Trusts can be excellent tools in the hands of an experienced estate planning attorney. For example, how do you know which one is (or is not) right for you and your unique circumstances?
In my experience too many people have trusts who do not need them, while others desperately need a trust but do not.
That is life, right?
So, what do you need to know about trusts in general as a starting point in your evaluation?
A recent Fox Business article took up this task.
The article is appropriately titled “What Is a Trust, and Why Should I Have One?”
Simply stated, a trust is a means by which an individual "trustmaker" is able to separate his or her legal ownership of property from the beneficial enjoyment of that property.
As a result of this separation, the trust places the responsibility for managing and preserving trust property on an individual or entity called “the trustee,” while the "beneficiaries" receive and enjoy the trust assets based on the terms of the trust.
All trusts serve these basic ingredients, however, there are many trusts available to serve a wide variety of estate planning objectives.
The original article surveys some of the more common "flavors" of trust and how they are used.
Although you will want to read the article for yourself, here is a summary of that survey.
Revocable trusts (aka "living trusts").
The trustmakers of a revocable trusts are commonly seeking to secure the proper management of their assets during their lifetime, even if incapacitated, and after they pass. In addition, when created the trustmaker, trustee and beneficiary are all one and the same.
A revocable trust can be changed at any time by the trustmaker. However, instructions in the trust document itself instruct the trustee regarding the administration and distribution of the trust assets after death.
Revocable trusts are used in estate planning to pass assets to heirs privately without probate, which can reduce costs and stress.
Testamentary trusts.
This variety of trust is created as part of a testator's will.
Even though the assets must pass through probate and a court proceeding is required to fund the testamentary trust, these trusts act just like a revocable trust when it comes to the eventual administration and distribution to heirs.
Irrevocable trusts.
Oftentimes the tool of choice for asset protection planning, trustmakers use irrevocable trusts to make "gifts" of their assets to help secure subsequent protection from creditors and estate taxation.
These trusts are typically created to hold high-value life insurance policies and keep the insurance proceeds out of the taxable estate of the insured trustmaker.
Additionally, the trust language can even provide protection over trust money so it will not jeopardize a beneficiary's eligibility for Medicaid and Supplemental Security Income.
Charitable trusts.
As the name clearly denotes, a charitable trust is used to facilitate "giving and receiving" between the trustmaker/donor and the donee charity.
Depending on the structure selected, the trustmaker either receives and income stream for life with the remainder passing at death to the charity or just the opposite. The former approach is a "charitable remainder trust" and the latter is a "charitable lead trust."
These trusts provide income tax benefits based on the value of the donation even though you still receive income from the trust assets.
Credit shelter trusts.
These are used to preserve the estate tax exemption of a deceased spouse for future use.
Qualified Terminable Interest Property (aka QTIP trust).
These are a common tools, particularly in "blended family" estate planning.
It allows a trustmaker/spouse to gives a surviving spouse access to funds while preserving their eventual distribution to the children of the trustmaker/spouse.
Qualified Personal Residence Trust (aka QPRT).
In the right circumstances, this trust lets you to transfer an interest in your home to family members during while you are still alive in a manner that produces gift and estate tax savings.
According to the original article, all of these trust share the same benefit: guaranteeing that your assets will be used wisely to meet your wishes and provide income for you and your loved ones.
That noted, estate planning, particularly with trusts, is not a do-it-yourself project.
Contact an experienced estate planning attorney and explore whether you could benefit from establishing a trust for yourself or your family.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "estate planning Overland Park KS".
Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
How?
There are two helpful resources just a mouse click away to assist with your due diligence: Avvo.com and Lawyers.com.
Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Fox Business (September 7, 2015) “What Is a Trust, and Why Should I Have One?”
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