The Pros And Cons Of Alternatives To Trusts
There are a number of benefits to using a trust as an estate planning tool. But like anything else, trusts have good points and bad points. The main positive point of a trust is avoiding probate, and allowing the property in the trust to transfer automatically, without court intervention (as well as the privacy that comes from not getting courts involved).
But are there other ways to accomplish the same goals and benefits as a trust provides? There are—although many have their own drawbacks.
Joint Ownership or Tenancy
There are all kinds of forms of joint ownership, including joint tenants, tenants in common, or just adding someone’s name onto a bank account, making it a joint bank account.
But these all have some immediate problems, all of which are related to the fact that now, someone else owns your property. You no longer have full control over that property, or the full ability to make decisions about that property, such as whether to sell it, encumber it with a lien, or improve upon it.
Additionally, the other owner may have his or her own creditors. Now, those creditors could, potentially, have an interest in, or even take the jointly titled asset to satisfy the debt.
When it comes to real property like houses, there is also the problem of taxes, which can be much higher when you transfer an interest in your home to someone else, even in part.
Bank accounts will let you set up what is known as a Transfer on Death (TOD) account. This account automatically transfers the assets to whomever you designate on your passing—no trust or estate designation needed.
But the TOD agreement you sign at the bank is not comprehensive. You can’t put conditions on it, as you can with a trust. And, you can really only designate one or two beneficiaries—not a string of them. Nor can you divide the account up unevenly (for example, 20% going to your uncle and 80% to your aunt).
Whomever you designate as the TOD beneficiary, gets the money, and all of it, right away, once you pass. That means minors, or people who may not be ready to inherit that money may get it, with no conditions. If a minor inherits the money, you would be back in probate court anyway, to have a guardian appointed to watch over the money until the minor reaches adulthood.
Beneficiaries on public benefits, like Medicaid, may lose those benefits, when they have your entire bank account thrust on them unexpectedly.
Simply giving money away could result in a gift tax penalty, which prevents you from taking advantage of the relatively favorable estate tax laws.
None of these are perfect solutions, although they may have a place in a larger, comprehensive estate plan, combined with a will and a trust.
Your estate plan should have multiple layers, options and tools. Call the Torrance will attorneys at Samuel Ford Law today for help in using them all to your best advantage.