If you are building an estate plan, creating a financial trust can be a great way to control your wealth and protect your legacy.
Many people choose to build a trust to protect their assets, designate beneficiaries, and get tax protection. Some common uses of trusts:
- Control your wealth. A trust can specify when your assets are distributed and to whom.
- Protect your legacy. A trust can be a tool to help protect you from probate, estate taxes, and creditors.
- Ensure options exist for long term care needs and avoid impoverishment due to long term care costs.
What is a trust?
A trust is a financial agreement that gives a third-party access to hold assets on your behalf. This person is called a trustee. It can be a child, relative, professional, corporate fiduciary, or any trusted friend you choose to name. The people or organizations who receive the assets are called the beneficiaries.
When you create and fund a trust, your assets can be transferred away from your estate and into the trust. Your designated trustee manages the trust assets and disbursements to your beneficiaries.
You can specify the exact terms of the agreement, controlling when your assets are distributed, and under what circumstances. There are many different types of trusts. You can ensure your wishes are carried out by stipulating certain rules in the agreement or in the type of trust you choose.
Asset sheltering is the strategy you use for guarding your wealth. Using legal practices to protect your assets from taxes and creditors is a common part of any estate plan.
You may be wondering if you should use a trust to protect your assets. It’s a good question, and there are some benefits to creating a trust instead of simply transferring your assets to your children or family.
If you wish to protect your assets from estate taxes and probate, a trust may be the answer.
Family dynamics are another reason to consider a trust. There are many common situations that may be ideal for a trust, such as:
- Having a special needs family member who needs help managing their assets once you pass away and needs to preserve important government benefits
- If you have a bad relationship with your children or their spouses
- Your beneficiaries are poor at managing money, or
- Beneficiaries are too young to receive an inheritance
You can set up a trust that ensures wishes for your legacy will be followed.
Types of Trusts
The specific terms of your agreement are determined in part by the type of trust you create. There are many types of trusts, and you can choose the best plan for your estate with your attorney. Here are examples of some of the types of trusts you can create:
- Revocable Trust
- Irrevocable Trust
- Marital Trust
- Charitable Trust
- Special Needs Trust
- Spendthrift Trust
It is important to receive counseling from a qualified attorney before creating your trust. An attorney will help you make sure that you are choosing the right trust for your unique situation.
Revocable and Irrevocable Trusts
All trusts are revocable or irrevocable. The type of trust you choose will depend on your primary goal.
A revocable trust, one type of living trust, is created in your lifetime. It can be changed and modified, or even outright revoked. These trusts transfer the assets to a trust, but you can still have the ability to remove assets or property during your lifetime. If you pass away while your assets are in a revocable trust, they may not be subject to probate.
This makes it an appealing option for many people who want to avoid probate. However, a revocable trust may not be a good choice for asset sheltering, as the assets in the trust may remain available to your creditors. It also may still be subject to estate taxes.
In most cases, a revocable trust will become an irrevocable trust when you die. You can also create an irrevocable trust while you are still alive, but there are some things to keep in mind.
An irrevocable trust can be altered or revoked only under certain, strictly defined circumstances. Once your assets or property are transferred to an irrevocable trust, your trustee is in control. The trust now owns the assets and you cannot change the terms or dissolve the trust except unless certain predetermined conditions are met or through court order.
An irrevocable trust appears to be an inflexible tool for preserving wealth or directing where assets go upon death. However, a competent attorney will draft language to allow you to effectuate your plans without losing total control over your assets. For this reason, when your goal is to protect your heirs, reduce estate taxes, protect assets during your life, or ensure that your long term care needs are met seeking the advice of an experienced elder law attorney is imperative.
Seeking Counsel from an Elder Law Attorney
Setting up a trust can be a valuable part of your estate plan. Seeking counsel from an elder law attorney can help you understand the right choice for you and your family. NJ Elder Law Center at Goldberg Law Group is here to help.
We focus on elder law, estate planning and closely related areas of the law. You can reach us at (973) 228-1795 or complete our contact form for a consultation.