Different Trusts Meet Different Needs in Your Estate Plan
There are a number of different types of trusts we use when doing an estate plan. Here is a bit of information about a few of the most common trusts.
The Revocable Living Trust
The primary trust we use in estate planning is the Revocable Living Trust (“RLT”). It is the foundation of most estate plans and has many benefits. It contains instructions for managing the assets in the trust during your life, upon your death, and if you become incapacitated. The RLT will also avoid the need for a probate court proceeding on your death. You can select the person(s) who will be able to step in quickly to gather, sell, and distribute your assets to your beneficiaries without a court’s involvement.
Irrevocable Trusts
When we create an irrevocable trust, we create an estate plan that is intended to not be changed or revoked. Once we put it in place, the circumstances permitting a change to the trust are limited. An irrevocable trust has some specific uses. Most of them involve naming someone else to serve as the trustee of an irrevocable trust- which means transferring property out of your hands and out of your control.
There are four primary uses for irrevocable trusts: estate tax avoidance; providing for a spouse in a second (or third) marriage for someone with children from a previous marriage (blended family); asset protection; and protecting someone who receives government benefits.
1. Estate Tax Avoidance
When the estate tax exemption was very low, many people set up an irrevocable trust to avoid or manage estate taxes. Estate taxes – or inheritance or death taxes as they are sometimes called – are calculated based on what you own (your “estate”) at your death. In order to avoid estate taxes, you might create a trust and transfer some of your property out of your estate and into another person’s estate (your children, for instance) in order to avoid or minimize estate taxes at the time of your death.
2. Estate Planning for Blended Families
An irrevocable trust can also be created upon your death to benefit a spouse in a blended family situation. This irrevocable trust can be used to care for your current spouse during his or her lifetime, while assuring that at your current spouse’s death, your children from your previous marriage receive what remains of the assets in the trust.
3. Asset Protection Trusts
Asset protection trusts are another common trust designed to avoid creditors and protect assets. A RLT does not provide asset protection. This asset protection trust needs careful and considered planning. It must be created in advance of any trouble on the horizon. If you already have a claim coming down the pike, it is too late to start asset protection planning.
4. Protecting Government Benefits
An irrevocable trust can also be established for someone who is receiving government benefits the family wants to keep for them. It can also be used to preserve some of the assets, such as the home, and still qualify a person for Medicaid long term care services.
Trust Planning for Retirement Assets
A Standalone Retirement Trust (“SRT”) is for Retirement assets. The SRT can be used to manage retirement funds where the beneficiaries are minor children who are unable to manage the assets themselves.
For a person who is in a second marriage, with children from a previous marriage or relationship, giving your current spouse the money outright means that your current spouse can name a new beneficiary and is under no obligation to follow your wishes or leave anything to your children. The SRT is a great solution to this problem. This trust allows you to leave an IRA to your current spouse during their lifetime while assuring that whatever is left after your current spouse’s death goes to your children, or whomever else you may designate.
Pet Trusts
Pet trusts are not just for the wealthy. It is true that the rich and eccentric get attention for the lavish gifts they bestow on their spoiled pets (Oprah Winfrey is rumored to have a pet trust for her beloved dogs). However, you or your neighbors may want or need a pet trust because some pets can live a long, long time. Tortoises are one example. Another is horses – which are also expensive to keep. Setting up a Pet Trust assures the money is there to continue their proper care
and assure they live out their natural life the way you would want.
I would be happy to assist you with any of these types of trusts. Call our office at 602-375-6752 for a free consultation for your estate planning or check out our website at www.libbybanks.com.