5 Reasons You Might Need A Family Trust
Many families do not have a family trust. The perception is that, with the passing of the Tax Cuts and Jobs Act of 2017, there are fewer and fewer reasons to have a family trust. The Act raised the federal estate tax exemption from nearly $5 million to $11 million a person, or $22 million for a couple. The exemption is adjusted for inflation and so, in 2021, it stands at $11.4 million a person. Surely, people reason, with the federal estate tax exemption so high, all you need is a will? In this article, I’ll explain why that thinking is wrong and you need a family trust.
The tax cuts will expire. In 2026, the federal estate tax exemption will be back to its $5 million level. So even if you are exempt from federal estate taxes today, you might be subject to them in 2026 and beyond.
States may levy an estate tax. Consider Massachusetts, whose state estate exemption stands at $1 million. This is, of course, much lower than the federal estate exemption level. Your state or a state you own property in, may choose to or already levy its own estate exemption at a lower threshold than the federal government. So, ensure that you understand your state’s estate exemption laws.
You have to avoid probate. Funding your trust while you are still alive, ensures that your estate won’t enter into probate. If you fund your trust during your lifetime, you will avoid probate. This means that your family won’t have to take to court to have your will proved so that they can settle your estate. Probate can be a highly contentious, painful, expensive and long drawn out process. You just don’t want to subject your family to that.
Plan for your incapacity. In the event that you become incapacitated, a funded trust can be used by your successor trustee to take care of your needs according to your wishes. Your successor trustee will pay your medical bills, look after your assets and ensure that everything is taken care of in ways that reflect your desires. Without a funded trust, your family will have to appeal to the courts to appoint a conservator who will manage all your assets. Again, this takes time, and money and can be very painful to go through.
Look after the interests of minors. Another reason that you need a family trust, is to ensure that the interests of minors are looked after until they are old enough to manage their inheritance themselves.
Having a family trust remains a very important tool in estate planning. A family trust can ensure estate tax savings, make the transfer of assets after your death less painful and contentious, protect your interests in the event that you are incapacitated, and provide a framework to look after minors until they are old enough to take care of themselves. There are many other benefits to having a family trust. This is a tool that you really should think about using.