To illustrate why you might want a trust, it's fun to look at a celebrity example. Take Bob Marley, who was married with at least 11 children — and who had no trust, or even a will, when he died in 1981. The estate was worth $30 million then and is estimated to be worth $130 million now (and this is before the deal to put the Marley name on weed) [source: Mayoras]. But fights over control of the trust and what Marley would have wanted to have done in his name have been expensive and painful for the family. Some estimate that unauthorized Marley merchandise is a $600-million-a-year business [source: Kenner].
A modern-day music icon living under U.S. (rather than Jamaican) law could take steps to avoid unforeseen problems like these. He could set up a trust to outline ownership and protect his children and their children for generations. With a trust or a series of trusts, he could have helped his heirs avoid any estate taxes upon his death. A trust would allow him to shield those assets from false creditors by making it clear who controls the assets once the superstar is gone. It could allow him to provide regular dividend payments for each family member, succession plans for any businesses the icon invested in and a growth strategy for his legacy. With it, he could dictate clearly what could or could not be done with his likeness, image and name to ensure future generations would be able to understand his values and act as he would. It could also include instructions on what his kids must achieve before they inherit a full share of the empire. It would likely help keep his business private, instead of being aired in public after his death.
For the average person, trusts are typically used to avoid probate. Living trusts let you transfer your house, for example, or other property that doesn't have a beneficiary named to it already. Living trusts are like wills with built-in probate avoidance. But they can be more expensive than wills to set up and administer, so be sure to weigh the costs of establishing a living trust against the costs of probate. (Plus, if you have a living trust, you need a will, too.)
Then there are other ways to avoid probate — like holding a house in your own name and the name of your spouse or a joint tenancy with your beneficiary. Or keeping money in accounts that are payable on death or include named beneficiaries. Or keeping accurate records. All of these tactics should make probate either nonexistent or relatively easy. According to the AARP, revocable living trusts have become so widely sold to individuals who are least likely to need them that the Internal Revenue Service has flagged these trusts as a scam. The benefits being touted to sell these trusts might be misleading or inappropriate for individuals or families with modest savings and income [source: Nolo].
However, if you are a family that has substantial assets and/or complicated dynamics, a family member with special needs or a property owner in more than one state, a living or other type of trust could make sense. Whenever the legitimacy of an estate could be called into question, a trust might help sort out unnecessary disputes. Families setting up these trusts should look for experienced attorneys who understand the laws in your state. The trust instrument should be personalized, drafted to the needs of your family, instead of boilerplate. Costs should always be considered when weighing the benefits of the trust.
Author's Note: How Trusts Work
It's hard to warn against trust scams without casting a negative light on all trusts. But I hope this article has managed to do that. Trusts are incredibly useful tools for some people while being only mildly or not-at-all useful for others. In the IRS's annual list of "Dirty Dozen Tax Scams," there's usually something about trusts. Scammers promise tax savings that don't materialize, or simply push an expensive trust on you that you don't need. As with anything else, avoid rushing into a trust without careful consideration and advice from a trusted professional.
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