Just a few generations ago trusts were used primarily by very wealthy families as a way to pass down the family wealth while maintaining some degree of control over the money. Today, trusts can still accomplish that goal; however, they can also do much more. For this reason, even the average estate planner often includes at least one trust in his or her estate plan. For many people, they choose to include a living trust. To decide if a living trust might be a beneficial addition to your estate plan you need to know some basic information about living trusts.
A trust can be either a testamentary trust or a living trust. A testamentary trust is one that does not become effective until you die. A testamentary trust is often created in a Last Will and Testament as a way to protect assets left for a minor child in the event of your unexpected and sudden death. A living trust, properly known as an inter vivos trust, becomes effective once all of the elements of creation are met and the trust is funded. A living trust can accomplish a number of things, or further a variety of goals, while you are still alive such as:
- Asset protection – if you have assets you want to keep out of the hands of creditors or that you don’t want to count against you purposes of Medicaid, a living trust may be able to help.
- Incapacity planning – a living trust can provide an immediate shift of control over trust assets from you as trustee to a successor trustee (spouse, parent, child) in the event of your incapacity.
- Special needs planning – the right type of living trust can provide for a special needs loved one without jeopardizing the loved one’s benefits from state or federal assistance programs.
- Charitable giving – a living trust can allow you to give to a charity for a number of years and then transfer the remainder to a non-charitable loved one or visa-versa.
These are but a few examples of how a living trust can benefit an estate plan. A living trust may also offer both tax avoidance and probate avoidance benefits if drafted properly. The best way to find out how a living trust could benefit your estate planning goals is to consult with your estate planning attorney.