Many people think that trusts are only useful for the very wealthy. However, trusts are a great estate planning tool for anyone who wants to avoid the costs associated with probate, avoid paying some death taxes, and provide limitations on their young children's ability to access money left to them. Attorneys experienced in probate law can explain trusts and other estate planning tools and help you plan for the financial future.
A trust is a legal property interest held by one person for the benefit of another. The person who holds the legal property interest is called the trustee. The person for whom the property is being held is called the beneficiary. The person establishing the trust is called the grantor. A trust is a legal property interest held by one person, called the trustee, for the benefit of another person, called the beneficiary. The person establishing the trust is called the grantor. A trust can be revocable or irrevocable.
- Revocable trust: A revocable Trust is one that can be changed or terminated by the grantor at any time and for any reason.
- Irrevocable trust: An irrevocable trust, once established cannot be terminated or altered for any reason.
A Trust can also be a Living Trust or a Testamentary Trust.
- Living trust: A living trust is created while you are alive. This type of trust is a means of avoiding probate and the costs associated with probate. However, it will not allow you to avoid death taxes because the trust is controlled by you.
- Testamentary trust: A testamentary trust is created through a will. These trusts generally must go through the probate process.
Experienced estate planning attorneys often use living trusts, created while you are still alive, as a way to avoid probate and its associated costs.
In addition, there are many "specialized" trusts that are used for particular circumstances including the following:
- Self-declaration trust: This is a subcategory of living trusts. It consists of a trust that provides support for the grantor during his/her life and includes a provision for the distribution of the remaining property when the grantor dies.
- Support trust: A support trust is established to provide support for one or more beneficiaries. These trusts are established to provide only for the education, health care, and general support of one or more beneficiaries. The Trustee may not use more of the principal and income than is necessary to accomplish this support.
- Charitable trust: A charitable trust is established to provide support to charities as specified by the grantor. The support can be in annual installments or a lump-sum payment. A charitable trust is an irrevocable trust. These trusts are often used because they provide estate and capital gains tax advantages. A charitable remainder trust is a type of charitable trust that allows the grantor to set up the trust with a non-profit charity that will act as the trustee. The charity, as the trustee, manages and invests the assets in the trust to produce income. This income is which is payable to you, the grantor, during your life (or for some portion of your life) and at the time of your death (or the end of the portion of your life you indicated when setting up the trust). The charity owns all the property in the trust.
- Spendthrift trust: A spendthrift trust allows the grantor to establish some control over the beneficiary's ability to access the assets in the trust. These trusts allow the trustee to pay money to third parties for the benefit of the beneficiary instead of to the beneficiary himself. It also allows the trustee to withhold payments altogether. These trusts can also protect the beneficiary from creditors. As long as the trustee does not make payments directly to the beneficiary the creditors cannot access the money in the trust through attachment proceedings.
- Insurance trust: An insurance trust is established to become the beneficiary of one or more insurance policies. These trusts are used to take the proceeds out of your estate for probate and federal estate tax purposes. Insurance trusts are irrevocable.
Trusts allow the trustee to direct or control the property or other legal rights that are in the trust. Trustees have a legal duty to make decisions regarding the trust property in the best interests of the beneficiary. In addition to true legal trusts, other trust-like instruments you may use to involve others in the execution of your wishes include the following:
- Power of Attorney: A power of attorney gives someone you trust the ability to make decisions for you, when you are incapacitated. That person does not have to be an attorney although he/she will be known as your "attorney in fact." A power of attorney used to address broad issues such as medical care decision is called a Health Care Power of Attorney. A power of attorney can also address narrow issues and simple decisions including the purchase of a single parcel of real estate.
- Health Care Directive and Living Wills: In a health care directive you make the decisions regarding your medical care for all situations should you become incapacitated. A living will is a narrower form of a health care directive, generally limited to situations in which death is imminent. Every state recognizes a patient's right to make fundamental choices about the care and treatment he/she receives at or near the end of life. Health care providers must generally honor the terms of living wills and advanced medical directives.
Wills, trusts and other estate planning instruments allow you to take control of your future. Through the careful selection and creation of various estate planning documents you can choose how your own disability and death will be managed and you determine how your assets and the people you care for most will be treated when you are gone. The advice and assistance of an experienced Wills and Trusts attorney is essential to making sure that the measures you choose comply with your state's law and truly carry out your wishes.