Trusts & Estate Planning

Many people have preconceived notions about trusts and believe that they are only for millionaires who wish to leave large trust funds to their children. However, this is far from the truth; trusts can be invaluable tools under many different circumstances – regardless of the estate value.

Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the grantor), who authorizes another person (the trustee, who can be the same as the grantor) to manage the assets for the benefit third parties (the beneficiaries). Benefits for establishing trusts include reducing taxes, maximizing planning flexibility, asset protection, ensuring for the consideration of unique circumstances or wishes, such as successive generations, beneficiaries with limited ability to manage affairs, and individualized legacy planning.

Trusts that may be useful in estate planning include:

  • Trusts for minors. Many people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan. This is typically done to ensure the money is there for the children’s benefit while they are younger-for support, education, medical expenses, etc. Once the children reach a certain age, they may receive money from the trust outright in increments or in a lump sum.
  • Special needs trusts. Special needs trusts enable a person to leave property to an individual with special needs (i.e. limited capacity or ability). Many individuals with special needs receive government benefits. If they received an inheritance outright, they would be disqualified in most cases from receiving those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have access to funds for the extra support they may need.
  • Marital trusts. Married couples sometimes include trusts in their wills, or separately, for the benefit of their spouse, typically for two reasons: (1) taxes, and (2) property protection. Marital trusts are sometimes used for some couples to take advantage of estate tax exemptions. Marital trusts can also protect property for a spouse’s use during their lifetime and to ensure that it ultimately goes to future beneficiaries. For example, a husband with grown children from a previous marriage may decide to let his wife use his property after he passes, but puts it into a trust so that after she passes away it goes to his children.
  • Revocable living trusts. Revocable living trusts are documents completely separate from wills, although they often work hand in hand with wills to carry out the decedent’s wishes. Revocable living trusts are useful in reducing probate requirements, protecting assets for future generations, providing for efficiency in disability situations and reducing court oversight.
  • Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) can be used in order to move a person’s life insurance proceeds outside his or her estate for estate tax purposes.
  • Spendthrift trusts. Spendthrift trusts are generally established to protect the beneficiaries’ assets from both themselves and creditors. These trusts usually have an independent trustee which has complete discretion over the distribution of assets of the trust.

As you can see, there are many different types of trusts, each of which can be customized to serve a valuable purpose in accomplishing the wishes of those making gifts or planning an estate. An experienced estate planning attorney can help you assess your finances and goals to determine the best vehicles to preserve your wealth and your legacy.

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