Trusts: Estate Planning Tools
Are You Ready to Start Drafting Your Estate Plan or Living Will?
What is a Trust?
A trust is a fiduciary arrangement that allows you, the owner of the assets (trustor), to designate a third party (trustee), to hold assets on behalf of a beneficiary or beneficiaries of your choosing. There are many types of trusts which can be arranged in a variety of ways to allow you to specify exactly how and when your assets pass to the beneficiaries.
A trust, in its simplest definition, is a fiduciary arrangement between three parties involving the holding of and disbursement of assets. The three parties can be three individual people or each party can be made up of multiple people or entities. The three parties each have a specific responsibilities or roles. These roles are as follows:
- The Trustor: This is the person, persons, or entity that owns the asset(s) and creates the trust agreement. This role can also be commonly referred to as the trust maker, grantor, or settlor.
- The Trustee: This is the third party responsible for managing the assets that are titled to and transferred by the trustor.
- The Beneficiary or Beneficiaries: This is the person, persons, or entity named in the trust by the trustor who will receive the benefits of the assets.
“After speaking with a financial advisor about my mom’s health care concerns, we were referred to Mike Abrate. Her minimal retirement planning did not provide for her long-term care. Mike dissolved her revocable living trusts and replaced them with ones that provided for her while protecting her Social Security benefits. This law firm really helped my family!”
– Aaron M. Sacramento, CA
What Are the Benefits of a Trust?
There are many benefits of using a trust as part of your well-crafted estate plan. Our experienced estate planning attorneys will guide you through the benefits available through the various trusts. Many of our clients and their beneficiaries have been able to achieve the following benefits by utilizing various trusts:
- Avoiding Probate: Avoiding probate allows your designated beneficiaries to save time, court fees, and potentially reduce estate taxes.
- Control of Your Wealth and Assets: Working with an attorney to produce a well-crafted trust allows you to specify the terms of the trust. This allows you to control when and to whom the distribution of assets is made. Trusts can be designed to allow assets to remain accessible to you during your lifetime.
- Protection of Your Legacy: A trust attorney can construct a trust that can help protect your estate from the designated heirs’ creditors and can also help with developing a trust that helps manage and protect a beneficiary that may not be proficient in money management.
- Keeping Your Wishes Private: Probate court is a matter of public record. Creating a solid trust may allow you to pass on your legacy privately by passing outside of probate. This way, your wishes are only known by the loved ones or beneficiaries that you have chosen.
Trusts can be used as a powerful tool to protect and distribute your assets as part of an estate plan. There are several types of trusts that can be used for a variety of estate planning objectives. Our team of experienced estate planning attorneys are dedicated to helping you fully understand how a trust can benefit you and your loved ones.
Clients, just like you, have been relieved with how easy we make the trust creation process. Our trust creation process follows three primary steps:
- Our estate planning attorneys meet with you to learn about your unique situation
- We explain how the different trusts work and how they can help achieve your estate planning goals
- We easily guide you through selecting and developing the best trust as part of your estate plan
What is the Process for Creating a Trust?
Now that you know what a trust is, as well as the benefits that a trust provides in a well-crafted estate plan, we will guide you through our process of creating a trust. Many clients have found relief in our ability to guide them through the process and they’ve found it is much less difficult than they anticipated.
The first step in creating a well-crafted trust is understanding your situation and goals. At the Abrate & Olsen Law Group, our experienced estate planning lawyers take the time to meet with you to first establish what you want to accomplish with a trust. You can rest assured we do not believe that there is a “one size fits all” solution, we build out a custom plan with you to build a pathway that will help you achieve your specific goals.
Once a thorough understanding of your wishes is established, we explain all the various trusts that will align with your goals. We work hard to help you achieve peace of mind, making sure that you understand how trusts function and how they will help to achieve your desired outcome.
After a type of trust is decided upon, we work with you to define the parties in the trust. In most instances, you are referred to as the trustor, the owner of the assets and creator of the trust. The trustee is a third party that you will transfer legal ownership of the assets. They are then responsible for management of the assets for the benefit of your designated beneficiary. The trustee generally will receive some type of compensation for managing the assets.
