As adults, many of us work hard and save money for retirement to ensure that we can enjoy our golden years and provide for our loved ones after we're gone. One way to achieve this goal is by creating a trust as part of our estate plan, which can provide financial security for our beneficiaries.
A trust is a legal document that holds assets for beneficiaries and involves three main parties: the grantor, the trustee, and the beneficiaries. The grantor is the creator of the trust, the trustee manages the trust's assets for the beneficiaries, and the beneficiaries receive the assets in the trust.
Trusts offer a way to reduce the estate taxes you may be liable to pay while also simplifying the process for your beneficiaries to receive your assets. If you transfer your assets to a trust, your loved ones won't have to navigate the probate court system to claim their inheritance.
For instance, let's say you have a will that designates your surviving spouse and adult children as beneficiaries. In the event of your passing, your family would need to initiate probate proceedings in a court in Staten Island. This process could be prolonged and costly, depending on the size and complexity of your estate, as well as any challenges that may arise. By creating a trust, you can streamline the transfer of assets to your heirs while minimizing tax liabilities and alleviating the burden of probate.
When establishing a trust, it serves as a custodian for your assets, managing them for the benefit of your beneficiaries. With a trust, you have the flexibility to specify the terms for the distribution of your assets to your beneficiaries, including the timing and manner of transfer. If you wish to provide your beneficiaries with immediate access to your assets upon your passing, you can create an agreement that will ensure a swift transfer of the trust assets.
Trusts come in various forms and can be structured in different ways, but they all share a common purpose of directing the distribution of your assets to your beneficiaries. The type of trust you establish determines who manages it, as well as the rules for accessing and using the funds. The two main categories of trusts are revocable and irrevocable trusts.
During the lifetime of the grantor, revocable trusts can be altered, amended, or terminated at any time. The grantor has complete control over the trust and its assets while they are alive. One of the most frequently used types of trusts is the revocable living trust, which is established during the grantor's lifetime. Upon the grantor's death, the trust is transformed into an irrevocable trust (as explained below).
Revocable trusts provide flexibility for individuals who want to have control over their assets while they are alive. They offer the option to modify the trust agreement, add or remove properties, and revoke the trust entirely. This type of trust can be particularly useful for those with fluctuating assets, multiple properties, or business interests. Combining a revocable trust with a last will and testament can be an effective strategy for quickly passing high-value property, such as a house, to beneficiaries. In addition to asset protection, revocable trusts can also be utilized for charitable giving and to safeguard life insurance proceeds.
An irrevocable trust involves transferring ownership of assets to the trust, after which the grantor relinquishes control and ownership of the assets. The trustee then takes on the responsibility of managing the assets in the trust. This type of trust is commonly used to avoid federal estate taxes. Once assets are transferred into an irrevocable trust, they are not counted as part of the grantor's estate for estate tax purposes. This can be an effective way to minimize tax liability and ensure that beneficiaries receive the maximum benefit from the trust.
Irrevocable living trusts also provide a valuable means of safeguarding eligibility for important public benefits, both for yourself and your loved ones. For instance, if you have a dependent with special needs, transferring your assets to them could potentially disqualify them from receiving essential public benefits like Medicaid or Medicare. By placing your assets in a special needs trust, your loved one can still use the funds for crucial expenses while remaining eligible for public assistance.
Likewise, utilizing an irrevocable trust can aid you in qualifying for long-term care insurance benefits through Medicaid. The assets you transfer will no longer be considered part of your income, as they are no longer under your ownership or control. However, keep in mind that it's necessary to establish the trust at least five years before applying for Medicaid.
When it comes to estate planning, selecting the appropriate trust type depends on your specific objectives. There are various types of trusts, each tailored to a specific purpose. To determine the ideal one for your circumstances, it is recommended to speak with an estate planning attorney.
A qualified attorney can provide guidance on the benefits and drawbacks of each trust type and suggest the one that best suits your needs. While weighing the different trust options, it is vital to consider factors such as the level of control you want over your assets and whether or not you anticipate making changes in the future.
If you are looking to create a comprehensive estate plan that includes a trust, the experienced attorneys at DiVernieri, DiVernieri and Cotter, LLP are here to help. Our team can work with you to understand your unique estate planning goals and guide you through the process of creating a trust that meets your needs. Contact us today to schedule a free initial consultation and start planning for your future.