Trusts
Why Create a Trust?
What is a trust?
Traditionally used to minimize estate taxes, a trust can provide other benefits as part of a well-designed estate plan.
A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of one or more beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when assets pass to beneficiaries.
Because trusts typically avoid probate proceedings, your beneficiaries may gain access to these assets more quickly than assets transferred in a will. Also, if the trust is irrevocable, it may not be considered part of the taxable estate, so there may be less tax due on your death.
Assets in a trust may also be able to be passed on outside of the probate process, saving time and court fees and potentially reducing inheritance taxes as well.
Other advantages of trusts are:
- Control of your wealth. You can specify the terms of a trust and control when and to whom distributions can be made. For example, you can set up a revocable trust so that the trust assets remain accessible to you during your lifetime and you determine who the remaining assets go to afterwards, even in complex situations such as children from more than one marriage.
- Protecting your heritage. A properly constructed trust can help protect your estate from creditors of your heirs or beneficiaries who may not be able to manage money.
- Privacy and Legacy Savings. Probate is a matter of public record; A trust can allow assets to be passed outside of the probate process and remain private, potentially reducing the amount lost to court fees and taxes in the process.
Basic types of trusts
- Marital or "A" Trust. Designed to provide benefits to a surviving spouse; usually included in the taxable estate of the surviving spouse
- Bypass or "B" Trust. Also known as a Credit Shelter Trust, formed to bypass the surviving spouse's estate to take full advantage of the state estate tax exemption for each spouse
- Testamentary Trust. Set out in a will and created by the will after death, with funds subject to inheritance and transfer tax; After that, it often continues to be subject to supervision by the probate court
- Irrevocable Life Insurance Trust (ILIT). Irrevocable trust is designed to exclude life insurance proceeds from the taxable estate of the deceased while providing liquidity to the estate and/or trust beneficiaries
- Nonprofit Leadership Trust. Allows certain donations to go to a charity and the rest to your beneficiaries
- Charitable Residual Foundation. Allows you to receive an income stream for a defined period of time and set the rest to go to a charity
- Intergenerational Trust. By taking advantage of the generational skip tax exemption, trust assets can be distributed to grandchildren or later generations without incurring a generational skip or estate tax on the subsequent death of your children
- QTIP Trust (Qualified Terminable Interest Property). Used to provide income to a surviving spouse. After the death of the spouse, the assets pass to other beneficiaries named by the testator. Commonly used in second marriage situations and to maximize estate and generational leap taxes or estate tax planning flexibility
- Grantor Retained Annuity Trust (GRAT). Irrevocable trust fund funded by gifts from its founder; designed to shift future appreciation to the next generation through the rapid appreciation of assets during the donor's lifetime
When To Use a Paralegal
Trust Creation
- Prepare documents and assist with creating and transferring assets into trusts to ease the probate process.
- Secure documents related to the client’s estate Assist in valuing the assets in the estate.
- Drafting estate documents for the attorney’s review (wills, powers of attorney, healthcare directives, and living wills).
During probate proceedings
- Creation and filing of estate files in the estate administration (applications, requests, execution of wills, inventories, accounts, and notices)
- Filing life insurance claims and other death benefits Liaising with beneficiaries and dependents regarding the approval of the will and other probate hearings
- Administering estate accounts and assisting in the liquidation and transfer of real estate
- Preparation and filing of the testator's final income and tax returns with CPA (Accountant)
- Participation in the administration of guardianships and trusts
- Assistance with name changes and adoption procedures
A Paralegal can not give legal advice or go to court and advocate for you the same way a trust attorney will. The cost for a paralegal is usually less than an attorney.
In estate planning and probate law, paralegals research the law and local court rules to guide the attorney in probate decisions better.
revocable trust vs. irrevocable trust
What is a revocable trust?
A revocable trust, also known as a living trust, can help ensure assets are passed outside of the estate but allow you to retain control of the assets during (the donor's) lifetime. It is flexible and can be terminated anytime should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor.
You can appoint yourself as trustee (or co-trustee) and retain ownership and control of the trust, its terms, and assets while you are alive, but make arrangements for a successor trustee to administer them in the event of your incapacity or death.
Although a revocable trust can help avoid probate proceedings, it is usually subject to inheritance tax. It also means that while you are alive it will be treated like any other asset you own.
What is an irrevocable trust?
An irrevocable trust usually transfers your assets out of your estate (the testator) and possibly out of the reach of inheritance taxes and inheritance taxes, but once executed, cannot be altered by the trustee. Therefore, once you set up the trust, you lose control of the assets and you cannot change any terms or choose to dissolve the trust.
An irrevocable trust is generally preferred to a revocable trust when your primary goal is to reduce the amount subject to estate tax by effectively removing the trust assets from your estate. Also, because the assets have been transferred to the trust, you are exempt from tax on income generated by the trust assets (although distributions will usually have income tax consequences). They can also be protected against you in the event of a court judgement.