Many of us spend our adult lives working hard and saving money for retirement. When the day comes for us to retire, we want to ensure that we have enough money to enjoy retirement and plan for the future when we are no longer here. Creating a trust as part of your estate plan can help provide financial security for you and your loved ones after you pass away.
What Is a Trust?
A trust is a legal document used as part of a person’s estate plan. The purpose of the trust is to hold assets for the beneficiaries. There are three main parties in a trust: the grantor, the trustee, and the beneficiaries. The grantor is the person who creates the trust. The trustee manages the assets in the trust according to the agreement for the benefit of the beneficiaries. The beneficiaries are the people or charitable organizations who will ultimately receive the assets in the trust.
The Benefits of Using Trusts As Part of Your Estate Plan
Trusts are typically used to minimize the estate taxes you may have to pay. When you transfer your assets into a trust, your beneficiaries won’t have to go through the probate court to receive the assets. For example, suppose you have a last will and testament in place. You give all of your assets to your surviving spouse and adult children.
If you pass away, your spouse and children will need to start the probate process in a Pittsburgh probate court. Depending on the size and complexity of your state and whether any challenges to your will arise, it could take them months or even years to access your estate. The probate process can also be expensive and stressful for your surviving loved ones.
Using Trusts to Meet Your Estate Planning Goals
When you create a trust, it holds assets on behalf of your beneficiaries. You can specify exactly how and when you would like the assets in the trust to be passed to your beneficiaries. If you would like your beneficiaries to have access to your assets as soon as you pass away, you can create an agreement that will ensure the transfer of the assets to your beneficiaries immediately upon your death.
Many different types of trusts can be arranged in different ways, but they all have one thing in common. Trusts specify exactly how and when your assets should pass to your beneficiaries. The type you create defines who controls it and how and when the funds can be accessed and used. There are two main categories: revocable and irrevocable.
Revocable
Revocable trusts can be changed, modified, or revoked during the grantor’s lifetime. The grantor controls the trust and the assets belonging to it during his or her lifetime. Revocable living trusts are one of the most commonly used types. This trust is created during the grantor’s lifetime in a living trust. When the grantor passes away, it becomes irrevocable (see below).
The Benefits of a Revocable Trust
Many people enjoy the flexibility that comes with revocable trusts. For instance, you can change the terms of the agreement, add property, remove property, or even revoke the trust entirely. A revocable trust can be useful for people with multiple properties, a business, and fluctuating assets. Using it with a last will and testament can also be a strategic way to pass high-value property, such as a house, to beneficiaries quickly. Revocable trusts can also be used to protect life insurance proceeds and for charitable purposes.
Irrevocable
In an irrevocable trust, the grantor transfers ownership of assets into the trust. The owner relinquishes control and ownership of these assets once they transfer into it, and a trustee is responsible for managing the assets in the trust. Irrevocable living trusts can help you avoid paying federal estate taxes. For example, when you transfer assets into it, those assets will not count as part of your estate for the purpose of paying federal estate taxes.
The Benefits of an Irrevocable Trust
Irrevocable living trusts are also useful for protecting you or your loved one’s eligibility for important public benefits. Suppose you have an adult child with special needs. If you give all of your assets to your child, your child may become ineligible for important public benefits, such as Medicaid and Medicare. When you transfer the assets into a special needs trust, your loved one can still use the assets for vacations, transportation, and other important financial needs.
However, the assets won’t make your loved one ineligible for benefits. Similarly, using an irrevocable trust can help you qualify for long-term care insurance benefits through Medicaid. The assets you transfer won’t be included as part of your income because you no longer own or control the assets. However, you will need to transfer the assets into an irrevocable trust at least five years before applying for Medicaid.
Which Trust Is Right For Me?
There are many different types of trusts, and each one is suited for a unique purpose in estate planning. Choosing the right type depends on your estate planning goals. The best way to decide which one is best for you is to discuss your goals with an attorney.
An estate planning attorney can help you understand the pros and cons of each type and advise you as to which one will work best for your unique situation. When comparing different types of trusts, you should ask yourself some questions, such as how much control you want over your assets and whether or not you’ll want to change it later on.
Discuss Your Case With a Pittsburgh Trust Attorney
A trust is one of the most effective estate planning tools available. If you are considering using a trust in your estate plan, the attorneys at Jones Gregg Creehan & Gerace are here to help. We will carefully listen to your estate planning needs and goals and assist you in creating a comprehensive estate plan. Contact our estate planning law firm today to schedule your free initial consultation.