A trust can be a great way to protect your assets and help provide income to your family if you pass away. But how do you determine what’s best for you and your family? Learn more about different trusts so you can choose the right one for your estate.
This type of trust allows the grantor — the person who created the trust — to change or end the trust at any point during his or her lifetime. Most trusts can be revocable.
Having a revocable trust in place can help you avoid probate, which is the process a court takes to finalize your legal and financial matters after you pass away. Probate can be a lengthy process for your loved ones to work through, and becomes a matter of public record.
Also, your assets in a revocable trust are considered personal assets for estate tax purposes and creditors. This means that if you owe money when you pass away, creditors have access to your assets to pay off those debts. Taxes on your estate may also be owed if your assets meet the minimum value requirements.
Once an irrevocable trust is created, it can’t be changed or terminated. A revocable trust you create in your lifetime becomes irrevocable when you pass away. Most trusts can be irrevocable.
This type of trust can help protect your assets from creditors and lawsuits and reduce your estate taxes. If you file bankruptcy or default on a debt, assets in an irrevocable trust won’t be included in bankruptcy or other court proceedings. They also aren’t considered personal assets when the IRS values your estate to determine if estate taxes are owed.
Special needs trust:
If you have a disabled loved one, this type of trust can provide income to them after your passing without disqualifying them from government benefits like Social Security Disability Income. Keep in mind that your special needs beneficiary doesn’t control the funds — the trustee, someone you choose to manage the trust, does.
This type of trust distributes assets to your beneficiaries over time, rather than in a lump sum. Your beneficiaries will receive payouts over a specified period of time, which can help ensure that your savings last.
Also, the funds in a spendthrift trust aren’t considered your beneficiary’s personal assets until they’re disbursed. This means that creditors can’t access the money in the trust in case of loan default or bankruptcy.
If you want to donate money in a tax-efficient manner when you pass away, a charitable trust is a good option. Assets included in the trust are not considered your personal assets, so they won’t be vulnerable to estate taxes.
Asset protection trust: This type of trust can keep your assets safe from creditors. If you file bankruptcy or default on a debt, assets in this type of trust won’t be included in bankruptcy or other court proceedings.
With this type of trust, you can leave assets to your spouse estate tax-free. Then, when the surviving spouse passes away, the assets go to his or her beneficiaries, again bypassing the estate tax.
This type of trust is essentially a payable-on-death (POD) bank account. It’s a revocable trust that you can set up with your bank by simply filling out paperwork and naming a POD beneficiary. This helps you maintain control of the account during your life while avoiding probate after you’ve passed away.
If you’re thinking about setting up a trust, you should also consider purchasing a life insurance policy to ensure your assets go to your loved ones. Life insurance benefits are typically disbursed tax-free and your beneficiary can use the proceeds to pay estate taxes or other debts that your estate may owe.
It can also be wise to set up certain trusts using life insurance. For example, if you have a loved one with special needs, you may not have enough money to fund a special needs trust on your own. With life insurance, you can apply for a death benefit that ensures financial security for your beneficiary.
Estate planning may seem overwhelming, but learning about your options can help you plan for your future and the future of your loved ones.
The information in this article is for your general information. It is not complete nor does it cover every situation. Arts District LA Notary representatives do not provide tax or legal advice and this article should not be construed as such. Please seek advice based on your particular circumstances from a qualified advisor.