A trust is a fund made up of assets of one person for the benefit one or more other individuals – often the grantor’s family members – or an organization, such as a charity. In estate planning, trusts are often used to avoid or reduce estate taxes and to avoid probate, which can be lengthy and expensive. The person who funds the trust is the grantor, the person or institution that administers it is the trustee, and those who are meant to benefit from the trust are its beneficiaries. In setting up a trust, you can dictate when, how, and to whom the assets will be distributed, and you will name the person you wish to administer the trust. Trusts can be used to protect your assets from creditors or to protect beneficiaries who have special needs, or who are not likely to be able to handle the assets on their own.
Trusts can be set up in various ways and for various purposes. They can be either revocable, leaving the control of the assets in your hands during your lifetime, or irrevocable, transferring the assets permanently out of your control. Each has its pros and cons, which you will need to discuss with your Sun City trusts lawyer. Creating trusts that meet your specific goals can be a detailed and complex process and requires the services of an attorney who practices estate planning law exclusively.
Here we will provide an overview of some of the more common types of trusts used in estate planning, but keep in mind that there are many other types that can be set up to handle any number of situations. There is no one-size-fits-all strategy in estate planning. Your assets, your desires, and the needs of your heirs are unique, so it is essential that you choose a Sun City estate planning lawyer who will take the time to get to know you well, and who can be creative, within the confines of the law, in tailoring a plan that is exactly right for you.
Trusts can be set up to hold assets during your lifetime, or your will may specify that the assets to be allocated to a trust are placed in one upon your death. A trust that holds assets while you are alive is called a “living” or inter vivos trust. If you choose to place your assets in a living trust, if it is created as a revocable trust, you can maintain control of those assets until your death. A trust that is set up to come into existence upon your death is called a testamentary trust.
A revocable living trust is one over which you maintain full control during your lifetime, which allows you to liquidate or revoke the trust at will or to change its terms. This type of living trust will be considered as your own asset for income tax purposes and claims by creditors, as long as you are living. Upon your death, it automatically becomes irrevocable.
A living trust may also be set up as an irrevocable trust. In this case, control of the assets in the trust will be out of your hands, and the trust will be managed by the trustee you have named. Because you no longer own the assets, any income will be taxed as income to the trust, not as your personal income. The funds will not be subject to the federal estate tax and will be usually exempt from claims of creditors. These are important advantages for your heirs (the trust’s beneficiaries), but the downside is that you will not have access to the assets and cannot make any changes to the trust without the permission of the beneficiaries.
This type of trust removes your life insurance policy from your estate, so it is not subject to inheritance taxes. It becomes an asset of the trust, which means that you can’t borrow against it or change the beneficiaries. It can, however, be used to pay estate costs when you die and earn tax-free income for the trust’s beneficiaries.
A special needs trust is one that enables its beneficiary, generally a disabled person, to receive benefits from the trust without losing government benefits to which he or she is otherwise entitled, such as Supplemental Security Income (SSI) and Medicaid (Arizona Health Care Cost Containment and Arizona Long-Term Care System).
A charitable trust is a means of supporting some philanthropic cause. It can be set up as either an inter vivos or a testamentary trust. It can be designed as a “lead” trust, in which the charity is paid first when the trust is liquidated, and the remainder goes to the other beneficiaries, or a remainder trust, which pays the other heirs first, with the remainder going to the charity.
These are only a few of the many types of trusts available. A good Sun City trusts attorney will be able to advise you as to whether establishing one or more trusts is right for you based on your individual situation. To learn more, call the Arizona law offices of Gorman & Jones, PLC. Our highly experienced attorneys will take the time to learn about your estate, your needs, and the people or causes you want to provide for and will put together a customized strategy that will meet your personal estate planning goals. Now is the time to plan how you want to use your assets. Call Gorman & Jones, PLC today to schedule a free consultation.