If you want to secure your assets and make sure they are distributed according to your wishes after you pass away, trusts are the way to go.
From shielding your assets from creditors and lawsuits to avoiding probate, the benefits of setting up a trust are numerous. And the best part? There are plenty of different types of trusts to choose from, each with unique benefits.
In this article, we will explore the four most common types of trusts in estate planning: revocable living trusts, irrevocable trusts, testamentary trusts, and special needs trusts. We will explain how each works and what benefits they offer so that you can decide which type of trust is right for your needs.
What if we told you there is a way to protect assets while maintaining control over them during your lifetime? Enter the revocable trust.
This type of trust is a popular choice for those who want to avoid probate and maintain control over their assets until they pass away. One of the benefits of a revocable living trust is that it allows you to avoid probate, which can be a lengthy and expensive process.
Additionally, because the trust is revocable, you can make changes or even revoke the entire trust at any time during your life. However, it takes longer to set up a trust than a will, and you have to administer the trust upon your passing, similar to a will, but without probate if properly funded.
It’s very important to properly fund the trust by transferring ownership of assets into it or making the trust the beneficiary of an asset. Otherwise, they may still go through probate. Proper administration also requires careful record keeping and timely distribution of assets after your passing.
An irrevocable trust can provide lifetime asset protection for beneficiaries. This type of trust can’t be easily changed or revoked once created, which means that the trust assets may or not be considered part of your estate.
Here are some benefits of irrevocable trusts:
However, it is important to note that tax implications may also be associated with creating an irrevocable trust. For example, if the trust generates income, it may be subject to income taxes higher than individual taxpayers. Additionally, gift taxes may apply if the value of the assets placed in the trust exceeds certain limits. At Your Legacy Legal Care, we utilize an irrevocable trust that provides asset protection, income to Grantors, and no separate tax return.
It’s important to consult with a financial advisor or attorney before creating an irrevocable trust to fully understand its benefits and potential drawbacks.
Testamentary trusts, or will trusts, are created through a person’s last will and testament. This type of trust is only activated after the grantor’s death, allowing them to control their assets until they pass away.
Testamentary trusts can be used for various purposes, such as inheritance distribution and estate tax planning. One benefit of using a testamentary trust is that it allows the grantor to provide for their beneficiaries in a will.
The trustee appointed by the grantor manages the assets in the trust and distributes them according to the instructions provided in the will.
To set up a testamentary trust, the will needs to be probated first. This is an extra cost to establish the trust.
Additionally, testamentary trusts can be an effective tool for estate tax planning as they allow for certain tax benefits, which can ultimately reduce taxes owed on an individual’s estate.
A Special Needs Trust, or a Supplemental Needs Trust, is created to provide financial support for individuals with disabilities without affecting their eligibility for government benefits. This type of trust is designed to be managed by a trustee who will ensure the funds are used only for the beneficiary’s supplemental needs.
The trust can cover medical and dental care, transportation, education, and recreation expenses. It must comply with specific rules to ensure that the Special Needs Trust meets legal requirements and does not affect government benefits. For example, the beneficiary can’t have direct access to or control over the assets in the trust.
Additionally, certain language must be included in the trust document to prevent it from being counted as an asset when determining eligibility for government assistance programs like Medicaid or Supplemental Security Income (SSI).
Working with an experienced attorney when creating a Special Needs Trust is crucial to ensure compliance with all legal requirements.
You will want to pick the perfect trust for your personal planning preferences, and it is important to remember that each option offers unique advantages.
Here are a few things to consider when choosing the right trust for your estate planning goals:
Ultimately, the right choice depends on your unique goals and needs. Our qualified trusts lawyer at Your Legacy Legal Care can help you navigate these options and find the right solution for you.
Remember that proper planning now can help ensure that your beneficiaries receive the maximum benefit possible. Contact us today for a consultation.
Kimberly Hegwood is the Managing Attorney of Your Legacy Legal Care, a Houston estate planning law firm. With more than 25 years of experience practicing law in Texas, she represents clients in a wide range of legal matters, including elder law, asset protection, estate planning, Medicaid crisis planning, probate, guardianship, and other estate planning practice areas.
Kimberly received her Juris Doctor from the South Texas College of Law and is a member of the State Bar of Texas.
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