Trusts – The Swiss Army Knife of Estate Planning

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With changes to the U.S. tax code and the high cost of living and medical care, it is especially important to make the right decisions when it comes to your financial moves.

To the general public, a trust may seem like an advanced tool only for the wealthiest among us. But, the reality is that trusts are a foundational estate planning tool with a solid history for being highly effective in ensuring a person’s wishes are carried out. The process begins with the maker of a trust – commonly referred to as the trust maker, grantor, settlor, or trustor – transferring his or her ownership of certain assets to the trust. A trustee is then appointed to manage these assets for the beneficiary (or beneficiaries) of the trust. In a typical asset protection trust, you are the trust maker and income beneficiary, while a trusted family member is the trustee who manages the trust during your life as well as for your beneficiaries until all assets are finally distributed.

Types of Trusts

There are a broad variety of trusts and combinations of options available to you to fit your estate planning needs – no matter what they are.  Here are some of the most commonly used:

  • Revocable Living Trusts. These trusts are the foundation of many estate plans. They contain your instructions for how your assets will be handled upon your death or incapacity, which go into effect while you are still living. Since these trusts are revocable, you can change or cancel provisions at any time during your life.
  • Asset Protection Trusts. These trusts offer perhaps the strongest financial protection against creditors, lawsuits, and judgments. In some types of asset protection trusts, the trust maker can also be a beneficiary, allowing him or her to still receive the benefits of the assets. Protective legal language and proper management of the trust are critical when you use these trusts.
  • Testamentary Trusts. This trust does not become effective until the grantor passes away. Testamentary trusts are generally made within a will. The will becomes effective immediately, but the trust is not created until the maker of the will dies. Unlike living trusts, testamentary trusts do not avoid probate – the legal process by which a court oversees the distribution of assets from a deceased’s estate.
  • Incentive Trusts. These trusts typically contain provisions to encourage or discourage certain behavior and promote family values. In order for the beneficiary to receive funds from the trust, he or she must adhere to the particular requirements set forth by the grantor.
  • Beneficiary Controlled Trusts. In this scenario, the beneficiary – typically the grantor’s child or grandchild – is also the trustee. He or she has the discretion to distribute assets to him or herself for health, maintenance, education, or support. There is a co-trustee, who can be removed by the beneficiary/trustee, with the authority to access the trust for the benefit of the beneficiary beyond his or her health, maintenance, education, or support.

Seek Professional Advice

Estate planning may feel complicated, but it can be an enlightening process when you have the right guide who can develop a plan consistent with your goals. Contact us today for an estate plan that best suits your needs as well as protects your family.

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