Trusts can be a great way to update an estate plan, whether within a will or as a separate estate-planning tool. Trusts have a reputation for being something that most people don't have to worry about, with most seeing a trust as a vehicle for the ultra-rich to protect their assets from taxes and other financial threats. In reality, though, trusts are tools that just about anyone can use to achieve worthwhile financial goals. Still, the legal complexity of the estate planning world has left many people uncertain about what a trust is, let alone how to use it. Let's take a closer look at trusts to try to answer the question of what they are and how they can help you and your family.
In “What Is a Trust, and Why Should I Have One?” Fox Business explains that in legal terms, a trust lets an individual separate the legal ownership of property from the beneficial enjoyment of that property. A trust places the responsibility for managing and preserving trust property on an individual or entity (“the trustee”). The beneficiaries receive the trust assets based on the terms of the trust. There are many trusts available to serve many different goals. The article discusses some of these trusts and how people use them.
Revocable trusts are also known as living trusts. The creators of this trust can ensure the proper management of their assets during their lifetime and after they pass. A revocable trust can be changed at any time by the creator. However, instructions in the trust document tell the trustees how to act after the creator’s death. Revocable trusts are used in estate planning to pass assets to heirs in private and to avoid probate, which can reduce costs and stress.
Testamentary trusts. These are created in a person's will and they don't keep the assets out of probate. A court proceeding is required to fund the testamentary trust. Testamentary trusts provide flexibility.
Irrevocable trusts can be used to make gifts that allow subsequent protection from creditors and estate taxation. These trusts are typically created to hold high-value life insurance policies and keep the insurance proceeds out of the taxable estate of the insured person. The trust language can state that any trust money used for the beneficiary won't run into issues with Medicaid and Supplemental Security Income.
Charitable trusts, as the name implies,allows an individual to make a gift to charity but retain an interest in the donated property. Charitable remainder trusts will let you keep an income stream that continues for a specific time or for the rest of your life—the charity will receive any remaining funds at your death. These trusts provide income tax benefits from the value of the donation, even though you still receive income from the trust assets.
Other trusts are used for estate planning purposes, such as credit shelter trusts. These are used to preserve the estate tax exemption of a deceased spouse for future use. A Qualified Terminable Interest Property trust, or QTIP, gives a spouse access to funds while preserving their eventual distribution to children or other heirs. Finally, a Qualified Personal Residence Trust, or QPRT, lets you transfer an interest in your home to family members while you are still alive in a way that reduces gift and estate taxes.
All of these trusts have the same benefit: guaranteeing that your assets will be used to meet your wishes and provide income for you and your loved ones. Talk with an experienced Cincinnati estate planning attorney and see if you can benefit from establishing a trust for yourself or your family.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Fox Business (September 7, 2015) “What Is a Trust, and Why Should I Have One?”