Many people have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children. However, this is far from the truth; trusts can be invaluable tools in the estate plans of millions of individuals.
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 settlor), who authorizes another person (the trustee) to manage the assets for the benefit of a third party (the beneficiaries). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries.
Some types of trusts that may be useful in estate planning in certain instances are:
- 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 or achievement level (such as obtaining a bachelor’s degree), they may receive money from the trust to do with as they please.
- Special Needs or Supplemental Needs Trusts. Special needs trusts are tools that enable a person to leave property to an individual with special needs. Many individuals with special needs receive government benefits. If they were to suddenly inherit money, they would be disqualified in most cases from those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have money for any extras 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. In previous years, marital trusts were needed for some couples to take advantage of estate tax exemptions, and they may be needed in the future as the laws are expected to change. Marital trusts can also protect property from a spouse to ensure that it ultimately goes where it needs to go. 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 primarily used to avoid probate in certain states (not Virginia) where probate is particularly cumbersome, or in a few other instances, such as when a person owns real estate in multiple states. However, these types of trusts are not for everyone and these type of trusts do NOTHING to protect your assets in the case of someone going to a nursing home or in regards to their long-term care expenses later on. In fact, it may even complicate Asset Protection in a crisis situation! It is HIGHLY recommended to have a full understanding of the short and long-term consequences of this type of trust before proceeding. Towards that end, be sure to check out this blog article from our website for more information in regards to Revocable Living Trusts.
- 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, these are a few examples of many different types of trusts possible, 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 in your area should help you assess your finances and goals to determine the best vehicles to preserve your wealth and your legacy. Contact us today. to schedule an consultation with one of our attorneys and see if a trust is truly right for you and your family!