People really get a lot done with power tools. Sometimes we all just need little extra oomph. It’s like that in estate planning. Some people need a powerful estate planning tool – a trust. Do you need one in your estate plan?
Trusts 101
A trust is a legal entity created and funded by a settlor or trustor. The trust is administered by a trustee for the benefit of the trust’s beneficiaries.
Why Use a Trust?
Trusts can be revocable (you can change it) or irrevocable (changing is hard or impossible). Both are a powerful estate planning tool. Almost any property you own can be used to fund a trust.
Trusts allow assets to be transferred before and after your death. Some trusts are funded by the settlor. Other trusts are funded by the settlor’s Will.
People use trusts to avoid probate. Trust assets typically do not become part of a person’s estate, and so can avoid probate. Assets usually can be delivered more quickly to beneficiaries through a trust.
Trust can exist for generations. For wealthier families, this allows them to spread their wealth over the years, usually taking advantage of tax breaks.
A Trust for Everyone (Almost)
People who do need a trust have several types of trusts to choose from:
- Revocable Living Trusts are the most common trust. Settlors sometimes names themselves as trustee because they get to maintain control of the assets transferred to the trust.
- A Special Needs Trust, as the name states, is for people with special needs. Example: a 16-year old girl with cerebral palsy may need medical and vocation care for years. Her parents may set up a special needs trust to meet her needs for years to come.
- Miller Trusts, also known as Qualifying Income Trusts, are used by Medicaid recipients. Any income they receive in excess of Medicaid’s income limits is transferred to a Miller trust.
- Spendthrift trusts are often used to protect assets from beneficiaries who are vulnerable to creditors or civil judgments. This trust may also be used to protect an inheritance from an irresponsible heir.
- Charitable Remainder Trusts allow the settlor to donate money to a charity while receiving an annuity. The money used to fund the trust pays the settlor’s annuity until death or until the trust terminates. At that time, the remainder of the money goes to the named charity.
- Dynasty Trusts are used to pass wealth through generations while avoiding or reducing taxes
As you can see, trusts can serve many purposes depending on the settlor’s goals and can be a powerful estate planning tool. However, trusts can have negative consequences for settlors if not set up correctly. It’s best to consult with an experienced attorney before establishing a trust.
Learn More About Trusts.
The attorneys at Adams & Miller understand the estate planning needs of their clients. Contact Adams & Miller, P.C. at 256-251-2137 to schedule an appointment. Though our offices are in Anniston and Birmingham, we help clients in Talladega, Gadsden and surrounding communities.
