When you are going through the estate planning process, you will find that there are many things to consider. When it comes to setting up a trust, there are many different options. You will need to consider the pros and cons of each type of trust in order to choose the best option for you and your estate.
The attorneys at Galanti and Copenhaver, Inc. have many years of experience with estate planning. We can help you with every step in the estate planning process. Contact our office today to schedule a consultation to discuss your estate planning needs.
Two Main Categories of Trusts
There are two main categories of trusts: revocable and irrevocable. The major difference between revocable and irrevocable trusts is that, in general, revocable trusts can be changed as long as the maker of the trust remains mentally competent, while irrevocable trusts cannot be undone or altered.
Revocable Living Trust
A revocable living trust allows the maker of the trust to continue to maintain control of their property while also making sure that their property will be managed according to the terms they choose if they become mentally incapacitated or die. The major benefit to a revocable living trust is that your property will avoid having to pass through probate, which can be a long and draining process for your beneficiaries. Another benefit to a revocable living trust is that by avoiding probate, your assets will remain private and not public. Therefore, no one else has to know who the beneficiaries are and what the distribution of the trust is. This can help your beneficiaries avoid family drama over the distribution of the trust.
One drawback to forming a revocable trust is that the property in the trust are not protected from creditors and are still subject to estate taxes, because the assets in the trust are still considered your own personal assets. Depending on your financial circumstances, this may or may not be an issue for you. You will need to decide if the drawbacks to a revocable trust outweigh the benefits, and if so, there are other trust options you may choose instead.
An irrevocable trust is a trust that cannot be altered, changed, or revoked after it has been created. These can be useful to help avoid significant estate taxes. The most common reason for creating an irrevocable trust is to take assets out of the name of the maker of the trust and out of their control in order to have the assets transfer to their beneficiaries, often children and grandchildren for their own use and enjoyment. For these types of trusts, the creator of the trust generally cannot serve as the trustee.
You can also create an irrevocable trust for the benefit of your surviving spouse when you die. This is called an AB trust and it works by using the exemption for the deceased spouse’s estate taxes through the funding of the B part of the trust at the time of the individual’s death with property that is valued at or below the exemption for estate tax. If the value of the deceased spouse’s estate ends up in excess of the estate tax exemption, then the A trust will then be funded for the surviving spouse’s benefit, and additionally, payment of estate taxes is then deferred until the surviving spouse has died.
Other Types of Trusts
Other types of trusts you can create include a special needs trust and a spendthrift trust. A special needs trust can be set up for a beneficiary that receives government benefits. The trust is created so that the beneficiary does not lose access to government benefits due to the assets in the trust. This is legal, and the Social Security Administration rules allow for these trusts as long as the disabled beneficiary of the trust is unable to control the frequency or amount of the distributions from the trust and cannot revoke the trust.
Another type of trust is a spendthrift trust. A spendthrift trust is created for a beneficiary that prohibits the beneficiary from selling or otherwise giving away interest in the trust. A spendthrift trust has the benefit of protection from creditors, at least until the property of the trust is distributed to the beneficiaries.
The attorneys at the law firm of Galanti and Copenhaver, Inc. focus their practice on estate planning. Our attorneys are ready to help you establish a trust that best suits your needs and future plans. Give us a call today at 707-867-0787 or fill out our online contact form to get started with planning your estate.