Once the trust is established, it creates a fiduciary relationship between the trustee and the beneficiary. This relationship requires that the trustee act solely in the best interests of the beneficiary regarding the trust property. Should a trustee fail in this responsibility, they are legally accountable to the beneficiary for damages to their interest.
As the grantor of the trust, you may name yourself as the trustee, retaining ownership of the assets. However, you are still required to act in a fiduciary capacity. You may also have the ability to name yourself as one of the beneficiaries of the trust. No matter the trust arrangement, the trust cannot become effective until legal ownership of the assets are transferred to the trustee.
Categories of Trusts
While there are many types of trusts available, they all fall into one or more of the following categories:
Living or Testamentary Trust
Living Trust: A living trust, also referred to as an inter-vivos trust, is a legal document in which your assets are provided to a trust for use during your lifetime. Following your death, the assets are transferred to your designated beneficiaries by a successor trustee.
Testamentary Trust: A testamentary trust is also referred to as a will trust due to its similarities to a traditional will. The trust specifies how your assets are distributed after your death.
Revocable or Irrevocable Trust
Revocable Trust: A revocable trust can help assets pass out of probate, while allowing you to retain control of the assets during your lifetime. A major benefit of a revocable trust is your flexibility to dissolve the trust at any time should your wishes or situation change prior to your death.
While a revocable trust can help your heirs to avoid probate, they will likely still be subject to estate taxes. During your lifetime, the assets placed in the trust are still treated the same as any other asset you own.
Irrevocable Trust: An irrevocable trust transfers the assets out of your estate and out of your control. A well-constructed irrevocable trust can provide the best protection from estate taxes and probate. As the name suggests, once an irrevocable trust has been executed, you cannot alter the trust should your wishes or life events change.
Irrevocable trusts also provide benefit by relieving the tax liability from any income generated from the assets. However, the distribution of the assets will typically have income tax consequences.
“After researching whether a revocable or irrevocable trust was best for my family, I met with the Abrate & Olsen law firm to get professional advice. They explained how revocable living trusts would be the best solution. The entire process was a lot easier than I thought thanks to them!”
– Gretchen W. Roseville, CA
Common Types of Trusts
There are many common types of trusts that can be constructed as part of your estate plan to help achieve your goals. Scheduling a free consultation with one of our estate planning attorneys is the best way to understand what trust will provide the best solution for you. Some of the most common types of trusts we recommend to our clients are:
A marital trust, also referred to as an “A” Trust or QTIP Trust, is used to provide a surviving spouse benefits. The trust is generally included in the surviving spouse’s taxable estate.
An exemption trust, also referred to as a “B” trust, bypass trust, or credit shelter trust, is created to bypass the surviving spouse’s estate. With this the trust takes advantage and full use of any federal estate tax exemption for both spouses.
There are two common charitable trusts, a charitable lead trust and a charitable remainder trust. A charitable lead trust provides that specific benefits be distributed to a charity and the remainder going to your designated beneficiaries. A charitable remainder trust provides you with a stream of income from the trust for a specified period with the remainder of the assets going to a charity.
Special Needs Trust:
A special needs trust allows you to provide for a loved one with special needs or a disability who receives government benefits, such as Social Security disabilities benefits. The special needs trust allows the disabled beneficiary to receive income from the trust without affecting or requiring them to forfeit the government benefits.
A blind trust allows the designated trustees to manage the assets in the trust without the beneficiary’s knowledge. This trust agreement can be helpful when a beneficiary needs to avoid conflicts of interest.
Are You Ready to Develop a Trust as Part of Your Estate Plan? We can Help!
Trusts are a powerful estate planning tool that can provide multiple benefits to you, your loved ones, and other beneficiaries. Incorporating a well-crafted trust as part of your estate plan provides peace of mind that your legacy will live in the manner of your choosing.
When you work with our experienced estate planning lawyers, you can rest assured you will receive the personal attention and dedication you and your family deserve. Our mission is to protect you, your family, and your assets from needless probate court costs and estate taxes. We look forward to meeting you and providing you with the best solution for your estate planning and trust needs. Contact our law office today to schedule a free consultation.