Trusts are effective estate planning tools. Some of their added benefits, which include: keeping your estate out of probate after your death, delivering clear instructions should you become incapacitated, creating a continued source of income, gifting, protecting assets and property, and improving eligibility for Medicaid.
In comparison, with a Will alone, transfer of property requires going through the court system (probate) to validate and determine how property will be distributed. This process can be costly. Putting a trust in place transfers your properties while you are alive and avoids this time-consuming, costly process.
Common Types of Trusts
A Revocable Living Trust (“Living Trust”)
This can be a “Will substitute” and can provide protection during your lifetime and upon your death. During your life, you can be the Grantor (owner), Trustee (manager) and Beneficiary (recipient) of the assets that you transfer into the Trust. Most importantly, you have full use of Trust assets and retain the ability to amend or revoke your Trust at any time. If you are no longer willing or able to assume these responsibilities, your appointed successor Trustee will take over. Upon your death, the Trust assets are distributed to your designated Beneficiaries.
A Living Trust not only achieves the same objectives as a Will, but also protects you while you are alive. Like a Will, it directs the distribution of your assets to take full advantage of favorable estate and gift tax laws. Unlike a Will, it becomes effective immediately and continues to exist after your death.
This is important for two reasons: First, there is no need for probate as your assets are owned by and distributed through your Living Trust. Secondly, it delivers your instructions should you become incapacitated.
Irrevocable Living Trusts
An Irrevocable Trust, or Irrevocable Living Trust, is an agreement between the Grantor(s), Trustee(s) and Beneficiary(ies). While it can accomplish what a Revocable Living Trust does, it also is a valuable tool for Elder Care and Medicaid Planning. Properly drafted, an Irrevocable Living Trust can provide a continued source of income for you, allow you to become Medicaid eligible, and protect the assets in the Trust against the costs of long-term care. In other words, you can qualify for Medicaid benefits and protect your assets for later distribution to your Beneficiaries.
This type of Trust has many other uses. The assets placed in a Gift Trust reduce your taxable estate and appreciate in value for your Beneficiaries. The appreciation of these assets is not taxable to you.
Life Insurance Trusts
An Irrevocable Life Insurance Trust is an effective method to exclude the proceeds of your life insurance policies from your taxable estate. This type of Trust enjoys the benefits otherwise associated with the creation of any Trust, such as the avoidance of probate. It can also help to solve the problem of an estate that doesn’t have liquid cash on hand without adding value to the gross taxable estate.
Supplemental Needs Trusts (SNT) and Special Needs Trusts
These Trusts are used to assist individuals who are or may become disabled and require special needs and/or benefits. Supplemental Needs Trust and Special Needs Trusts can help support the needs of a disabled individual. Learn more about special needs planning strategies, including how a Supplemental Needs Trust can help families.