Trusts are an important component to drafting a will and planning for your estate. There are many types of trusts including revocable trusts, irrevocable trusts, special needs trusts, spendthrift trusts, discretionary trusts, and fixed trusts, all having their own unique applications. The most common trust types used are revocable and irrevocable trusts.
Revocable Trusts
A revocable trust is one that can be altered at any time. If you have second thoughts about the terms or even the beneficiary, the trust can be amended with the help of your attorney. In the event of your incapacitation or disability, a disability trustee named in the trust can manage your assets rather than relying upon a court-ordered supervisor. Assets in the name of the trust when the Trustmaker dies will also pass directly to the beneficiaries, thus avoiding delays and complications of the probate process. During this process, any documents submitted become public record. By avoiding probate your property and beneficiaries do not become public record, maintaining their privacy.
While revocable trusts are extremely flexible and private, they do have a significant drawback. Revocable trusts have no protection from creditors, and all assets are subject to state and federal taxes upon your death. An irrevocable trust is an alternative to avoid this issue.
Irrevocable Trusts
Unlike revocable trusts, when a person makes an irrevocable trust, they give up their control and ownership of the property. When the person no longer owns the property, they can no longer be taxed on the value. This allows the person to pass along assets to family members without tax consequences. If the trust is to be given to charity, the Trustmaker will receive a tax deduction the year the trust was created, or the family will receive a charitable tax deduction upon the Trustmaker's death.
An irrevocable trust also puts the money out of the reach of creditors. If the Trustmaker is sued, assets in an irrevocable trust are untouchable and will remain in tact for the beneficiaries.
Other Trusts
Special Needs Trusts: A trust is created for disabled or mentally ill beneficiaries to be run by a family member or court appointed trustee. The trust ensures that the beneficiary is properly cared for when the Trustmaker is incapacitated or dies.
Spendthrift Trusts: A trust is created for a beneficiary with certain restrictions in place to combat the beneficiary's inclination to overspend. In this particular kind of trust, the Trustmaker and beneficiary can be one in the same.
Discretionary Trusts: A discretionary trust appoints a trustee who decides how much the beneficiary will receive at any given time, and in some instances can also control how the funds are to be used.
Fixed Trusts: The most limiting of all trusts, a fixed trust is extremely detailed and restrictive, giving the beneficiary little control over how the funds are used.
SCHEDULE YOUR CASE REVIEW TODAY
To find out how you can use trusts to your advantage, meet with your HSSO attorney today. By evaluating your assets and estate plan, we can help you choose the types of trusts to best protect your assets and best interests.
