Trust Options and Applications
Find the Right Trust
Trusts typically fall into one of two categories – testamentary or inter vivos. A testamentary trust is one created by your will and it doesn't come into effect until the time of your passing. With an inter vivos trust, however, you create it now and it exists during your lifetime--hence why inter vivos trusts are also referred to as "Living Trusts". To help determine which trust is right for you, call Mark G. Aberasturi, Attorney at Law PC today.
Inter Vivos Trusts
There are two main types of inter vivos trusts also known as Living Trusts – revocable and irrevocable.
The first type of trust is a Revocable Trust. With this, a donor maintains complete control over the trust and may amend, revoke, or terminate it at any time. This means you can take back the funds or change the terms anytime. This allows you to reap the benefits of the arrangement while maintaining the ability to change the trust anytime.
Revocable trusts are generally used for one of three purposes:
1. Asset management: Trusts permit the named trustee to administer and invest the trust for the benefit of one or more beneficiaries, such as minors and disabled individuals. Often, parents want to protect their children from their own improvidence and provide that the children will not receive their inheritance from the trust until they reach certain ages--say 1/2 at 25 and 1/2 at 30.
Or, for a child with a disability, the trust can provide that the trust assets will be used for the child in such a way that the child's Medicaid and SSI benefits won't be lost and the state will not be entitled to the trust assets upon the disabled child's death
2. Probate avoidance: Upon the death of the person who created the trust, (the grantor, or "donor") the trust passes to the beneficiary named in the trust. It does not need the intervention of probate courts, and the distribution won't be held up by the probate process. However, the property will be included in the grantor's estate for tax purposes.
3. Tax planning: Though the assets of a Revocable Trust will be included in the grantor's taxable estate, it is possible to draft the will so that assets will not be included in the estate of the beneficiary – thus avoiding taxes when the beneficiary dies.
Irrevocable Trusts
These are trusts that cannot be changed or amended by the donor without the written consent of all beneficiaries. Any property you may have placed into the trust can only be distributed by your trustee as provided by the terms of the trust itself.
For example, you may set up a trust under which you will have the sole right to live in your home and to receive income earned on the trust's property, but bars your access to the trust's principal. This is a popular tool for Medicaid planning.
Like a Revocable Trust, an Irrevocable Trust avoids probate of the assets in the trust and can contain age provisions and provisions for disabled individual
Testamentary Trusts
A testamentary trust is created by a will. This trust has no power or effect until the will is probated. Although this type of trust does not avoid the need for probate and does become a public document like the will, it can be useful in your estate planning goals. The testamentary trust can be used to help reduce any estate taxes on the death of a spouse and can provide for the care of any disabled children.
Supplemental Needs Trusts
If you need a trust to provide for the continued care of a disabled spouse, child, friend, or relative, you need a supplemental needs trust. The beneficiary of a well-drafted supplemental needs trust gains access to the trust assets for purposes beyond those provided by public health programs. This allows the beneficiary to not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing. These trusts can be created by the donor during his or her life, or as part of a will.
Benefits of a Trust
Depending on your situation, there can be a several advantages to establishing a trust. Best known is the advantage of avoiding probate. In a trust that terminates with the death of the donor, any property in the trust prior to the donor's death passes immediately to the beneficiaries by the terms of the trust without requiring probate. This can save time and money for the beneficiaries.
Certain trusts can also result in tax advantages – both for the donor and the beneficiary. These are often referred to as "credit shelter" or "life insurance" trusts. Other trusts may be used to protect property from creditors or to help the donor qualify for Medicaid. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need to know of trust assets and distribution, provided, they are well drafted. Another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated.
Learn More About
Mark G. Aberasturi, Attorney at Law P.C.
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