As an estate planning tool, trusts are a versatile option. In essence, a trust is a means to transfer assets to specified heirs, after your death. In organizing your trust, you will be able to select a trustee, who is the institution or individual you would like to manage your trust account. This will allow for a smooth transfer of property to your beneficiaries, whenever the time comes.
Assuming that it was properly established, a trust should allow for a straight-forward, easy transfer of assets, from you to your beneficiaries. Using a trust, you can also allow your heirs to avoid dealing with probate court, which can be a lengthy and expensive experience. Additionally, your beneficiaries will likely be able to avoid a harsh tax burden. In some instances, the taxes on your assets will be eliminated, entirely.
Depending upon your unique needs, you can choose from a number of different trust types. For instance, some trusts will immediately become effective, as soon as you have set them up. Other trusts will not be enforceable until after your passing.
In order to begin setting up a trust and to help ensure that this is done correctly, consider getting in contact with an experienced Joliet trust lawyer, today. If you are in the Joliet, IL area and are seeking out help with establishing a trust, make sure to reach out to Vahey Law & Mediation. We also provide high-quality family law services.
Trusts come in an array of different forms, so we are sure to find the option that best suits the needs of you, your assets, and your beneficiaries.
To start, each type of trust will fall under one of two overarching categories: revocable trusts and irrevocable trusts.
With a revocable trust, the grantor (the individual who has created the trust) is allowed the ability to modify the account, at anytime. They may even cancel the trust, if they so desire, at any point prior to their death.
The same individual is both the grantor and the trustee, in the case of revocable trusts. As such, that person is still considered the owner of their own assets, even after the trust becomes effective. If a revocable trust brings in any revenue, then the grantor is obligated to report this via their personal taxes.
Whenever the creator of a revocable trust passes away, the trust becomes irrevocable.
An irrevocable trust cannot be modified or canceled by the grantor, after it has been established. Rather, in order to make changes to the trust, the grantor must first receive the permission of their beneficiaries.
Unlike with a revocable trust, the grantor is effectively relinquishing control and ownership over the assets contained within the trust. These assets will thus be transferred out of the grantor’s personal estate, entirely.
The inflexibility of an irrevocable trust can be viewed as a downside by some individuals; however, this type of trust comes with several important benefits. For example, these trusts provide individuals with tax benefits, as well as security over their assets. For this reason, irrevocable trusts are well suited to those with complex or large estates.
The taxes involved in irrevocable trusts can be complicated. Thus, it is important to familiarize yourself with these implications, prior to establishing an irrevocable trust.
As we noted, revocable and irrevocable trusts are the overarching categories. Within these categories exists a number of other kinds of trusts. Although each of these types of trusts features important distinctions and benefits, each one can either be classified as a revocable or an irrevocable trust.
- Testamentary Trust
The type of trust is also known as a “will trust.” As the name would imply, a testamentary trust can be established as a provision within an individual’s last will and testament. Through this particular kind of trust, an individual is able to select a trustee to manage their assets, after the grantor’s own death.
First, the probate process must be utilized to verify the authenticity of the grantor’s will. Once it has been authenticated, their assets will be transferred into the trust by the executor.
Some individuals might favor testamentary trusts because they allow the grantor to set certain restrictions, regarding how and when the assets are distributed. These assets will only become accessible to beneficiaries once the grantor’s stipulations are met. For instance, maybe the testamentary trust involves funds intended to pay for a child’s college tuition. If that is the case, it is possible to make these funds accessible, only after the beneficiary reaches age 18.
- Blind Trust
A blind trust is established without the knowledge or input of the beneficiaries. Essentially, they remain “blind” to the trust's existence and contents, until it is time to distribute the assets. The handling of the assets is left fully out of the beneficiary’s hands. For this reason, it is common that blind trusts will be created in instances where conflict is likely to arise, amongst the grantor’s beneficiaries.
So, even if contentious relationships are involved within the beneficiaries, it is still possible for the grantor to smoothly go about creating the trust, without outside conflict.
- Charitable Trust
Much of the time, a charitable trust will not be created to stand on its own. Instead, it will be included as a part of the grantor’s standard trust. This way, other assets can be distributed to the selected heirs.
The purpose of a charitable trust involves donating assets to a charity or nonprofit organization of the grantor’s choice. In particular, this transfer will occur after the grantor’s own death. One benefit of establishing a charitable trust is the reduced gift or estate taxes, which a charity would typically experience, due to a large donation. In some instances, a charitable trust can allow these taxes to be avoided, altogether.
- Special Needs Trust
If the grantor has a dependent with special needs, they may consider establishing a special needs trust. In this instance, the dependent would become the beneficiary of the trust. This trust is intended to meet the unique financial needs of an individual with special needs, including daily needs, as well as medical care.
Even with a special needs trust, the dependent remains entitled to any government benefits that they were receiving. The grantor may decide to set up either a first-party or a third-party special needs trust.
- Totten Trust
Also known as a “payable on death” account, a Totten trust allows the grantor to deposit funds into a bank or other form of security, which will then become accessible to beneficiaries after the grantor’s death.
Keep in mind that Totten trusts are revocable. This ensures that, as long as the grantor is alive, the beneficiary will have no access to the bank or security account.
- Constructive Trust
A constructive trust is unique, in that it is not actually established by the grantor, themselves. This is considered to be an “implied” trust, and is created by the court, instead. In essence, if a party was in possession of assets that were acquired unfairly (also known as unjust enrichment), then a constructive trust can be established.
If the grantor intended for any of these assets to go to an individual who is not the rightful owner, this will be adjusted. Further, a constructive trust is not established until after the grantor’s death.
- Generation-Skipping Trust
Sometimes, a party might prefer that their assets be transferred to their grandchildren, rather than their surviving children. Whenever someone opts to create a generation-skipping trust, the assets will not be subject to real estate taxes, as they would have been if they were given to the grantor’s offspring.
It is also possible for creators of a generation-skipping trust to provide their own children with income generated by these assets. This is not a necessity, but it is an option.
- Credit Shelter Trust
Generally, credit shelter trusts are created by wealthy married couples, looking to significantly reduce (or even eliminate) estate tax bills. In establishing a credit shelter trust, one spouse is able to have their funds transferred to the estate of their surviving spouse, after their own death.
Considering a credit shelter trust is owned by a trustee, this transfer of assets will not actually raise the value of the surviving spouse’s estate. Even so, the surviving spouse is given access to income earned from the trust; they will also have the right to access the credit shelter trust under particular circumstances, as indicated by the grantor.
If you are in the Joliet, Illinois area, and looking to establish a trust, whichever Joliet type of trust you select, it is important to have an experienced trust attorney to help you along the way. If you are unsure which type of trust is appropriate for you, then Vahey Law & Mediation are always able to assist you in this decision. Ensure that your assets are distributed how you would prefer, without the intervention of probate court, after your passing.
To contact Vahey Law & Mediation and schedule a consultation, simply fill out the form on our website.