Having a Will or a Trust is a key component of estate planning—how much do you know about trusts and what they can do for you?
A trust is a legal document that provides for a trustee to hold or distribute your assets both during your lifetime and after your death, and allows for the easy transfer of assets to friends and family without having to go through the probate process.
Trust vs. Will
Trusts are different from wills in that they:
- Tend to be more expensive
- Are usually effective right away, instead of only at your death
- Require assets to be transferred into the trust in order to be effective
- Can provide for the handling of your assets both during your lifetime and after your death.
Types of Trusts
The Revocable Trust, also known as the Living Trust or Revocable Living Trust, is primarily used to make sure that your assets will pass to your heirs without having to go through the probate process. Probate is a process in which the court oversees the distribution of your assets and can be lengthy and expensive—many times the cost of creating a Trust. Unlike a Will, which becomes a public document after your death, Revocable Living Trusts are privately settled, which is advantageous for those who don’t want their heirs, or other people, to know who got what. Assets transferred into a Revocable Trust are handled by the owner (or Grantor) just the way that personally owned assets are, and can be sold, removed from the trust, or given away at any time during the Grantor’s life. The Trust can also be changed or amended by the Grantor at any time.
An Irrevocable Trust is a Trust that, as its name implies, cannot be revoked, amended or (easily) changed. Once assets are transferred into this type of Trust the Grantor loses a certain amount of control over those assets, and those assets cannot be reclaimed. A common type of irrevocable trust is an Irrevocable Life Insurance Trust, which prevents insurance proceeds from being included in the insureds taxable estate. An irrevocable trust, when done correctly, can also protect assets from creditors or Medicaid claims.
A charitable remainder trust is for those who want money or property to be donated to a charity upon their death. During their lifetime, the Grantor of this type of trust may still be able to use and receive income from the assets, and transfer will only occur upon the Grantor’s death, however the Grantor may also realize a tax deduction upon the creation of the Trust. This type of trust is particularly useful for the donation of appreciated assets, where the sale of those assets would result in taxable gains.
This type of irrevocable trust provides for the needs of disabled persons without disqualifying them from government program benefits like Medicaid and Social Security. Special needs trusts are established to pay for extra comforts like recreation, travel, and counseling, that are not covered by governmental benefits. The Special Needs or Supplemental Needs Trust is also a good vehicle for a disabled person to receive an inheritance or a settlement without jeopardizing their benefits.
Why partner with an experienced trust lawyer?
Trusts can be very complex, and errors in creating or funding them can prevent the benefits you wanted them to provide. Working with an attorney experienced in Trust law to create and/or finalize your trust is important to avoid expensive mistakes.
D. Kathleen Rus of DK Rus Law is an attorney with over 25 years of experience in estate and business planning, and provides legal services to those in need all over Maryland. Contact her today to schedule a free consultation.