Do I Need a Trust?
There are a number of different types of trusts out there. The type of trust established is dependent on the goals of the individual doing the planning. Trusts can be used for one or more of the following reasons: tax avoidance, reducing taxes, sheltering assets from potential long term care costs, charitable planning, avoiding probate, or asset protection for beneficiaries, to name a few. The most commonly used trust is a revocable living trust.
Whether you need a trust depends on what your estate planning goals are. For example, if you are looking to avoid estate taxes, you may need a trust if you have a taxable estate. If you are looking to shelter some assets from potential long term care costs, but wish to maintain control and refrain from gifting the asset during lifetime, you need a trust. If your goals include avoiding probate, you may also want a trust. Probate is the public legal process through the court, where debts are paid and property is distributed according to the will, or if there is no will, the laws of intestacy. Sometimes this process can be timely and costly.
Revocable living trusts are the most commonly used trust because of all the benefits that can be offered for the average (not necessarily wealthy) family. All trusts are not created equal, nor do all offer all the potential benefits. Each trust is created different, depending on your goals and also on the drafting attorney.
In addition to avoiding probate, revocable living trusts allow you to direct how assets are handled during lifetime and after death. They are also great for protecting assets for beneficiaries and potentially minimizing estate taxes.
One of the greatest gifts you can leave your beneficiaries is an asset-protected inheritance. Assets inherited by beneficiaries can be protected from their creditors, lawsuits, bankruptcy, or even a divorce, if the trust is drafted this way. You can leave your cottage up north to your son without worrying about your daughter-in-law potentially getting half of it in a divorce. For beneficiaries with special needs, a trust could protect them so they can receive an inheritance without affecting any of their federal or state aid. Some beneficiaries need to be protected from themselves, and a trust can be set up in such a way that beneficiaries receive distributions made from a trustee according to the terms of the trust, rather than having a large inheritance placed in their lap all at once. This can be especially important if you have young children and do not want them to receive everything at a young age, but rather, you wish to have reasonable distributions made to them for things they need, up until they reach a certain age.
The estate tax laws have been changing on a regular basis, but a revocable living trust can potentially save estate taxes, perhaps even eliminating them altogether. This would depend on how the trust is set up and the size of your estate at the time of death.
Trusts can provide an array of benefits, leaving your assets managed by those you choose, with the privacy you want. Whether you need a trust or the type of trust you need is something you should discuss with an estate planning professional you trust.
Carissa Giebel is an estate planning attorney with Legacy Law Group, LLC. She can be contacted at carissa@legacylawllc .com or (920) 560-4651.