A trust is a common estate planning tool that enables the creator of the trust to dedicate the use of assets to a beneficiary by designating a trustee to manage the arrangement. The trustee controls the assets in the trust and ensures that they are given to the beneficiary in the way that the creator or “trustor” directed prior to their death.
There are many types of trusts. Each has a different purpose and different implications for everyone involved. Understanding the basics regarding trusts can help make sure that people creating estate plans are making the best choices to accomplish their goals.
Aren’t trusts only for the wealthy?
Trusts are useful for a variety of individuals, not just those who are wealthy. If you have any assets to transfer to others when you pass away, looking into trusts is beneficial. For example, if you have a loved one who relies on needs-based government programs like Supplemental Security Income or Medicaid, a special needs trust can help you to support them without having a negative impact on their benefits.
Are all trusts permanent?
Trusts are either revocable or irrevocable, depending on how they are set up. A revocable trust is one that can be changed or terminated during the trustor’s lifetime. An irrevocable trust can’t be changed or terminated. Many people choose irrevocable trusts because of the tax benefits that can come with this type.
Do I fund trusts right away?
Not all trusts are funded right away. Funded trusts already have the assets in them. An unfunded trust can become funded at any point in the future, including after the death of the trustor. It is up to you to figure out how to handle the funding of the trust. Learning about the possibilities and how they might impact you now and your beneficiaries after your death can help you make this decision.
How do I choose the right option?
You need to think about your goal for the trust. Ease of transfer to beneficiaries is often a priority, but you should look deeper than that. If you are concerned about how tax law might impact your estate, you need a trust that will minimize this. If you want to support a charity, you might need a charitable trust. Once you have decided your goals, you can work with your attorney to find out which trusts can provide the solutions that you need.