Should my estate plan include a trust?
The following types of estates can benefit from the use of a trust.
Putting together an estate plan can be intimidating. The process begins with organizing your assets. Then you need to determine which documents will help you achieve your goals.
At some point, you may wonder whether a trust would be a beneficial addition to your estate plan.
What is a trust?
A trust is a legal tool used to help control assets. Two primary benefits of trusts include greater control over the distribution of the assets held within the trust and the ability to minimize gift and estate tax obligations.
When does an estate plan benefit from a trust?
In many cases, anyone with at least $150,000 in assets and a sizeable portion of real estate can benefit from a trust. This is also true if the creator has specific wishes about the distribution of assets as a trust is more likely to achieve this goal than a will.
What types of trusts are available?
There are two types of trusts: revocable and irrevocable. Those interested in a revocable trust create the trust during their lifetime and retain control over the assets held within the trust. These legal tools are helpful in ensuring the estate avoids probate. In addition to the cost of setting up the trust, another con to these documents is the fact that they do not shelter assets from creditors.
In contrast, the creator generally cannot change, alter or modify an irrevocable trust. With this lack of control, you may wonder why an individual would put their assets into an irrevocable trust. The primary benefit is the ability of the trust to protect the assets from your creditors.
There are also specific types of trusts designed to provide specific benefits. Common examples include:
- Asset protection trust. A creator uses this legal tool to protect assets from future creditor claims. It may be written as an irrevocable trust for a set number of years. When the time expires, the creator may include language to return ownership of the assets to the creator if there is no threat of a creditor claim.
- Special needs trust. These tools are beneficial for those who wish to leave assets to an individual that receives government benefits. If gifts are given outright, the assets could remove the individual’s ability to continue to receive these valuable benefits. A trust can manage the assets on the intended beneficiary’s behalf while ensuring their ability to receive government benefits is unharmed. Thus, these funds can cover the cost of care and materials that are above and beyond those already provided.
The language used to create the trust will have great power over the assets held within the trust. As a result, it is important to get an attorney experienced in these matters to draft the document. Meeting with an attorney and discussing your goals better ensures a document is created that meets your estate planning needs.