When it comes to estate planning, many individuals seem to believe that their options are solely limited to creating and executing a will. Few fail to realize that a trust, however, may be more appropriate given their estate goals, needs, and circumstances.
A trust is a relationship in which one party, known as the settlor, gives another party, referred to as the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.
Through a trust, legal protection is offered to the settlor’s assets to ensure that such assets are distributed according to the settlor’s wishes. Additionally, since trusts hold property, assets tend to be better protected than they would be in an individual’s name.
Trusts may also avoid certain estate taxes and certain assets may not have to pass through probate court to be transferred and validated.
Regardless, it is important to discuss these options with expert estate attorneys – like ours at Mendez and Mendez Law – so that you make the best decision for your estate, heirs, and assets.
Different types of trusts:
For those interested in trusts, there are a few things to consider. First, although there are a variety of types of trusts, each fall into one or more of the following categories
1. Living or Testamentary
A living trust is established while the settlor is alive. Thus, the assets outlined in the document will be used by the settlor throughout their lifetime. Upon death, these assets will be overseen by a trustee who will ensure that the assets are effectively transferred to the named beneficiaries.
A testamentary trust, on the other hand, describes how the assets of an individual will be assigned after death.
2. Revocable or Irrevocable
Living trusts can be either revocable or irrevocable. A revocable trust is one in which the settlor is allowed to revoke or change the terms of the trust at any point while alive.
Irrevocable trusts, however, prevent changes from being made to the trust once the document has been executed. This is because with irrevocable trusts, the assets no longer belong to the settlor and instead belong to the beneficiary. As a result, changes typically cannot be made.
Although revocable trusts allow for more flexibility and adaptability, irrevocable trusts may be more cost effective. This is because these trusts contain assets that have been permanently removed from the trustor’s possession and, as a result, allow for estate taxes to be minimized or avoided altogether.
Why trusts may benefit various types of individuals:
Many people assume that trusts are only beneficial to high net-worth individuals and families since trusts are costly to prepare and maintain. Contrary to this assumption, almost everyone can benefit from the creation of a trust for a variety of reasons.
- Establishing a trust can be especially beneficial to individuals interested in ensuring the care of a physically or mentally disabled dependent.
- Trusts offer a level of privacy that wills may not be able to provide. This is because for a will to be valid, it must often go through probate court proceedings. Depending on the jurisdiction, these proceedings and documents may be publicly available. For those who especially value privacy when it comes to estate planning, trusts are typically not of public record.
- The tax obligations required by a trust are often lower than wills or other estate alternatives.
- Creating a trust may help an individual qualify for government benefits while still preserving a portion of their wealth.
A trust is a complex legal and financial entity that should be established with the help of an expert attorney. Reach out to Mendez and Mendez Law today to discuss your financial goals and the ways in which a trust may or may not be the best option for you.