Different Trusts in Estate Planning

Trusts are an estate planning tool that you can use to ensure that your assets and property are managed and distributed according to your specific wishes. Establishing a trust enables you to address a range of concerns, including preparing for the financial future of your loved ones, navigating tax concerns or creditor protection, or donating to a charitable organization.

The common misconception is that trusts are only for extremely wealthy individuals with millions of dollars to pass on to the next generation. However, anyone wanting to protect their legacy and maintain control over their assets’ distribution can set up a trust. If you want to set up a trust, an experienced estate planning lawyer will assist you.

What Is a Trust?

A trust is a legal arrangement between two parties, including the grantor and the trustee. The grantor, also known as the trustor, trust maker, or settlor transfers assets to a trustee who manages the assets and distributes them to the beneficiaries. The trustee has a fiduciary relationship with the beneficiaries, which means that the trustee must always act in the best interest of the beneficiaries.  In addition to the grantor and trustee, a trust will often include beneficiaries who will be entitled to assets and property based on how you want them to be distributed. There are several benefits to setting up a trust, including the following:

• A trust allows you to control how and when your assets are distributed. This can help you achieve a range of estate planning goals, from leaving assets to beneficiaries to prevent them from making poor decisions to ensuring that inheritances become available on certain milestones like birthdays or after graduating from college.
• A trust can minimize concerns associated with the probate process. When certain assets are removed from your estate, they are no longer subject to probate when you die. This allows you to minimize the time and money spent on probate court proceedings, avoid going through probate in multiple states, maintain privacy, and allow your beneficiaries to receive their inheritance as soon as possible.
• A trust can minimize federal and state taxes for individuals with a high net worth.
• A trust can ensure that you and your family are provided for if incapacitated.
• A trust can protect your property against lawsuits or creditors.

What Are the Different Types of Trusts?

There are two main categories of trusts, including revocable and irrevocable. While both trusts can provide certain benefits based on your intent, the main difference is that revocable trusts can be changed after they are created, whereas irrevocable trusts cannot. The following provides additional information about each, as well as several specialty trusts that you can include in your estate planning:

• Revocable trusts: Also referred to as living trusts or inter vivos trusts, revocable trusts allow you to maintain control of your assets over your lifetime and make changes or dissolve the trust if necessary. The transfer of assets and how they should be handled does not become permanent until you pass away, offering a more flexible option. In addition, they are not subject to probate, meaning your assets will go to your beneficiaries without going to probate court. However, a revocable trust is not protected from creditors and is subject to estate taxes.
• Irrevocable trusts: It cannot be amended once an irrevocable trust is created. In addition, you do not have the same amount of control over your assets as you do with a revocable trust. However, your assets are often better protected against creditors, and your trust assets may not be subject to estate taxes.
• Marital trusts: You or your spouse can establish a marital trust, which will benefit the surviving spouse if the other spouse passes away. The surviving spouse will not be required to pay estate taxes on those assets during their lifetime. However, the surviving spouse’s heirs will have to pay estate taxes on the remaining trust assets that are left to them.
• Testamentary trusts: This type of trust is created if you have assets or property that you wish to leave to someone who may be unable to manage it independently, but you do not want a court-appointed guardian to manage it. A testamentary trust protects your assets from creditors and reduces your estate taxes. You can also modify the terms while you are still alive. However, the process can be time-consuming and expensive since the assets are distributed after probate.
• Charitable trusts: You can establish two types of charitable trusts that will help you create a legacy of giving. A charitable lead trust lets you set aside certain assets for a charity, with the remainder of your assets going to your beneficiaries. A charitable remainder trust allows you to collect income from your assets for a specified period of time. Any remaining assets or income will go to your designated charity.
• Special needs trusts: You can care for a child or loved one with a disability by setting aside supplementary funds. A special needs trust is generally set up for individuals eligible for government benefits due to a disability. Since the assets are not in their name, they will not lose any government aid they may receive. A special needs trust cannot be created for beneficiaries who are older than 65 years of age.

The Somerville Estate Planning Lawyers at Lyons & Associates, P.C. Help Clients with the Process of Creating a Trust

If you would like to set up a trust and have questions or concerns about the process or which type of trust is the best choice, do not hesitate to contact the Somerville estate planning lawyers at Lyons & Associates, P.C. We will discuss your financial goals, discuss the different types of trusts, and recommend the trust that helps you achieve your goals. To schedule a free, confidential consultation, call us today at 908-575-9777 or contact us online. Our offices are located in Somerville, Morristown, and Freehold, New Jersey, where we serve clients in Somerset, Woodbridge, Morristown, Parsippany, Rockaway, Short Hills, Chatham, Randolph, Madison, Morris Plains, and Monmouth County.

• Category: Estate Planning