Why Create A Trust?
Many people believe that trusts are only for the wealthy, but this is not the case. Trusts can be valuable tools for individuals and families with all levels of income and assets.
Trusts are nothing more than written agreements where one party holds property for the benefit of another party. In a modern estate plan, one person or a married couple creates an estate plan (i.e. the trust) and designates a trustee (usually themselves) to manage the assets in the trust for the benefit of their children, other family members, friends or even charities.
The main benefits of establishing an estate plan are to avoid probate (which can be costly, time-consuming and anything but private) and minimize future estate taxes, if any. In addition, trusts and estate plans can provide for the education and support needs of minors or others named in the trust.
Types Of Trusts
There are many types of trusts that can be useful in estate planning but the main ones are as follows:
Revocable living trusts
Revocable living trusts are the most common type of trust. Their main purpose is to avoid state probate (unlike a will, which must be administered through the local probate court.) Given recent changes in tax law, revocable living trusts are used to a lesser extent to minimize estate taxes.
Because spouses do not generally pass away at the same time, a married couple can establish a marital trust to provide for the surviving spouse while carrying out the deceased spouse’s wishes.
For example, a husband with grown children from a previous marriage may decide to let his wife use his property after his death but require that it be distributed to his grown children after she passes away. In this scenario, the husband can achieve the twin goals of providing for his wife first and his children second.
Irrevocable life insurance trusts
An irrevocable life insurance trust (ILIT) is an excellent tool to shield the proceeds of a life insurance policy from estate taxes. If someone dies owning a life insurance policy, the proceeds of that policy are included in the estate and possibly subject to estate taxes. By establishing an ILIT, you can maximize wealth transfer to children or others named in the trust.
An independent trustee is required to ensure estate tax avoidance.
Typically, a sudden influx of wealth from an inheritance triggers unwise or excessive spending. To prevent this, you can establish a spendthrift trust to protect the beneficiary’s income and/or assets from him or herself, or from his or her creditors.
Special needs trusts
Special needs trusts enable a parent to leave assets to an individual with special needs. Many individuals with special needs receive government benefits. If they were to suddenly inherit money, they may lose their eligibility for government benefits.
A special needs trust can protect their benefits while also giving them access to supplemental funds for other items they may need.
Contact Us For A Customized Estate Plan
There are other important estate planning documents to consider, most notably a will. We work closely with our clients to listen to their concerns, understand their needs and craft a customized, written plan.
Please call 818-344-8200 or use our online contact form to schedule a free consultation.