When you plan for the future, you might often think about the work you do or how you want to retire. But at some point, it is important to think about what will happen to your property and finances after you pass away. The assets, and even the debts, that you collect over the course of your life should be considered just as much as your accomplishments while living. Trusts are one way to pass your financial legacy along to your family members or a preferred organization after you are no longer here.
Trusts are a form of estate planning that is structured and time managed. They are administered without the oversight of the court system. This creates a unique opportunity to structure the dissemination of your assets exactly the way you wish. However, this also can create many complications if not done correctly. An added benefit of trusts is that they can begin while you are still living, as opposed to other forms of asset dissemination that occur after you pass. At Vahey Law & Mediation, LLC, our estate planning attorneys can help you create a trust that protects your wishes and your family’s privacy, and that provides a long-term solution to benefit your family for years to come.
When considering your estate planning, trusts may be one of the less common ways to plan what happens to your assets when you pass. However, pursuing a trust has many potential benefits to it:
- Bypass probate. Unlike a will that must pass through a probate court, trusts do not have this requirement. This means that the settlement of your assets is less time-consuming. It can also cost less money, both of which are added benefits passed on to your beneficiaries.
- Privacy. Trusts are not likely to become public records, therefore, the contents of your assets remain out of the public eye.
- Tax advantages. Because some types of trusts can be transferred outside of an estate, they can avoid tax situations such as estate tax or gift-giving laws.
- Protecting assets from creditors. Much like tax protections, the transfer of some assets out of the estate allows protection against creditors or claims.
- Control of assets. Trusts are your wishes, and they are not bound by outside laws or obligations. That means your wishes for your assets are followed and carried out uninterrupted.
- Children as beneficiaries. Children can be named in a trust, and there are no obligations to wait until they are 18 years old, unlike some other estate planning options.
There are many types of trusts, but there are three that are the most common. However, in each case, a trustee will be named who is responsible for overseeing that the terms of the trust are met.
- Revocable trust. This type of trust allows for more control over the contents and the assets once it is established. With this type of trust, you can modify and cancel the terms or conditions. You can change the beneficiaries, and you are not required to gain any permissions before doing so. In addition, you can add or remove assets, change the guidelines, or even sell off the trust. In this type of trust, if you have assets that are not named in either the trust or your will, they are considered a part of a “pour-over will” which means that those unmentioned items will automatically be covered by the trust. This type of trust is best for those who wish to retain control or seek greater flexibility in their assets while they are alive.
- Irrevocable trust. Under this type of trust, once the parameters have been established, they are unable to change. Should you change your mind on any of the elements of the trust later, you will not be able to go back and restructure it nor cancel any element. This means that the list of beneficiaries, the instructions of the trust, or the ability to sell off assets is seemingly set in stone. The only way that this type of trust can be modified is through a signature of the trustee, and the beneficiaries, that grants you permission to do so. Choosing this type of trust may seem less appealing because of its restrictive parameters, however, there are many tax benefits to this type of trust that those with higher assets may wish to use to protect their estate.
- Asset protection trust. Commonly referred to as APT, this type of trust serves to literally protect your assets. If you have extensive debt when you pass, an APT will protect your assets from creditors, claims, or judgments against your estate. This means that the assets will remain with your beneficiaries and not be taken away. In an APT, you may also name yourself as a beneficiary. This means that when you properly structure this type of trust, your assets are protected even while you are alive. APTs can be structured as either foreign or domestic which is determined by where your assets are located.
There are many types of trusts outside of the three main ones listed. They can include:
- Testamentary trusts. This type of trust is used to hold any inheritance rights until a specified time. For example, if a child is listed as a beneficiary, and if the trustor wishes that any disseminated assets are held until they are 18, this type of trust establishes that.
- Spendthrift trusts. This type of trust allows the trustee to make adjustments to it in order to prevent any beneficiary from squandering the assets that they received.
- Special needs trusts. Because many people with special needs receive some governmental benefits, this type of trust allows the trustor to place responsibility in the hands of a trustee who can then control the distribution of assets to a disabled adult. This ensures that they receive the quality of life and care they need without disruption to their benefits. These types of trusts come with strict limitations.
- Charitable trusts. This trust allows the assets of the trustor to benefit a charity of their choosing. The assets are distributed in the same way as other trusts— in a structured and time-managed system.
Additional types of trusts include:
- Charitable lead trusts
- Qualified terminable interest property trusts
- Grantor retained annuity trusts
- Irrevocable life insurance trust
- Irrevocable funeral trust
- Generation-skipping trust
- Totten trust
Because there are so many types of trusts, it is important to work with an estate planning lawyer who can guide you through the type of trust you need. Understanding which trusts are associated with your will, and which stand on their own, is a part of the estate planning process that can enable you to choose the trust that would best fit your needs. At Vahey Law & Mediation, LLC, you can discuss with our experts the goals you have for your assets, and we can help you to select the type of trust that will work best for you.
Establishing a trust entails much more than writing down your desired wishes for your assets and then signing them. The considerations that need to go into the trust include who your trustee will be, who the beneficiaries will be, and what sort of trust will help you achieve the goals you have for your beneficiaries and your assets.
A complication of trusts that is often overlooked is the avoidance of probate. Because trusts do not require court oversight, the terms and conditions must be spelled out precisely, which can also create long documents that are full of legal terms. This means that you, and your trustee, need to be involved in the process to be sure that everything is understood.
A final consideration to make is deciding when the trust will begin. Unlike a will, a trust can begin before your passing. That means you can arrange the distribution of your assets while you are still living. However, the control of the trust is still in the hands of whomever you designate as your trustee.
When you’ve spent your whole life building up your assets, it is important to think about what will happen to them. With the assistance of an estate planning attorney who can guide you through the options and proper planning of a trust, you can protect your assets while providing long-term benefits to your family or other designated organizations.
Vahey Law & Mediation, LLC has the experience and expertise to help you through the trust planning process. Our commitment to excellence means that we are dedicated to understanding you, your needs, and the long-term goals you have in mind to protect the assets you have worked hard to attain. If you have questions about the estate planning process, contact our office today, and let us help carry out your wishes.