better than the other, but rather having both to protect your assets, belongings, and your children.

What is an Estate?

Your estate is everything you own or your net worth. It includes all assets, such as your house, car, bank accounts, investment accounts, and any other large and small assets.

It also includes your liabilities. This includes your mortgage, credit cards, and any other significant debts. In short, it’s your net worth or your assets minus your liabilities.

What is an Estate Plan?

An estate plan focuses on the financial distribution of your assets. When you die, where will your assets go? That’s part of your estate plan.

It also includes your healthcare wishes and what you want to happen if you’re in the hospital and can’t make your own decisions.

An estate plan usually includes some or all of the following documents:

  •    Will – The Will instructs who gets what, especially the small items around your homes, such as jewellery, furniture, or other collectables. Your Will names an executor – or the person in charge of overseeing the distribution of your assets. This is an essential part of any estate plan.


  •    Living will: The living will states what you want to happen should you not be able to make your own decisions. It should include decisions about resuscitation and other major health decisions.


  •   Healthcare power of attorney: This appoints a person to make your healthcare decisions for you if you cannot make them yourself.


  •   Financial power of attorney: This appoints a person to make your financial decisions for you if you cannot make them yourself.


  •   Trust: This protects your assets from probate, estate taxes, and litigation. It also dictates how they distribute your assets upon your death.

Every estate plan looks different. Think about what you want to achieve with your estate plan. Do you have specific healthcare concerns you wish to be addressed? Do you want to name someone to handle your finances if you can’t manage them?

All estate plans should include a will, so someone manages your estate and distributing assets as you hoped, but from there, your documents will vary based on what you want/need.

Why Have an Executor?

The executor is the most important piece from your Will, next to who will take custody of your minor children.

The executor is responsible for handling your estate, from paying the creditors to distributing the assets. Executors are never responsible for your financial debt out of their own pocket, but they must satisfy everything they can from the estate.

Choosing an executor is a big decision, but it’s usually a close family member or friend, someone who may also be an heir.

How Often Should you Update your Estate Plan?

Life changes, and so should your estate plan if necessary. The most common rule is to revisit your estate plan if something significant changed in your life. If you gained family members, lost family members, or your financial situation changed drastically, revising your estate plan is always a good idea.

Even if nothing ‘major’ changed, consider revisiting and updating your estate plan every 3 to 5 years. You’ll have aged enough at that point to think about your plan and decide if it’s still adequate or accurate. If your finances changed, you might want to add or change how your estate plan is set up.

Bottom Line

If you don’t have a Will, Trust, or any Estate plan, now is the time to set it up. Whether you are single or married with a family, there is always a reason to protect your financial assets. Keeping everything as straightforward as possible is the key.

The right financial plan will protect your assets legally and ensure they are distributed how you would like. If you start now, you can set up a financial plan that takes care of your assets while you’re alive but also provides the necessary reassurance that your loved ones will receive your assets as you desire.


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