From the Desk of Lauran Corcoran
Estate Planning for Everyone Part II
In addition to a will, a trust is valuable document to consider for the following reasons:
• Provide for a beneficiary who is unable to manage finances;
• Control the distributions of your estate;
• Protect assets from the claims of a beneficiary’s creditors;
• Avoid probate; and
• Reduce or eliminate estate taxes.
There are many different types of trusts, but this post will focus on the two types of trusts that most people should consider when composing their estate plan.
Testamentary Trust
A testamentary trust is a trust established in your will and does not take effect until after your death. Since this type of trust is contained within a will, it can be changed at any time depending on the any change in your circumstances, family or assets.
The most common reason people create testamentary trusts is to hold assets for their children. The testamentary trust is commonly used as parents often don’t want their children to inherit the entire estate at age of majority. Additionally, the discretion given to the trustee – provides protection for your beneficiaries. Since the beneficiary has no right to require distributions, the funds are protected from any creditor claims against the beneficiary. The only funds that become available to creditor claims against the beneficiary are those funds that are actually distributed to the beneficiary.
Revocable Trust
A revocable trust, also known as a “living trust,” is established by you during your lifetime. The entire trust estate is available to you and you may freely amend or revoke the trust at any time. In the event of your incapacity, your successor trustee is to distribute funds as necessary. As its name implies, the living trust is completely revocable during your lifetime and only becomes irrevocable upon your death .
All the advantages of the testamentary trust also apply to the revocable trust. Two of the main advantages of a revocable trust over a testamentary trust is to avoid probate administration and to preemptively prevent challenges to their estate plan. A revocable trust can avoid probate court proceedings in the state you reside in, as well as in states where you own property. Furthermore, by avoiding probate, your trust remains a private document that is not required to be filed with the probate court. Additionally, there is a reduced risk of contest for a funded revocable grantor trust. Anyone who disagrees with the terms of the trust would have to initiate their own court action rather than merely file an objection with the probate court when the will is admitted to probate.
The list of advantages is endless when it comes to creating a trust as part of your estate plan, as the above has highlighted some of the common reasons why people choose to set up proper estate plans and trusts. Please stay tuned for future posts, as other less common advantages will be discussed in greater detail.
See Also: Estate Planning for Everyone Part 1