Did you know that less than half of Americans have an estate plan? Yet, even people with moderate assets could benefit from having a trust in place. Are there different types of trusts to use in estate planning? There are. Let us begin by looking at the most common trust, the revocable trust.
The revocable living trust may be frequently utilized by married couples. Let us look at an example of a married couple forming a revocable living trust. John and Jane Smith are married and in their forties with two minor children, Sam and Sally. They own a home, a boat, two cars, and some stock. They create a revocable living trust and move the home, boat, cars, and stock into the trust. For their lifetime, John and Jane will serve as both co-trustees and co-beneficiaries. While they are alive, they have the option of changing or revoking the trust. Additionally, should either John or Jane become mentally incapacitated, the trust can serve as power of attorney, designating who will assume his or her role of trustee.
Following the death of the first spouse, the other will become sole trustee and sole beneficiary. Following the death of the second spouse, assuming the children are now adults, one of them may be designated as the successor trustee for purposes of the disbursement of the trust property. Sally, Sam, and any of the children either may have, will be the successor beneficiaries of the trust.
The primary benefit of this revocable living trust may be providing for the settling of John and Jane’s estate, while avoiding the timely and costly probate process following the deaths of John and Jane. The reason this type of trust may be the most common, could be because it meets the objectives of most people seeking an estate plan.
An irrevocable trust is another instrument, which can be more involved in that it fully transfers the creator’s property into the trust and is not modifiable or revocable, except under a limited set of circumstances. It has, however, the following benefits: it can be used as a vehicle to avoid or reduce income and estate taxes, avoid creditors, and help meet eligibility requirements for government programs, such as Medicaid.
Bearing in mind the benefits a trust can offer, an excellent 2021 New Year’s resolution could be to contact a qualified estate planning attorney for a consultation on the right trust to meet your financial needs and estate planning goals. For more information on trusts and other valuable estate planning tools, please contact our office to schedule an appointment.