Trusts are a key tool in order to better protect your assets and property while ensuring they go to their designated beneficiaries after you die. However, not all trusts are equal; some are more appropriate for certain situations than others. This article will guide you through the process of choosing one that best fits your needs, as well as the estate planning process in general.
What Is a Trust?
This is an entity that’s titled in such a way that it controls the property, finances, or other assets of the people named therein. The person who creates the trust, known as the grantor, gives up control of these assets to the trustee. The trustee is responsible for handling financial matters for the grantor. If the grantor dies, the trustee distributes property to those named in the documents or to those who are legally entitled.
A properly prepared trust can help avoid probate and provide direction for how your property is distributed upon your death. Why Choose One?
Trusts offer many benefits for grantors, depending on their structure and purpose. Some of the most common benefits of trusts are listed below:
· They are considered good management tools for family-owned wealth because they make it easy for family members, such as children and widows, to receive money in specific amounts. They also allow them to make reasonable adjustments as needed.
· They help avoid the probate process required when you die. To do so, choosing a properly drafted trust avoids the need for probate. In addition, trusts could increase the number of assets protected from creditors and lawsuits.
· They may offer flexibility for beneficiaries who might want to make changes in their life at any time. Creative approaches include creating a trust with an exit strategy or changing a trust to give your spouse final authority over managing your finances in case you do not carry out your wishes.
· They are often used by people who want their money passed on in the most beneficial manner to their beneficiaries or charitable organizations.
· They focus on the future and often address issues such as ensuring that children receive adequate education and are covered in cases of an emergency or are looked after in their old age.
· They are helpful to beneficiaries because they often allow them to make their own financial decisions. Beneficiaries can use the assets to cut their expenses, increase their income or pay off debt. They also help prevent creditors from taking a larger share of assets than is fair.
How To Choose the Right Trust
In order to make sure your trust is right for you, it’s important to research your options. There are many kinds of trusts, including the following.
These remain unchanged after they are set up, which means you lose all rights to the assets; you can’t change or terminate the trust at any time throughout your life. However, these trusts protect your assets from creditors, predictors and the government and nursing home costs.
When Are Irrevocable trusts Appropriate?
These are ideal if the assets in your trust need to be protected. You can also establish an irrevocable trust in order to protect the assets from creditors and lawsuits, as well as from possible divorce or probate.
These are one of the most common types of trusts today. Revocable trusts are subject to change, and you have the legal right to terminate them at any time. You can modify the trust and redistribute assets to beneficiaries as needed, based on the changing needs of your beneficiaries, even without their permission. However, you must have your mental faculties in order to change a trust.
When Are Revocable Trusts Appropriate?
Revocable trusts are usually used for people who own property in more than one state because otherwise, there would be probate in each state where the property is owned. These are most commonly used by people who want to pass assets on to their children but don’t want to have their private matters made public through the probate process.
The idea is that you can adjust the terms of the trust whenever you need to, in accordance with how your beneficiaries are doing financially or what they need. This is useful if you have certain conditions that need to be met by your beneficiaries, such as paying off high-interest debt or paying for college. Changes in a revocable trust will be executed through an amendment which you must also sign.
3. Charitable trusts
Charitable trusts can be irrevocable and can be established for public or private charities. They are designed to give a percentage of the assets to charity and also distribute assets to your beneficiaries after your death.
There are two types of charitable trusts. Charitable lead trusts are the most common, where a charity organization of an individual’s choice gets to receive interest from the trust’s assets for a given period. The other type is charitable remainder trusts, where the charitable organization receives the assets at the end of the term. Charitable trusts are a choice for those with large-sized trusts who want maximum use of their assets.
When Are Charitable Trusts Appropriate?
Charitable trusts are usually recommended to people who want to give away their assets to charity to benefit society and their beneficiaries. They are also beneficial for people who want to see their assets put to good use, especially if they deem their beneficiaries wasteful. However, donations to charities will be taxed.
Since these trusts cannot be changed at any time, it is essential to discuss the terms and conditions of your trust carefully with your lawyer and beneficiaries. Your lawyer can also help you to draft the trust document, so you know what will happen to your assets in the future.
4. Living Trust
A living trust is planned before death, hence the name living. They are mostly used to enhance the efficient transfer of assets to the beneficiaries of the trust. Efficient transfer of assets to the beneficiaries is made possible by the absence of probate or court proceedings for asset distribution after death. This helps save time and fees, thereby reducing estate taxes.
Living trusts are both revocable and irrevocable and preserve your autonomy while providing financial security for all of your family members, including future generations. As a legal document, a living trust holds all your assets and personal information and provides the framework for your financial arrangements through the years.
When Are Living Trusts Appropriate?
A living trust is suitable for people who want to make things private and easy for their loved ones. These trusts can also be useful for couples who want to provide lasting financial security for their children without involving the state.
A living trust is beneficial because it allows you to name anyone you want as a beneficiary and set conditions for how that person receives the money or property. For example, you can name your spouse as a beneficiary, and the trust can state that your spouse will not get any of the properties until a certain event has occurred. If your spouse does not meet this condition, the trust can direct that a different person receives the money.Be sure to discuss these with your lawyer to know what is covered in the trust.
What To Do Next
It is imperative to start planning now to mitigate the risk of the unexpected or unknown. It’s never too early! Estate planning is a key part that many people do not consider until it is too late! Mindy Felinton, Elder Law & Estate Planning Attorney, can analyze and develop an estate plan including a trust that meets you and your family’s specific needs.