What Exactly is a Trust, and Do I Need One?
Trusts were once thought to be a way for only the very wealthy to pass on assets to their heirs while avoiding probate and estate taxes. Now, trusts are available to anyone and have become a common and accessible part of a comprehensive estate plan. In talking to our clients, we have found that there are still quite a few unanswered questions about these useful tools. In this post I would like to spend some time explaining the basics of trusts, types of trusts, and how they can help you create your legacy and preserve assets for your loved ones.
First, what is a Trust?
A trust is a type of legal arrangement made between two parties. The trustor (also sometimes called a grantor or settlor) sets up and funds the trust. The trustee manages the trust in the interests of the beneficiaries in accordance with the wishes of the trustor. It is possible for a trustor to be the trustee as well. There are also quite a few different types of trusts, each designed to accomplish a different goal. Below we will briefly discuss the more common types of trusts that our clients find useful in their estate planning.
Types of Trusts
First, there are two broad categories of trusts, revocable and irrevocable. Simply put, a revocable trust can be changed or revoked. If you acquire new assets, or sell assets, go through a divorce, or a million other circumstances that we all experience in life, the terms and assets of the trust can be changed relatively easily. An irrevocable trust cannot typically be changed or modified. Irrevocable trusts are most often used to get assets out of a person's name to protect them from taxes, long-term care needs, or other liabilities. There can also be some lifetime tax benefits to setting up irrevocable trusts, especially if your goal is to leave something to charity.
Below are a couple of different common variations of these trusts that we see.
Revocable Living Trusts
These are the most common type of trust you will see and are often set up by our clients wanting to avoid probate while also ensuring their assets go to their heirs in the way our clients want their heirs to receive them. These are typically used to avoid probate and the delays, public record, and costs associated with that process.
Special Needs Trusts
This type of trust can help provide for a dependent who has special needs. This is often a child, but may be a sibling, parent, or other family member. A special needs trust does not affect your loved one’s ability to receive government benefits. They can still receive disability benefits but will have funds for any additional needs that the government doesn't pay for. This allows the disabled individual to have a much better standard of living than they would otherwise be able to and can help you to ensure your children or other loved ones continue to get the individualized attention you desire even after your passing.
Charitable Trusts
Charitable trusts are a way to help you create a legacy of giving. The two broad types of charitable trusts are a charitable lead trust and a charitable remainder trust.
A charitable lead trust allows you to give money to a single charity or several charities during your lifetime, with the other assets going to your beneficiaries, as you direct, when you pass away. A charitable remainder trust is a trust where you get the income from the trust during your lifetime with the remainder going to the charity or charities of your choice when you pass away.
Life Insurance Trusts
Life insurance trusts are designated to hold life insurance policies and proceeds. The trust is the beneficiary of one or more life insurance policies. When you pass away, proceeds go to the trust. Proceeds are then managed for your beneficiaries by a trustee that you have named. These are commonly used to help clients leverage their assets during their lifetime to help cover or reduce estate taxes after their passing.
Call Us Today
These are just a few examples of the many tools we can use to help our clients plan for the future and how to best serve their families. At Stratton and Reynolds, our experienced attorneys will discuss your family’s needs and your concerns with you. Each family is unique, and we love helping our clients achieve peace of mind through a personalized estate plan. There is no better way to assure your legacy, protect your assets, and provide for your loved ones. Call us today at 803-358-7214 or complete the contact form to learn more.
