When we ask clients what they want to happen with their assets and property after they are gone, their answers are as unique as they are. Their wishes depend on the property they own and the relationships they have with their heirs. While a will is sufficient in some situations, many people need an estate planning tool that allows them to have a greater say in what happens to their assets. At Littlejohn Law, our estate planning attorneys will discuss the benefits of certain types of trusts to accomplish your goals.
What Is a Trust?
Simply put, a trust is a legal document that holds ownership of certain assets. A trust generally involves at least three people: (1) the grantor or settlor, who creates the trust; (2) the trustee, who holds and manages the property for the benefit of the grantor or another; and (3) the beneficiaries, who are entitled to the benefits.
The grantor names a trustee and places certain property into the trust with instructions on how the assets should be managed. The trustee agrees to manage the property in the way the grantor has specified in the trust agreement. Throughout the entire trust arrangement, the trustee has legal title to the trust property, while the beneficiaries retain the right to benefit from the property specified in the trust.
There are two main types of trusts: revocable and irrevocable. A revocable trust can be changed or even terminated at any time by the grantor, but an irrevocable trust cannot be changed or terminated before the time specified in the trust. Irrevocable trusts offer tax and other benefits that may offset the loss of flexibility.
Should You Have a Trust?
Whether or not you should have a trust depends on the purpose of the trust and the size of your estate. Your estate planning attorney will discuss a variety of options with you to help you decide if a trust would benefit your heirs.
Generally speaking, you may want to consider a trust if you fall into one or more of the following categories:
- You have young children and want to provide for their futures.
- You have dependents who will need help managing property responsibly.
- You own property that is hard to divide, such as a small business or other income-producing asset.
- You want to control what happens to their property after they die.
- You are concerned about estate taxes.
- You have too much money to qualify for Medicaid to pay for a nursing home, but not enough to pay for a nursing home.
After taking the time to understand your unique situation, your attorney will customize a trust to accomplish your specific goals.
What Can a Trust Do?
You can design a trust to do almost anything as long as it is not illegal or against public policy. Trusts come in many forms. They can be used to reduce estate taxes, fund the education of children and grandchildren, provide for people with disabilities or who might have trouble managing their own affairs, and fund charities. Trusts can also protect your assets from your beneficiaries' creditors.
Examples of the kinds of trusts available to you include the following:
- Charitable trusts. Continue to support charitable organizations after your death with this kind of trust.
- Discretionary trust. This trust will distribute income and principal among various beneficiaries or control the disbursement to a single beneficiary.
- Wealth trust. A wealth trust can be created to your specific wishes to pass down wealth for a number of future generations.
- Living trust. Living trusts enable you to put your assets in while you are still alive. For example, you might want to place your house into a living trust to protect it from creditors and Medicaid after your death.
- Special needs trust. This trust is established to support dependents with disabilities while allowing them to keep their government benefits.
- Spendthrift trust. This is a trust that is set up for someone whom the grantor believes will not be able to manage their own affairs.
- Support trust. This trust directs the trustee to spend only as much income and principal as may be needed for the education and basic support of the beneficiaries.
- Qualified Income Trust (QIT). If your income would prevent you from receiving the Medicaid benefits you need to pay for a nursing home, you can put assets into a QIT, and they will not be counted against you.
- Medicaid Asset Protection Trust (MAPT). This trust protects a Medicaid applicant's assets from being counted for eligibility purposes. An MAPT must be set up at least five years before nursing home care is needed.
This list covers many popular kinds of trust but is not exhaustive. Your estate planning attorney will help you identify the trusts that will meet your needs.
How Do You Fund a Trust?
A trust is really just a piece of paper until you actually move your assets into it. This is called funding a trust. At Littlejohn Law, we make sure our clients follow through with funding their trusts, and we review their situation every year to see if additional assets should be moved into an existing trust.
For many people, trusts are an important, but complicated, part of their estate plan. Our estate planning team is happy to explain the details and help you make the right decisions for your family. Please call us at 740.346.2899 to find out how a trust could be the answer for you!