While we all hope to have many more years with our families and friends, having an estate plan in place is important for every adult – regardless of age. It’s the best way to ensure your wishes will be met, both for the disposition of your assets and the financial security of your loved ones. When it comes to estate planning, trusts are powerful tools that can provide a range of benefits for individuals and families. In this guide, we’ll discuss the basics of trusts, explore different types, and share the relationship between trusts and estate planning.
Understanding Trusts: The Basics
A trust is a legal arrangement that allows you to set aside assets for the benefit of specific individuals or purposes. At its core, a trust involves three key parties:
Grantor: The person who establishes the trust and contributes assets to it.
Beneficiary: The individual(s) or entity (such as a charity) who will benefit from the trust’s assets.
Trustee: The person or institution responsible for managing the trust and ensuring the assets are distributed according to the trust’s terms.
Different Types of Trusts
Trusts come in various forms, each designed to serve specific purposes. Here are a few common types you might consider as you think about trusts and estate planning:
Revocable Living Trust
A revocable living trust is established during the grantor’s lifetime and can be modified or revoked as needed. It allows assets to avoid probate, potentially saving time and costs for beneficiaries – both of which are significant advantages when your loved ones are already facing a difficult time of grief.
An irrevocable trust, once established, generally cannot be altered without the consent of the beneficiaries. This type of trust can offer potential estate tax benefits and protection from creditors.
Created through a will, a testamentary trust comes into effect after the grantor’s death. It can be used to provide for minor children or individuals with special needs.
Special Needs Trust
If one or more of your loved ones have special needs, you might also consider a special needs trust (SNT). This is a trust designed to provide for the long-term care of individuals with disabilities without jeopardizing their eligibility for government benefits.
Charitable Remainder Trust
This type of trust allows the grantor to donate assets to a charitable organization while retaining an income stream for a specified period. Upon the trust’s termination, the remaining assets go to the chosen charity – a meaningful distribution of your assets upon your passing.
Trusts and Estate Planning: Benefits to Know
There are many circumstances when it’s wise to consider adding a trust to your estate plan. Here are just a few benefits of combining trusts and estate planning to prepare for the future:
As mentioned above, assets placed in a trust can bypass the probate process, which can be time-consuming and costly – not to mention stressful for your heirs. Combining trusts and estate planning allows your beneficiaries to receive their inheritances more quickly and efficiently.
Unlike wills, which are subject to public records, trusts provide a level of privacy as their terms and distributions are generally private. In this way, you can keep family matters away from prying eyes.
Control and Flexibility
As you think about the topics of trusts and estate planning, consider that trusts allow grantors to specify how and when assets are distributed to beneficiaries. This can be particularly useful for individuals who want to provide for minor children or ensure funds are managed responsibly.
Certain trusts, such as irrevocable life insurance trusts (ILITs), can help minimize estate taxes by removing the insurance policy from the grantor’s taxable estate.
Caring for Loved Ones
Specialized trusts, like special needs trusts mentioned above, ensure that loved ones with specific needs are provided for without jeopardizing their eligibility for government assistance.
Consult with a Professional About Estate Planning and Trusts
While trusts offer numerous benefits, it’s important to work with a qualified estate planning attorney and financial advisor to determine the most suitable approach for your individual circumstances. These professionals can offer expertise to help you tailor a trust and estate planning strategy that aligns with your goals and provides for your loved ones’ financial future.
If you’d like to know more about trusts and the role they may play in your estate plan, contact us today. At B.A. Schrock Financial Group, we know that trusts are versatile tools that can play a crucial role in an effective estate plan. By understanding the various types of trusts and their benefits, you can make informed decisions that protect your assets, provide for your beneficiaries, and leave a lasting legacy. Contact us today to see whether our services are the right match for your needs. We look forward to hearing from you!