Trusts are an important part of estate planning, especially if you’re looking for ways to reduce your tax burden. While there are many types of trusts, they basically function as an arrangement that includes one person holding title or property for another – a trustee and a beneficiary.
One important reason people opt for a trust is its ability to avoid probate. Upon the trustee’s death, the trust either continues in order to serve beneficiaries or it may be terminated. The parameters that are defined at the time the trust is put into place make that determination. Ultimately, though, the goal is to avoid probate, which eases the burden on family members.
A properly executed will saves both time and money, but a trust provides a deeper recognition of what one wishes for his assets and how they’re distributed between loved ones.
Generally, there are two types of trusts: revocable and irrevocable. Most all other trust distinctions are found under those two headings.
Don’t get lost in the semantics of an irrevocable trust. It’s true they are permanent, but contrary to what many believe, they’re not reserved only for the wealthy. These trusts include the person who is funding the trust, legally known as the settlor, the beneficiary, the one who will benefit from the assets in the trust and the trustee, which is the person named to oversee the trust. The only way to cancel an irrevocable trust is if all three parties agree. Traditionally, the property is available only to the trustee and then only when the guidelines are adhered to. This is often a wise choice for those who are on Medicaid.
The irrevocable trusts close cousin is the revocable trust. These allow you complete control, including the option of changing any aspect of it you’d like. You can add or take away from the trust, too, and you can also rename your beneficiaries. This is ideal for younger clients, whose lives change often with growing families. The income is distributed to grantor with the remaining assets distributed after death to the beneficiaries.
These are popular because of their versatility and flexibility.
A testamentary trust is created as part of a will. There is no power to these documents until the probate process has been completed. It too is versatile and can be used for a number of reasons. It works well in a number of settings, but your estate planning lawyer is your best option in terms of understanding the more in depth dynamics of these types of trusts.
Finally, a special needs trust ensures proper care is available for disabled spouses or minor children. If you’ve ever had a disabled loved one, you know the concern about what will happen to them and will there be a way to ensure their well being if you’re no longer here. A special needs trust addresses those concerns. Keep in mind, these must be carefully written to avoid any potential loopholes. The beneficiary doesn’t surrender his eligibility for SSI or Medicaid, but they work well for these situations for those who want to provide further protection.
Remember, finding an estate planning attorney to help with the details associated with wills and trusts is absolutely crucial. In today’s world, not having one can be financially devastating for those left behind. Remember, there are tax considerations and a host of other legal and financial details that must be handled. We’re happy to discuss these and any other estate planning concerns you may have.