It is likely that creating a trust isn’t exactly at the top of your to-do list at the moment, especially if you’re relatively young and in good health. It can seem like a waste of time, or you may be under the impression that a trust isn’t meant for you and can’t be of use. Would you believe us if we told you that 67% of Americans think the same way? Last year a survey found that only 33% of Americans have established estate plans, the rest leaving the fate of their assets up in the air.
Despite what you may have heard, trusts aren’t just for the rich or the elderly, they’re for anyone who owns property or assets. A trust can help you retain control of your assets, or ensure that they end up in the right hands. They are powerful tools that have two major benefits; preventing probate and protecting your assets.
Probate is a lengthy process that is necessary when a decedent doesn’t have a will at the time of their death. It can take anywhere from 6 months to a year, is expensive and stressful. A trust eliminates the need for probate as assets are transferred directly from the trust to beneficiaries at the time of the grantor’s death. Trusts also offer a level of security to your assets because the trust owns the assets once they are transferred. This prevents them from any type of risk. You also have full control of a trust, so you can manage how funds are distributed.
While making decisions about your assets can be overwhelming, it’s important to clarify where and with whom you want them to end up. Given the individuality of every person’s financial circumstances, their needs in a trust are likely different as well. That’s why it’s important to understand each type of trust so that you can make an informed decision on which one will suit your unique situation best.
Before diving into the various trusts, let’s discuss the two main categories: revocable and irrevocable trusts.
Revocable Vs. Irrevocable Trusts
A revocable trust allows you (the creator/grantor) of the trust to create the terms, name a trustee (an entity or person who manages the trust on your behalf) and a beneficiary or beneficiaries. This type of trust allows the flexibility of changing or modifying the terms at any time, unlike irrevocable trusts where once established, the trust cannot be modified unless all beneficiaries agree to the change, OR you obtain a judge’s order to make the adjustments. Even then, modifications aren’t always feasible.
There are pros and cons to irrevocable trusts, a pro being that it offers unbreakable security, but a con being that it lacks flexibility when circumstances change and you’d like the terms to as well. A trust attorney can help you weigh the pros and cons of both so that you can select the kind of trust that best works for you. Below are several different kinds of revocable and irrevocable trusts:
A testamentary trust is the kind of trust that is made as a part of a last will and testament. It comes into effect when you pass away and involves you (the grantor) leaving instructions for how you want your assets to be distributed to the heirs by an executor that you name. This establishes a smooth transition of assets to the appropriate beneficiaries upon your death or incapacitation, and leaves any uncertainty of what your last wishes were out of the equation.
Special Needs Trust
A special needs trust is set up to provide assistance for children or family members with disabilities, while also maintaining their eligibility for public benefits like SSI and Medicaid. There are three types of special needs trusts: third-party trusts,first-party trusts, and pooled-trusts. A third-party trust is typically funded by the beneficiary’s family and used for gifts and other things that the public benefits don’t provide them. For example, personal care, transportation, recreational activities, technological assistance or other things that can enhance their quality of life. A first-party trust is similar except the trust is funded with assets that belong to the individual with special needs. A pooled trust contains the assets of multiple people and is run by a nonprofit organization and set up to administer a master special needs trust on behalf of individual beneficiaries with disabilities.
A joint trust is a single trust shared by two people (typically a married couple) who both act as trustees. When one spouse passes away, the other becomes the sole trustee. After the second spouse dies, a joint trust becomes irrevocable as there is no surviving spouse to make any amendments to the trust.
Asset Protection Trust
An asset protection trust is an important legal tool that can be of use to anyone who owns something of financial value. holds onto assets so they’re protected from creditors, lawsuits, and other risks. It can help deter litigation before it even begins and minimize the risk of your assets being seized.
A charitable trust allows individuals to donate assets to a charitable organization or nonprofit, which can help you save on what you owe to the government by qualifying you for a charitable deduction.
If you’ve been contemplating the idea of creating a trust, it’s important that you do so with a skilled trust attorney and avoid online templates. Though the templates might seem like a more convenient and cost effective way to create a trust, they often lack the proper legal language necessary to make them compliant. A template also can’t understand your unique circumstance the way an attorney can, so using one can lead to costly mistakes that make your trust ineffective. An attorney can explain your available options and help you choose the trust that is best suited to your unique circumstances. At Osenton Law, P.A. our lead attorney O. Reginald “Reggie” Osenton has three decades of experience helping clients protect their assets and loved ones, he can help you do the same! Call today for a free consultation.