Do I Need a Trust? Will a Trust Help Avoid Taxes or Probate?

Do I Need a Trust?  Will a Trust Help Avoid Taxes or Probate?

One common question in the realm of estate planning is whether or not to establish a trust. The answer depends on each individual’s unique circumstances, including family composition, assets, and estate planning objectives. This article will provide an overview of trusts and wills, including their potential advantages and disadvantages in terms of probate and taxes, particularly in the state of Montana.

If you are interested in learning more about trusts and estate plans, we invite you to call our firm to schedule a consultation with an experienced Montana estate planning lawyer.


What is a Trust?

A trust is a legal structure in which a trustee holds property on behalf of one or multiple beneficiaries. This arrangement offers flexibility, catering to diverse needs and circumstances. Often utilized for post-mortem asset distribution, trusts can also serve during a person’s lifetime.

By incorporating a trust into estate planning, individuals ensure that their assets are distributed according to their wishes upon death. As assets within a trust are not part of an estate, this strategy can help protect wealth from estate and inheritance taxes.


How Can A Trust Be Beneficial?

Trusts can be beneficial in certain situations, such as when individuals need to make complex property arrangements or simplify the administration of assets after death. Trusts can also facilitate the transfer of asset management and provide a smoother transition for beneficiaries.

Another frequent use of trusts is in cases with blended or complex family dynamics. When children from multiple marriages or relationships are involved, and there are significant assets at stake, a trust can be used for the management and distribution of assets after death, providing guidelines for the appropriate use of money and assets.

What Types of Trusts Exist?

There are a number of different types of trusts, each serving distinct purposes:

  • Revocable Trust: Also known as living trusts, these are created during an individual’s lifetime and can be amended anytime.
  • Irrevocable Trust: Assets in this trust cannot be removed, providing protection from probate and taxes.
  • Asset Protection Trust: Shields assets from future creditors’ claims and may be structured as irrevocable for a specific term.
  • Charitable Trust: An irrevocable trust offering tax-exempt gifts to charities or non-profits during the trust creator or beneficiaries’ lifetimes.
  • Special Needs Trust: Facilitates eligibility for government benefits by transferring assets out of an individual’s estate.
  • Spendthrift Trust: An irrevocable trust providing regulated payments to beneficiaries, protecting them from creditors’ claims.
  • Tax Bypass Trust: Enables spouses to transfer money to each other while minimizing federal estate tax obligations upon death.


What is Probate, and How Can It Be Impacted By A Trust?

Probate is a legal process that involves the administration and distribution of a deceased person’s assets. In general, probate includes the identification of assets, paying the debts of the decedent, and distributing the remaining assets to the heirs or beneficiaries.

In Montana, the probate process is relatively straightforward compared to other states. Probate can provide structure in cases where disagreements may arise between beneficiaries or potential beneficiaries. The well-defined probate process in Montana can help personal representatives efficiently administer and distribute assets and close the estate.

Because assets in a trust are not considered to be “owned” by the decedent, assets in a trust are normally not subject to probate.  Instead, only the non-trust assets of the decedent are subject to probate.

Probate court proceedings can be expensive and time-consuming though—and even more so if there are multiple heirs involved in an estate settlement process. By transferring assets into a trust, individuals may be able to avoid or minimize probate costs while still making sure assets get distributed according to their wishes upon death or incapacity.


Do I Need A Trust If I Have a Will?

For some individuals (particularly those of modest means), a will-based estate plan may be more appropriate than using a trust.  A trust will cost more to prepare, and will also require administration costs.  If there is not any need to distribute assets over time after a decedent’s death, and if the value of the assets is likely to be low, then a trust may not be beneficial.

The choice between a trust and a will-based plan depends on the specific needs and objectives of the individual. Both trust and non-trust estate plans have their pros and cons, so it is crucial to consult with an estate planning attorney to determine which option is best suited for one’s unique circumstances.

Schedule A Free Consultation With An Experienced Montana Trust Attorney Today.

You may be wondering about how best to protect your family’s assets, preserve eligibility for vital government benefits, and potentially avoid tax liabilities. A trust may be the tool that you need to accomplish your goals.

Whether a trust is appropriate depends on an individual’s unique situation. Trusts can offer benefits in terms of asset distribution, but they may not be necessary for everyone. It is crucial to consult with an estate planning attorney to ensure that one’s assets are properly managed and covered, regardless of the chosen plan. If you are unsure which type of estate plan is right for you, we encourage you to call our office to schedule a consultation.