In the past, estate planners usually cited two reasons for setting up trusts:
- Minimize probate
- Avoid estate taxes
There are several ways of avoiding probate without a trust and the federal estate tax does not apply to estates under $5,450,000 in 2016. This removes a big reason for setting up a trust.
Here are five reasons for setting up a trust that are usually not considered.
- Divorce. Setting up and funding an appropriate trust can protect a child or heir from losing family assets in a divorce.
- Changing a legal location. If a trust is revocable the actions of a local court do not inhibit the heirs from moving.
- Serving disabled loved ones. A special needs trust can be used to protect assets for an ill child or spouse.
- Minimizing identity theft. If a trust is set up using its own tax identification number, the trust may be protected if your social security number is compromised.
- Protecting the elderly. As people age, they can suffer cognitive impairment. If the trust is drafted properly, successor trustees or co-trustees can be named to manage the older person’s financial affairs.