Trusts in Estate Planning: A Comprehensive Guide
Estate planning gives you flexibility and control over the assets you earned and protects the well-being of your loved ones when you pass away. Estate planning trusts may sound complicated or expensive to set up, but they aren’t just for the mega-rich; they can ensure greater peace of mind for all income brackets.
The professional estate planners at Craig Associates are dedicated to helping you understand why estate planning trusts matter and how they can protect your assets and your loved ones’ future. In virtually every scenario, we are going to recommend a trust for you and your family. Please call our Asheville office at (828) 258-2888 to discuss your options or register for one of our free estate planning seminars to learn more about wills, trusts, and everything else estate planning.
Understanding Estate Planning Trusts
What are Estate Planning Trusts?
A trust is a legal arrangement allowing a trustee (an individual or a company) to hold assets on behalf of beneficiaries (the heirs of what you leave behind). Estate planning trusts are established by a grantor to manage, protect, and distribute your assets upon your death and can be tailored in their structure, terms, and purpose to fit your unique circumstances.
Why Do I Need Estate Planning Trusts?
Estate Planning Trusts allow your estate to bypass the probate process—the last thing you want your grieving family to deal with is probate court—so your beneficiaries can access their appointed assets and property as soon as possible. Estate planning trusts provide privacy; wills are public record. They also offer protection against creditors and can be structured to ensure financial stability for minor children or dependents with special needs.
Different Types of Estate Planning Trusts
Living Trusts
A living trust, or inter vivos trust, allows the grantor (who creates the trust) to use their assets during their lifetime and determines how they will be distributed upon their death. Living trusts can also help you legally avoid the time-consuming (and potentially money-pit) probate process.
Revocable Trust vs. Irrevocable Trust
- Revocable living trusts are flexible; the grantor maintains control over the trust assets and can alter the trust terms, transfer assets in and out, or terminate the trust altogether.
- Irrevocable living trusts cannot be changed or terminated without the permission of the trustee and the beneficiaries. They offer strong asset protection and can have significant tax advantages, but they require the grantor to relinquish control over the assets in the trust.
Testamentary Trusts
A testamentary trust is through a will after the grantor’s death. It controls how the assets are used after you pass away—especially beneficial if your beneficiaries are minors or financially irresponsible.
Bypass Trusts
A bypass trust, aka an AB or credit shelter trust, allows married couples to reduce estate taxes when the second spouse dies so more wealth is transferred to their heirs.
Key Roles in Estate Planning Trusts
The Grantor
The grantor, also referred to as the settlor or trustor, creates the trust, decides its terms, and funds the trust with their assets.
The Trustee and Successor Trustee
The trustee manages the trust assets according to the grantor’s instructions. If the trustee dies, resigns, or is somehow unable to serve, the successor trustee steps in to take over their role.
Beneficiaries
Beneficiaries are the individuals or organizations who receive the assets you want them to have or income from the trust. The heirs can be family members, friends, charities, or other entities.
Establishing Estate Planning Trusts
What to Include in Estate Planning Trusts
If it’s worth anything of value, put it in your trust. Real estate, bank accounts, stocks, bonds, personal belongings, and business interests can all be protected and given to whoever you name in your trust.
How to Name Estate Planning Trusts
You can choose any name you want; just be mindful of revealing personal information within the trust’s name if you wish to preserve your privacy. Originality is also a plus as it can help to avoid confusion with other entities.
Funding Estate Planning Trusts
You’ll need to transfer ownership of your assets into the trust; an unfunded trust, regardless of its well-drafted terms, is nothing more than an empty shell, and, without putting the assets in place, your family will be unable to easily obtain the assets you planned for them.
Estate Planning Trusts vs. Wills
Differences Between a Will and a Trust
Estate Planning Trusts and Wills both give you control over who gets what, but they work differently:
- Wills take effect once you pass away; living trusts take effect when created.
- Wills pass through probate; trusts do not.
- Wills are public documents; trusts can be used to maintain your privacy.
Estate Planning Trusts and Taxes
Estate Planning Trusts and Estate Taxes
Estate Planning Trusts can provide attractive tax benefits and may reduce tax liability. The specifics depend on the type of trust and individual circumstances; your best bet is to consult with an estate planning attorney or a tax advisor.
Federal Estate Tax and Estate Planning Trusts
Some estate planning trusts can help minimize federal estate tax liability by removing assets from your taxable estate; however, the rules are complex and subject to change. An experienced estate planning attorney will offer professional advice and navigate the legal waters for you.
Other Important Aspects of Estate Planning Trusts
Protection from Creditors: The Role of Estate Planning Trusts
Certain types of estate planning trusts, such as irrevocable trusts, can protect your hard-earned assets against creditors, potential lawsuits, or divorce proceedings.
Getting Legal Assistance with Estate Planning Trusts
When to Seek Advice from an Estate Planning Attorney
Establishing a trust should not be undertaken as a DIY project: getting it right is critical to the success of your efforts. Working with an experienced estate planning attorney will ensure the trust aligns with your wishes and complies with state and federal laws to save you time and money and prevent unintended consequences.
Take the Next Step with Craig Associates, PC in Asheville
Every estate plan should be as unique as the people it represents. Let our team of experienced estate planning attorneys determine if estate planning trusts are the best way to meet your estate planning goals and help guide you through the process. Give us a call at (828) 258-2888 to request a personal meeting with experienced estate planning attorney Chris Craig today—Chris has helped hundreds of clients and their families feel better prepared to face life after a loved one’s death.
