Useful Types of Trusts in Estate Planning
Trusts are not only for the wealthy. Creating one or more trusts as part of your estate plan can be an effective way to ensure that your assets are managed and distributed according to your wishes, both during and after your lifetime. If you have special circumstances in your family, such as a handicapped child, or you want to provide for your grandchildren’s education, a trust can achieve those objectives. A trust can help your heirs and other designated beneficiaries avoid the time, expense and potential conflict involved in probating your estate. A trust also can reduce or eliminate estate tax liability and protect assets from creditors.
Trusts are legal entities that can own, invest and transfer property. The most popular form is a revocable trust — known as a “living trust” — which the creator can manage during his or her lifetime. The trust can be amended, beneficiaries can be changed and property can be added or removed at any time. The chief advantage of this form of trust is that you can serve as the trustee and so exercise complete control until a successor takes over upon your disability or death. By contrast, an irrevocable trust does not offer such control or flexibility but does have other distinct advantages.
Specific types of trusts are geared to the objectives they seek to achieve. Three common types are:
- Asset protection trusts — These irrevocable trusts can shield property from creditors in certain circumstances. In Arizona, this is accomplished by adding spendthrift provisions in favor of eligible trust beneficiaries, who cannot include the trust’s creator.
- Bypass trusts — These trusts, which typically are revocable, are designed to reduce estate tax liability. One spouse puts the maximum value of tax-exempt property into the trust and leaves the rest to the other spouse, who can claim the marital deduction.
- Totten trusts — These revocable trusts, which normally apply to bank accounts and investment funds, are created by designating a beneficiary to whom the assets are payable on the death of the owner. They are useful tools for avoiding probate.
Other specialized types of trusts include generation-skipping trusts, qualified personal residence trusts and irrevocable life insurance trusts.
You should discuss with an experienced Arizona estate planning attorney which kind of trust is best for you. Your attorney prepares a trust document that sets out the terms of the trust, names the beneficiaries and appoints the trustee — including a successor trustee who will assume control upon set conditions. The trust can be the owner of bank accounts and other property that you designate. You can also include in your will a provision that any property not otherwise distributed goes into the trust.
At Pennington Law — Estate Planning, PLLC, we help clients in Surprise, West Sun City and Buckeye establish trusts in accordance with their estate planning needs. Call [in::phone] or contact our office online to schedule a consultation. Home and hospital visits are also available.