There are many types of trusts, and contrary to what you may think, you do not have to have millions of dollars in order to benefit from one. A trust is basically when one person holds property for another person. A settlor is the person planning the estate, and the trustee is who the settlor chooses to hold and manage the property of the beneficiaries. Some of the more common uses for trusts are to minimize taxation and set up ways to provide for underage beneficiaries.
Many trusts are set up to benefit a person’s children or grandchildren as part of an estate plan. These trusts are usually employed to ensure young children have support and a way to pay for education, medical care, and other vital needs. The trusts can be set up for children to be awarded total control of the estate through various ways as defined in the trust. Some of the more common ways include milestones, such as graduating high school or college or reaching a certain age. Once they meet the predetermined requirements, the beneficiary is then awarded full control over the property.
A special needs trust is set up as a way for an individual to leave property to another individual with special needs. These can protect special needs individuals from losing whatever government assistance they may be receiving. The loss of government aid is a common problem when a special needs individual inherits a large sum of money. The trust allows the individual to maintain government aid while at the same time freeing them to have the money they need to live.
For reasons such as taxes and property protection, some married couples elect to add trusts to their wills for the benefit of their husband or wife. Past laws required married couples to establish trusts in order for them to be eligible for estate tax exemptions. Laws in the future are expected to change, and it would be a good idea to have a trust set up for this scenario.
Marital trusts can also be set up to ensure property goes to the rightful heirs in the case of a remarriage. Should a man with children remarry, he can set up a trust so that his wife is able to use his property after he passes, but then the property is handed down to his children after she passes away.
Although entirely separate from a will, a revocable living trust—often times referred to as just a living trust—may work alongside your will to ensure the decedent’s wishes are properly carried out. This type of trust is typically used as a way to bypass probate. Put simply, probate is the process of proving the validity of a will after the person has passed. A revocable living trust is also used in other cases, such as when a person owns real estate in multiple states.
An irrevocable life insurance trust, or ILITs, are usually made as a way to move a person’s life insurance proceeds out of their estate. This is typically done for reasons involving estate taxes. ILITs are generally created to avoid paying a beneficiary the insurance proceeds outright. A drawback includes possibly conflicting with the wishes of the insured, or causing issues when the beneficiary is not in a position to benefit from receiving a large sum of money at once.
A spendthrift trust is started as a way to ensure a beneficiaries’ assets are protected from either themselves or creditors. A spendthrift will set up a trustee who has the freedom to decide how the assets of the trust will be distributed.
To answer your questions regarding which financial tool will best meet your objectives, call Holstrom, Block & Parke, APLC in Temecula at (951) 749-5863, or contact us online for a free phone consultation.