Types of Trusts in Estate Planning
One of the easiest ways to ensure that your assets are handed down to your beneficiaries is to establish at least one trust in your estate plan. Aside from a will, trusts are also one of the best ways to ensure that your affairs are handled in the way you dictate. You’ll avoid handing your spouse, children or other survivors high probate costs, tax burdens, and reduce or eliminate future family conflicts. One or more trusts can also be tailored to your family’s individual needs.
There are multiple types of trusts that you can initiate as part of your estate plan, so it’s important to find the right one or ones. Because trusts are complex, work with an estate planning attorney to determine which types you need.
Fiduciary Agreements That Are Part of an Estate Plan
A trust is a fiduciary agreement that allows a third-party trustee to hold assets on behalf of one or more beneficiaries. You create the trust and are called the “trustor” or “grantor,” or “settlor,” and you arrange for the trustee and you have the legal right to transfer assets or properties into the trust. The dictionary defines “Fiduciary” to mean involving trust, especially between a trustee and a beneficiary. The trustee is the person who administers the assets and/or property for the trust but does not have ownership. The trustor owns the assets held within a trust. The purpose of a trust is to ensure that assets are passed onto the beneficiaries and the trustee makes sure this occurs.
A good estate planning attorney like Jim Nici of Naples, Florida can help you set up a trust.
Types Of Trusts
The two basic types are:
• Revocable, which can be altered or canceled during the trustor’s life
• Irrevocable, which cannot be changed, altered or revoked once initiated
There are many types of trusts that are created from these two, depending on the trustor’s wishes.
• Living trust—this two-part trust ensures that the trustor has full use and ownership of the trust’s assets during their lifetime but converts to irrevocable at the time of death to pass to beneficiaries. Living trusts can include:
o Healthcare and end-of-life provisions decided by the grantor
o Protection in the event of incapacity of the grantor and beneficiaries
• Testamentary trust—this trust is created through the will and is implemented after the trustor’s death and is under the auspices of the probate court. This trust can preserve assets for children (usually from a prior marriage), provide lifetime income for a surviving spouse, gifts to charity, and/or provide for a beneficiary with special needs.
• Qualified Terminable Interest Property (QTIP) trust—intended to provide an income to a grantor’s surviving spouse until their death, then the assets pass to a beneficiary named by the grantor
• Special needs trust—intended for a mentally, physically, or chronically disabled person to preserve assets but avoid losing any public assistance
• Generation-skipping trust—commonly used to leave assets to grandchildren (or even great-grandchildren) without giving parents access to the trust. This allows the trustor more flexibility in estate planning and recipient beneficiaries to avoid the generation-skipping tax.
• Irrevocable life insurance trust (ILIT)—offering liquidity to either the estate or the trust’s beneficiaries while excluding life insurance proceeds from the trustor’s taxable estate.
• Charitable lead trust—allows a trustor to leave some assets to a charity while leaving the rest to beneficiaries.
• Charitable remainder trust—the trustor holds the assets until death and the remainder goes to a named charity
These are some of the more commonly used trusts. However, your estate planning attorney can help you find the right type of trust for your personal situation.
Why Trusts Help Your Estate Plan
One of the best reasons to include at least one trust in your estate plan is to reduce your taxable estate. Assets are held and are kept out of the hands of a beneficiary’s creditors, or away from someone without good money management skills. This is particularly useful in situations where subsequent marriages have led to additional children.
A trust also gives the trustor more control over their assets and property. Assets and property pass to your beneficiaries immediately without going through the probate process, which can take as long as a year or more.
Because a will goes through probate, the terms aren’t private and are accessible by anyone. A trust keeps asset and property transfer private and out of the court system, thereby reducing owed taxes and any court fees.
For questions on using trusts in your estate plan, contact Naples Trust Attorney Jim Nici at (239) 449-6150 today. Let us use our experience and expertise to help you set up your estate plan and trusts.