What Can a Trust Do for Me and My Family?
A trust is defined as a legal contract that lets an individual or entity (the trustee) hold assets on behalf of another person (the beneficiary). The assets in the trust can be cash, investments, physical assets like real estate, business interests and digital assets. There is no minimum amount of money needed to establish a trust.
US News’ recent article entitled “Trusts Explained” explains that trusts can be structured in a number of ways to instruct the way in which the assets are handled both during and after your lifetime. If used correctly, trusts can get you qualifed for medicaid long term care, protect assets, help you avoid probate, reduce or eliminate estate taxes and provide many other benefits.
Placing assets in a trust lets you know that they will be managed through your instructions, even if you’re unable to manage them yourself. Trusts also bypass the probate process. This lets your heirs get the trust assets faster than if they were transferred through a will, and at less cost to your estate.
The two main types of trusts are revocable (known as “living trusts”) and irrevocable trusts. A revocable trust allows the grantor to change the terms of the trust or dissolve the trust at any time. Revocable trusts help you avoid probate, but the assets in them are generally still considered part of your taxable estate. That is because you retain control over them during your lifetime.
To totally remove the assets from your taxable estate, you need an irrevocable trust. Generally, many provisions of an irrevocable trust cannot be altered by the grantor after it’s been created. Therefore, if you’re the grantor, you generally can’t change the terms of the trust, such as the beneficiaries, or dissolve the trust after it has been established.
Depending on whether the trust was established for a tax purpose or for purposes of Medicaid planning, you still may be able to control the assets in the irrevocable trust, or could lose control over the assets put into the irrevocable trust. Your particular situation will determine how your estate planning attorney and tax attorney will draft your trust.
Trusts give you more say about your assets than a will does. With a trust, you can set more particular terms as to when your beneficiaries receive those assets. Another type of trust is created under a last will and testament and is known as a testamentary trust. Although the last will and testament must be probated to create the testamentary trust, this trust can protect an inheritance from and for your heirs as you design.
Trusts are not a do-it-yourself proposition: ask for the expertise of an experienced estate planning attorney who also knows federal transfer tax laws.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “What Can a Trust Do for Me and My Family?” read these additional articles: Can You Get a Tax Deduction for Giving a Gift? and Am I Getting All the Social Security Benefits I Can? and How Do I Give Assets to Minor Grandchildren in My Will? and How to Protect Valuable Assets in Estate Planning
Reference: US News (Feb. 7, 2022) “Trusts Explained”