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A trust is an arrangement that allows for an estate’s assets to be passed to the beneficiaries relatively quickly and easily. Trusts generally avoid probate, saving time, court fees and stress.
How Do I Know If I Need a Trust?
Casual lingo like “trust-fund baby” might give the impression that trusts are only for enormous estates intended to prevent their beneficiaries from ever establishing their own career paths. While many people may dream of making their children’s lives as carefree as possible, trusts are actually beneficial for many families.
Trusts are established for a number of reasons, such as to:
1. Manage spending. The average inheritance is spent within five years. Many people spend their inheritance in six months or less. Setting up a trust can help your beneficiaries manage their finances and avoid making poor investment decisions that cannot be undone.
2. Avoid probate. Probate — the legal process of distributing an estate — is time-consuming, expensive and public. Avoiding probate can mean avoiding potentially devastating battles among family members during a stressful time as well as ensuring that your assets are not wasted unnecessarily.
3. Protect assets from creditors. Some kinds of trusts transfer ownership of funds out of the hands of the trust creator, meaning that any future creditor cannot access those funds for satisfying a debt.
4. Fund your elder years. In the event that you become incapacitated from age or illness, whom will the burden of your cost of care fall on? Certain trusts can be established in order to ensure that your quality of life is protected.
5. Manage unique assets. Some assets, such as pets and recreational vehicles, are not easily valued or divided. Others, such as mineral or timber rights or investment properties, are not easily managed and require special attention, especially if they are to remain productive for their beneficiaries. These types of assets are well suited to a trust.
6. Hold life insurance. A trust can be set up to pay the premiums for and collect the proceeds of life insurance policies without the risk of having to pay substantial estate taxes upon payout.
7. Provide access to Medicaid. Putting assets in a trust can preserve your estate while allowing the estate holder to meet Medicaid’s low asset limit.
8. Structure income. Trusts can structure income for a surviving spouse in a way that minimizes the financial planning burden on the surviving spouse as well as protects assets for children in the event that the spouse remarries.
9. Reduce estate and inheritance taxes. Some trusts reduce the amount of estate and inheritance taxes due on what is passed to your beneficiaries. Others may not, so it is important to be mindful of what works for each individual scenario.
10. Continue charitable donations. Some trusts operate specifically with giving back in mind. Not only can an estate holder do good with these trusts, but they can give back to themselves by taking advantage of strategic charitable trusts while alive by converting assets into a lifetime income without capital gains tax.
How Can a Trust Attorney Help Plan My Estate?
Imagine sitting in the Little League bleachers waiting for practice to end, cheering on your favorite slugger, when a conversation about what will happen to your family in the event of your untimely death starts up. Maybe it is because someone you know recently lost their spouse tragically, and perhaps you are concerned you are not as prepared as you want to be.
Or perhaps you are meeting with your accountant, and the subject arises of whether or not you may be paying an extraordinary amount in taxes. Your accountant might suggest that you speak to a trust lawyer to consider your options.
Maybe your parents are getting to the point in life when it is time to consider what will happen in a decade or two if they are no longer as spry or independent as they are today. You remember hearing once that there is a five-year look-back period imposed by MassHealth, which means your parents need to spend down their assets in advance.
Trusts can be the ideal solution to complex problems, but that is exactly what makes them so complicated. Not all estates benefit in the same way from the same kinds of trusts.
A trust attorney is an expert on the different kinds of estate planning options and can help you determine the best course of action for today and for your beneficiaries. Your trust attorney can draft an effective plan for the protection and distribution of your assets in order to maximize your estate’s benefits.
A trust lawyer will also draft the documents necessary for trust administration as well as support the trustee in making decisions that are best for the trust and its beneficiaries.
What Kind of Trust Is Best for My Family?
The type of trust you choose will reflect your goals for your assets and your wishes for your beneficiaries. These kinds of decisions are not solely based on how much money you make or how much property you own. Sometimes, choosing the right kind of trust is about the kind of person you are and the ways you want to provide support to your loved ones.
Some common trust types are:
1. Irrevocable trust. If you are confident about the kinds of estate planning decisions you have made, an irrevocable trust can maximize your ability to protect assets from estate taxes and creditors. Another benefit of an irrevocable trust is becoming Medicaid eligible. This kind of trust cannot be amended (it is truly irrevocable) and does carry some risk worth considering, as with any legal and financial decision.
2. Revocable trust. Revocable trusts are fairly common. A flexible, amendable option for estate planning, a revocable trust helps you avoid probate, guardianship or conservatorship, and public knowledge of your assets; however, income generated by the trust’s assets is subject to taxation.
3. Family trust. A kind of living trust, a family trust can be either revocable or irrevocable. With a family trust, you are establishing a process for passing on your money and assets to your family members rather than to a third party such as a charity.
4. Living trust. Unlike a will, which becomes effective when you pass on, a living trust is a legal arrangement that passes ownership of assets during the lifetime of the grantor — the estate holder — to the trust itself. Sometimes, the trust is set up so that the grantor still maintains control and benefits from the trust, but sometimes not. Most trusts are living trusts, including a credit shelter trust.
5. Probate trust. A probate trust, also known as a testamentary trust, is not a living trust but is generally attached to your last will and testament. The benefits of a testamentary trust include the ability to appoint a trustee at the time of the estate holder’s death for a minor child, adult child with disabilities or anyone who is the beneficiary of the estate. In a situation where the estate is relatively small, a probate trust can be a relatively inexpensive solution to the risks of having only a will.
Deciding how to provide support and protection for yourself and your loved ones is not an easy process. While you know your goals best, The Law Offices of Kimberly Butler Rainen knows the legal process and can advise you in making the decisions that are the best for you. To start the conversation about planning your estate, contact our office today.