Understandably so, the different types of estate planning tools at your disposal may be overwhelming. And at initial thought, you may believe the different tools to be performing the same function. However, they do have their key distinctions. Follow along to find out how a trust is different from an inheritance and how a proficient Fayetteville, Arkansas trusts lawyer at the Knapp Law Firm can walk you through this.
How is a trust different than an inheritance?
For one, a trust is an important document in the estate plan that allows you to hold onto your assets during your lifetime, but then distribute them to your loved ones once you have passed on. One of the appeals of a trust is that it avoids excessive taxation on your assets. The different types of trust recognized in the state of Arkansas are a revocable trust, an irrevocable living trust, and a special needs trust. With your trust, you are known as the trustor, your loved ones are known as the beneficiaries, and the third party that delegates your assets is known as the trustee.
On the other hand, an inheritance plan is usually included in the will and allows you to pass down cash endowments, real estate, and/or stocks to your loved ones once you have passed on. This is different than a trust because your inheritance will be subject to probate court and taxes. And if you do not have a will, then your inheritance will be distributed according to the rules set by the state of Arkansas.
What are the benefits of a trust?
There are many more benefits to a trust than simply avoiding taxes. For example, it may be beneficial if you believe your beneficiary to be an excess spender or in a financial dilemma. This is because your trustee can gatekeep your assets so that they are not all spent in one place. Even further, your trust can protect your assets from being lost in a bankruptcy filing or a business loss.
What’s more, a trust may serve a good purpose if your beneficiary were to ever, unfortunately, run into legal issues. Meaning, if you leave your assets in a trust, this will be considered a separate legal entity that cannot be touched when they are sued.
And lastly, a trust is better than an inheritance if you ever, unfortunately, get a divorce. This is because, with an outright inheritance, your former spouse may claim a share of your assets in your divorce. But with a trust, your assets may not be considered marital assets.
For more information on how to set up a trust or an inheritance, you must seek the services of a talented Fayetteville, Arkansas estate planning lawyer. Call us today.