Senior Associate
Trusts have long been an integral part of developing a comprehensive estate plan because they offer a number of advantages that are not available with a last will and testament. However, most people incorrectly assume that trusts are only for wealthy individuals and families. The reality is that these instruments can accomplish many objectives regardless of your socioeconomic status. Find out how the team at LaFountain & Wollman P.C. can serve your estate planning needs.
What Is a Trust?
To begin with, a trust is a legal document by which the grantor (the individual who makes the trust) transfers assets to another individual (known as the trustee) who manages these assets for the benefit of third-party beneficiaries. The trust itself is the instrument which establishes specific guidelines for how the property it holds is to be managed. The trustee has a fiduciary duty to obey the terms of the trust as well as estate planning laws.
Although a last will and testament is a critical component of any well-designed estate plan, the trust can accomplish certain objectives that a will cannot. These are some examples:
Avoiding probate: Probate is the court-supervised process by which a will is “proved” or validated before assets can be distributed to heirs. Trusts avoid the time and expense associated with probate.
Estate tax savings: A properly drafted and executed trust can lessen the impact of estate taxes. This preserves more hard-earned property for the trust’s beneficiaries.
Periodic distributions: For one reason or another, simply distributing assets to heirs is not always a good idea. A trust can provide for periodic distributions of trust assets on condition of certain events or accomplishments, such as graduation from college.
Structured support for special cases: There are some children who need more restricted support, for example because they have money problems or a drug addiction. Trusts can be set up to support them while limiting distribution of assets so they aren’t wasted.
Privacy: Unlike a last will and testament, a trust does not get filed with the probate court. This protects the family’s privacy.
Protection from creditors: Certain trusts allow assets to be shielded from the claims of creditors. An experienced attorney can help you establish one of these.
Medicaid (MassHealth) eligibility: A trust can prevent assets from being counted against an individual when it comes to Medicaid (MassHealth) qualification. This requires careful planning and good timing.
What Are the Most Common Types of Trusts?
Although there are various trusts that can accomplish your estate planning goals, the two most common types are revocable and irrevocable.
Revocable trusts
These can be amended or revoked at any time. They allow the grantor to still access and use the trust assets, so the grantor and trustee are sometimes the same individual. An obvious advantage is therefore continued control over assets while claiming several benefits like probate avoidance. At death, assets held in the revocable trust pass to beneficiaries.
However, the law will treat these trust assets as if they are personally owned by the grantor. This means there are no immediate tax benefits or protections from creditor claims.
Irrevocable trusts
Once established, an irrevocable trust cannot be changed or revoked. Assets that are transferred into the irrevocable trust are no longer owned personally by the grantor. These trusts are often set up to provide legacy gifts to heirs. They can also be used to shield assets from creditors and court judgments and help an individual qualify for MassHealth, since property held in the trust isn’t included among the grantor’s personal assets.
Downsides include loss of control and inflexibility. These characteristics make this type of trust less ideal for adapting to life changes like remarriage or incapacity. A separate tax return also has to be filed for the trust.
Experienced Estate Planning Counsel You Can Count On
Our attorneys are well versed in the various trusts available and how they can be used to meet our clients’ personal and family needs. If you’ve never formed an estate plan or executed a trust, it’s time to give careful consideration to this powerful estate planning tool. Give LaFountain & Wollman P.C. a call today.