Trusts & Your Estate Plan
It’s easy to associate trusts with multi-millionaires who create large trust funds for their children, but trusts are hardly the exclusive province of the very wealthy. In fact, trusts are simple and beneficial tools that can be used in estate planning and are available to individuals from all walks of life.
Quite simply, a trust is an arrangement in which one party holds and manages property on behalf of another party. When it comes to creating a trust in regard to estate planning, you, as the estate planner (also known as the settlor, grantor, or trustor), transfer assets to the trust and authorize another person (the trustee) to manage those assets to the benefit of a third party (the beneficiaries). Protection from taxes or providing for the needs of underage children are examples of the many purposes trusts can serve.
The following types of trusts may be useful in estate planning:
Irrevocable Life Insurance Trusts
Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) are typically used to transfer the proceeds of a person’s life insurance policy beyond his or her estate for the purpose of minimizing estate taxes
Revocable Living Trusts
Revocable living trusts often accompany wills to help accomplish the wishes of the deceased individual. These trusts will ordinarily be used in states where the probate process is especially tedious, allowing the assets in the trust to avoid probate altogether. A revocable living trust may also be helpful when an individual owns real estate across several states.
If you are interested see our Living Trusts frequently asked questions page.
Trusts for Minors
A fairly common use for trusts in an overall estate plan is to leave money to one’s children or grandchildren. Usually, this helps to ensure that the children receive financial support for specific purposes, such as education, medical expenses, a general allowance, etc. Then, after meeting a given age or accomplishment (such as graduating from college), the restrictions on the trust are lifted and the children may use the assets they receive to do as they wish.
Special Needs Trusts
Specific trusts can also be set up to aid a person who has special needs. Individuals with special needs often receive benefits from the government, but will typically see those benefits suspended should they suddenly receive an inheritance. Only after exhausting the inheritance will those benefits transfers resume. While providing supplemental funds for an individual’s secondary requests, special needs trusts ensure that those government benefits continue to be available to meet the individual’s primary needs.
Spendthrift trusts are specially designed to maintain close protection of assets from both the beneficiaries and creditors. An independent trustee is typically appointed, and he or she has final say over the distribution of assets of the trust.
As you can see, there are a variety of trusts to serve a variety of purposes, and each trust can be tailored to meet your specific gift-making or estate planning needs. With so many vehicles to choose from, an experienced estate planning attorney is a valuable resource to help you assess your finances and goals to determine which trust is best-suited to preserve your wealth and your legacy.