What are trusts?
Trusts are useful tools that accomplish many things at once. A trust can be defined as a legal arrangement where one person holds legal ownership of assetsmoney, property, bank accounts, stocks, insurance policies, etc. for the benefit of someone else. Trusts allow you to accomplish many things too complex for a simple will, from passing on a portion of your savings to charity, to appointing a trustee to manage a trust fund to benefit a disabled or irresponsible child.
Types of Trusts
There are a variety of trusts serving different purposes, such as disability planning, creditor protection, charitable giving, preservation of family wealth, and tax minimization. Here are a few of the most common types.
The most common trust is a "living trust". After the attorney drafts the trust and the grantorthe person who creates the trust, also known as the settlor or trustmaker signs it, the grantor ‘funds' the trust. This transfers ownership of selected assets from the grantor to the trusteesomeone who manages assets in a trust to manage and distribute in accordance with the terms of the trust. Usually, the grantor will be the initial trustee of the trust, and upon his death or disability, a new (“successor”) trustee steps in and manages or distributes the assets in the manner specified in the trust. At death, the successor usually pays the decedent's debts and then applies the funds as directed in the trust (either by an outright distribution to the beneficiariesthe people designated by the trust to receive distributions from the trust upon the grantor's death or by continuing to hold the assets in trust) – but the assets owned in trust do not pass through probate.
Joint trusts are another common way to implement a trust. A married couple can contribute their assets to a trust of which they are co-trustees. A joint trust can be an effective way to ensure that family assets stay in the family. During the couple's lifetime, they will both be able to manage the assets in the Trust, and when one spouse dies, the other spouse will become sole Trustee, giving them the ability to manage all the assets in the Trust and to carry out any provisions in the Trust providing for the survivor during his/her lifetime, and then to others.
A trust that is created as part of the terms of a will is a testamentary trust. It goes into effect once the will is probated and details how assets are to be used when they pass from the estate to the trust. Whereas living trusts/joint trusts go into effect as soon as you sign and execute them, testamentary trusts do not come into existence until the will is probated once you have died. You can do a number of things with testamentary trusts, such as providing for the management of your minor beneficiaries until they reach age 18 (or whatever age you decide) to providing an income to a beneficiary for their lifetime and then giving it to charity after the beneficiary dies.
Special Needs Trusts
Special Needs Trusts allow you to leave assets and make arrangements for a disabled person left behind in the wake of your death. The main benefit of special needs trusts is that they are set up in such a way as not to disqualify their beneficiary from receiving public benefits. Programs such as Medicaid usually do not provide benefits unless the person requesting aid meets eligibility requirements, which may consider the person's available resources. Special Needs Trusts can provide certain benefits to the disabled person without disqualifying them from receiving Medicaid or other similar means-based public programs.
Charitable Remainder Trusts
Charitable Remainder Trusts, while somewhat complicated, have relatively self-explanatory names. These trusts allow you to leave your assets to an individual or two, often yourself and you spouse, for a certain number of years or until they die. After those years have elapsed or the non-charitable beneficiary/beneficiariesthe person(s) to whom you chose to distribute money/assets from the trust have passed away, the remainder will go to a charity of your choice and is paid out over several years until it is exhausted.
You can choose whether the charity receives a fixed payment each year or a fixed percentage of the total value of the assets in the trust, depending on whether you expect those assets to appreciate or depreciate in value over the intervening years. As a result, it is most common to donate high-value assets to this trust, such as property or stocks, so that they are likely to remain extremely valuable. This trust makes sure that the charity you prefer receives your money how and when you prefer. These trusts can be an important component of a wealthy charitably-disposed donor's tax planning.
Given how much flexibility and variety trusts have, they are a great way to deal with any special requests and unusual methods of distribution you may have in mind. Complete the contact form on this page or call us at (281) 201-6500 to discuss what a trust can do and whether a trust is right for you.
Have you already created a trust, but have moved from one state to another? Since state laws regarding property may differ, your new state's laws may offer opportunities or present risks that will affect your trust. Or do you have an old trust that you made decades ago, and you're not sure whether changing state or federal laws will frustrate your original objectives? Contact us to schedule a consultation with Mr. Brennan. In many instances, you can "restate" your trust--that is, amend it to take into account your current situation and objectives in light of your new residence and developments in property and tax law.
Heritage Estate Planning can also assist you with amending your existing trust in order to change beneficiaries or trustees or to make changes to distributions. This is usually a simple process, but it must be executed correctly, or else your amendments may not be accepted as valid when the trust becomes irrevocable upon the death of you and/or your spouse. We help to make sure that whatever changes or addenda you want to make are successfully implemented.