One of the best things you can do for your family is to prepare an estate plan ahead of time. It is important to make sure that all your assets, finances, bank accounts, life insurance policy benefits, retirement accounts, real estate properties, and other investments will be left in good hands after your death. This is the reason why we need to create a last will and testament or a trust beforehand. Wills and trusts are both estate planning tools that can help ensure that your assets are protected and bequeathed to your chosen heirs.
Aside from writing a will, most individuals also consider creating trust as one of the best ways to fulfill their goals during life and after death. A competent Tacoma estate planning attorney can help you determine whether a trust is the right approach for your estate plan.
The article will give you an overview of the importance of trust by answering the following questions:
- What is a Trust?
- What are the Different Types of Trusts?
- What is the Role of an Estate Planning Attorney?
What is a Trust?
A trust is a legal document and a method of estate transfer that involves a fiduciary relationship. It allows you to give authority to another party, known as the trustee, to handle your assets for your beneficiaries. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust. It can be used to determine how your money should be managed and distributed while you’re still alive, or after your death. To establish a trust, the individual (called the grantor or settlor) signs a legal document that creates the trust and specifies the terms under which it will operate.
What are the Different Types of Trusts?
There are several types of trusts and each type serves a certain purpose. Before establishing a trust, it is important to know your goals first. A credible Tacoma estate planning attorney can help you choose the best type of trust that will help you fulfill your goals. Here are the common types of trusts:
Revocable Living Trusts
A revocable living trust allows you to retain control of all the assets in the trust, and “revoke” or change the terms of the trust at any time. It can be changed or terminated by the trustor during his or her lifetime. But after the grantor dies, this trust becomes irrevocable and may no longer be changed. A successor trustee then manages the property according to the terms of the trust document. Usually, the trustee is responsible to distribute the assets to the named beneficiaries following the grantor’s death.
You can also create a trust for the primary purpose of avoiding probate court and reducing the expenses. A revocable living trust allows the trust maker to:
- Serve as the initial trustee
- Remove the property from the trust during his or her lifetime
- Transfer the title of a property to a trust
Once an irrevocable trust is created and established, it can no longer be changed, altered, revoked, or modified. You have legally removed any rights to ownership to anything you put in the trust. You no longer own assets once you place them into an irrevocable trust. If the property is no longer yours, you won’t have to pay estate taxes on the property. Irrevocable trusts can be beneficial for those in professions that are vulnerable to lawsuits, such as attorneys or doctors.
Asset Protection Trust
An asset protection trust is a special type of trust used to protect your estate and assets from creditors. Generally, asset protection schemes end the link between you and your assets – meaning you’ll no longer have control to use or distribute the assets. These trusts are structured as irrevocable for a certain period so that the trust maker is not a current beneficiary. It can eliminate that aspect by transferring the ownership of your assets controlled by your appointed trustee. In this case, you’re no longer the owner, which effectively removes the possibility of a creditor being able to gain access to your estate through a judgment or lien.
Charitable trusts are considered part of an estate plan to lessen or avoid the imposition of the estate tax or gift tax. This type of trust benefits a specific charity or the public in general. A charitable trust is essentially a way to set up your assets to benefit you, your beneficiaries, and a charity — all at the same time.
Before a court enforces a charitable trust, the social benefits of the charity must be examined and evaluated. The court cannot rely on the view of the settlor (the one who establishes the trust) that the trust is charitable. Creating a charitable trust could be a good way to leave a legacy.
A constructive trust (or implied trust) involves holding the property for another person or company. This type of trust is set up by a court as an “equitable remedy” based on certain facts and circumstances. Constructive trust and property interests are linked, because the trust is set up to change ownership of the property, to right the wrong that’s been done.
Special Needs Trust
A special needs trust allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security.
This type of trust covers the percentage of a person’s financial needs that are not covered by public assistance payments.
A spendthrift trust is an irrevocable living trust that’s overseen on an ongoing basis by a trustee, from the time it was written and continuing after the death of the grantor. This type of trust prevents certain beneficiaries from receiving their inheritances all at once. There’s a risk that they’ll blow through the money and assets in a short period.
Tax By-Pass Trust
A bypass trust is an irrevocable trust used by couples to avoid paying the federal estate tax on certain assets when one spouse passes away. When one spouse dies, the estate’s assets are split into two separate trusts – the first part is the marital trust, or “A” trust, and the second is a bypass, family, or “B” trust.
A Totten trust is also known as a payable on death account. It is essentially a bank account that you opened for a specific beneficiary. After you die, the money in the account goes directly to the person you named as the beneficiary. This is a type of revocable trust in which the gift is not completed until the grantor’s death. Totten trust assets avoid probate. It provides a safer method to pass assets on to family compared to joint ownership.
What is the Role of an Estate Planning Attorney?
An estate plan allows you to provide for your family’s future upon your death. Estate planning is the process of putting your wishes after death into writing. Creating a trust is a great way to protect your family’s assets. Choosing the best type of trust can be overwhelming and stressful. You need to consider several factors before making a decision. Given the complex nature of estate planning, consulting our experienced Tacoma estate planning attorneys at Jones Legacy Law can make things less complicated. Our estate planning law firm will ensure that your assets are well-distributed according to your wishes. We will help you protect your family and your legacy for the future.