What Is a Trust? Estate Planning, Trusts, and Asset Protection
A trust is a financial arrangement in which a third party, known as a trustee, retains assets on behalf of any designated beneficiaries. In general, the purpose of a trust is to have the assurance that a person's assets are managed according to their wishes during their lifetime and also distributed to their desired beneficiaries upon death. The person creating the trust by transferring assets to the third party is known as the grantor. For estate planning purposes, a grantor would create a trust to avoid the transferred assets from being subject to probate when they pass and go directly to the beneficiaries.
A trust can include assets such as real property, bank accounts, and investment funds.
How is a trust different than a will?
One of the main differences between a will and a trust is that a will only become effective after your passing. A trust allows you to manage your assets while you are alive, and manage your assets and designate what happens to them after you pass. In most cases, the beneficiaries of your trust can have the your assets transferred to them outside of the probate process.
A trust can include a plan to distribute the assets to minor children if the one or more parents, as grantors, were to pass away. The trust can designate the children as beneficiaries and have the assets pass outside of probate and the trust can also designate a trustee to manage the assets until the children reach maturity or any age over 18 if they feel that the assets would be better managed by the trustee under the circumstances. The distribution under the trust can also be specific and direct the assets towards certain expenses such as education or medical care.
Contingent Trusts Current and Remainder Beneficiaries
A contingent trust only takes effect if certain conditions are met. In many cases this may be in the event that the parents die leaving behind minor children. In these cases the appointed guardian can manage the trust for children until they reach the age of 18. These children may be known as remainder beneficiaries. A remainder beneficiary receives the remainder of the trust after the grantor, or parent passes or the trust ends. In some cases the trust can continue with the trustee managing the trust until after the beneficiary reaches the age of 18 or until other conditions that the grantor designates are met such as reaching a later age, or graduating college.
Probate of a will and an estate is on public record and can be searched and read by anyone. A trust is a private document which allows the passing of assets to your beneficiaries without it being searchable. This also can reduce taxes and court fees that would be involved with the probate of a will
Revocable Trusts
Sometimes referred to as a living trust or a revocable living trust, a revocable trust gives the third-party managing the assets, known as a trustee, control of your assets to manage and protect them while you are living. With a revocable trust you have the flexibility to determine when to make distributions and who to make them to. Unlike remainder beneficiaries, current beneficiaries can receive distributions during the term of trust.
Access, Planning, and Flexibility of Trusts For Estate Planning
A revocable trust allows you to access your assets and make any changes in the agreement at any time before your death. Your beneficiaries only receive the assets placed in the trust after you pass. Until then, any possible proceeds generated by the assets in in these types of trusts are technically still yours.
Privacy of Estate and Beneficiaries
You can also construct your trust to to protect your estate from any creditors your heirs may have and retain control of the assets in your trust and continue to manage them, protecting them from mismanagement on the part of any beneficiaries if that is a concern.
Irrevocable Trusts
An irrevocable trust functions differently in that you cannot alter the agreement or access any of your assets. These trusts are preferable for people who are anticipating a serious illness or condition, such as a dementia-related illness that can impair their judgment or ability to manage their assets.
Irrevocable Trusts and Medicaid Planning
An irrevocable trust can be particularly significant if the grantor is looking at the very real possibility of being placed in a long-term care facility. In these situations, the grantor could very well likely have their assets liquidated to pay for Medicare, in order to fund their long-term care. A revocable trust made early enough could prevent this scenario but you are advised to discuss these details with a qualified estate-planning attorney who is familiar with Medicaid planning as soon as possible.
Special Needs Trust
A special needs trust is designed for people who receive government assistance such as Supplemental Security Income (SSI) or are on Medicaid. In many cases, a distribution from a trust can disaqualify the beneficiary from receiving such benefits. Through the creation of a Special Needs Trust, the assets in the trust can be distributed in a way that doesn't jeopardize the beneficiarie's access to their assistance or benefits.
Jelks Law Can Help You Prepare A Trust
If you are considering forming a trust for estate planning purposes, you should be aware of the many options available to you. Attorney, Amanda Jelks of Jelks Law can discuss the options available to you and help you make a trust that serves your needs and the needs of your chosen beneficiaries.