One way of the best ways to insure that your estate gets into the hands of your preferred heirs is with a trust, says Henry English, director of the University of Arkansas at Pine Bluff Small Farm Program and the UAPB/USDA Risk Management Partnership.
Trusts are an estate-planning tool. Estate planning is the orderly transfer of your assets (property) after you die. Estate planning is necessary to avoid dying “intestate” — without a will or trust. Without a will or trust, the state determines how your property or farm will pass to your heirs. Oftentimes, the state's formula is not what you would have chosen.
A trust is a legal arrangement where the grantor (individuals who own the farm or property which is transferred to the trust) transfers legal title of the property to a trustee to hold and manage for the benefit of the beneficiaries.
“Many people, including farmers, think that a trust is not a tool for them because they do not have many assets, but anyone with assets of $50,000 or more should consider a trust,” says English.
There are two general types of trusts — a living trust and a testamentary trust.
A living trust is one created by the grantor during his or her lifetime, while a testamentary trust is one created by the grantor's will. In a living trust, the grantor is frequently the trustee.
“One advantage of a funded living trust is its ability to avoid probate and the associated costs, which nationally range from 6 percent to 10 percent of the value of the estate,” says English. The way a living trust avoids probate is by titling property or small farm in the name of the trust before death. Upon death, a pre-selected trustee simply handles the transfers or payments to heirs that have been specified in the trust, says English. This can be done quickly and simply without lawyers, court supervisors, excessive costs or delays.
Besides avoiding probate costs, another advantage of a living trust is privacy. Probate procedures are made public, thus sacrificing family privacy; trust transfers are not open to the public, says English.
In a testamentary trust, property must pass into the trust by way of the will, and thus must go through probate. Probate is the state's legal procedure for identifying the rightful heirs and their shares of the estate and re-titling the property into the name of the heirs.
Carol Sanders is a writer/editor for the School of Agriculture, Fisheries and Human Sciences at the University of Arkansas-Pine Bluff.