If you’ve done any research about estate planning, then you’ve probably seen the word “trust” pop up quite often. And for good reason.
Trusts are an essential component of estate planning and chances are, you should have one in your plan as well. What kind of trust you need however, isn’t so cut and dry.
There are basically two methods of creating a trust:
The testamentary trust is created after you die in accordance with instructions you leave in your Will. This type of trust is often used to establish a trust fund for dependants with special needs or heirs that are not yet of age to inherit. Your Will can establish more than one testamentary trust, each with a different purpose and addressing different portions of your estate.
Any property placed in a testamentary trust must first go through probate.
A living trust on the other hand, is created while you’re still alive and can keep your assets out of probate and even minimize the estate taxes that would be due at the time of your death. This type of trust assumes “ownership” of your assets, so instead of your home being in your name for example, it would be in the name of the trust. Now, of course, as the trustee of your trust, you’d still have complete control over those assets – you just wouldn’t own them for purposes of probate.
Then, when you pass on, your successor trustee would take over, allowing your assets to pass from you to your heirs without the services of the probate court.
There are of course, several different types of trusts that can fall into either of these categories. A pet trust for example, would ensure your pet is protected and provided for after you’re gone while a charitable remainder trust would ensure the balance of your estate is donated to your favorite charity after your heirs have passed on. And, as we mentioned earlier, a special needs trust can help provide for disabled dependants.
To ensure you’re creating the right kind of trust, you need the help of an experienced estate planning attorney. To learn more about trusts and how they can benefit you, give us a call.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.