A trust can be a valuable tool while creating an estate plan. You can use it to protect your wealth, prevent your loved ones from enduring probate, and set up your children for a bright financial future. Although you might think establishing a trust yourself is simple, hiring a lawyer from Pennington Law, PLLC, is the better option.
A Sun City West trusts attorney from our firm can advise you of your options and draft a well-prepared trust that meets your needs. Call or contact us online today for a free consultation to get started.
What Is a Trust?
A trust is a legal document included in an estate plan. You can choose a trustee to oversee the trust or opt to be the trustee yourself. When you die, your selected successor trustee will manage the assets held in the trust. They will distribute those assets according to your wishes.
You should understand what a trust entails and how it works if you’re considering creating one. It can offer various benefits, including asset protection and tax breaks.
What Are the Benefits of Creating a Trust?
The many benefits of a trust include the ability to:
- Avoid Probate – A last will and testament must go through probate. That means the court must validate the will and authorize the personal representative to administer the estate. That can take time. With a trust, your loved ones can bypass probate and receive the assets you leave to them upon your death.
- Control Finances – You have control over your finances even after you’re gone. When you create a trust, you oversee everything, including the transfer of assets and who has rights to the assets when you die. You can also prepare a schedule if you worry about an irresponsible child being reckless with their inheritance. Instead of distributing all funds or assets, the successor trustee makes disbursements according to the schedule.
- Prevent Arguments – Challenging the validity of a trust is less complicated than challenging a will. You can prevent your family from fighting over your assets with an iron-clad trust.
- Keep Your Information Confidential – A trust doesn’t go through probate, so your personal and financial information won’t end up online for anyone to view. No one can discover your assets or your estate’s value unless they are a personal representative, beneficiary, or another party with an interest in the estate.
What’s the Difference Between a Revocable Trust and an Irrevocable Trust?
Two primary types of trusts are revocable and irrevocable.
When establishing a revocable trust, making changes at any time is possible without limitations. You can transfer assets out of the trust, change beneficiaries, or revoke the trust during your lifetime.
An irrevocable trust isn’t as flexible. Once you execute it, modifications are only allowed if you get the court’s approval or resolve the matter through a binding nonjudicial settlement agreement.
While an irrevocable trust shields assets from creditors, the assets in a revocable trust can be subject to legal action. A creditor can come after those assets to satisfy an unpaid debt.
Irrevocable trusts remove assets from the estate. That means they are not subject to taxes when the trust owner dies. However, the personal representative will likely have to pay federal and state estate taxes for a revocable trust.
What Is an Irrevocable Life Insurance Trust (ILIT)?
Estate taxes include everything a person owns when they die. That means the proceeds from a life insurance policy. A substantial life insurance death benefit can push the value of an estate above the threshold, triggering an estate tax liability.
An ILIT removes the life insurance policy from the estate. Your taxable estate won’t include the death benefits because the trust owns it. That means your beneficiaries will receive the policy proceeds upon your death without tax consequences.
What Is a Special Needs Trust?
A special needs trust (SNT) is a type of trust created to benefit a minor child or adult with special needs. That person can use the funds for specific expenses without ruining their eligibility for public, private, or charitable benefits.
The trust document must contain specific terms for the dependent child or adult to use the funds to pay for food, healthcare, clothing, housing, and other necessities. The trustee is the person who oversees the trust and spends the money according to the trust document. They must regularly report the income and expenses of the trust to the probate court while handling distributions.
What Are Other Common Trusts?
You can establish other types of trusts in your estate plan, such as the following:
Giving back while avoiding tax liabilities is possible with a charitable trust. When you set one up, more funds can go to the charity of your choice without triggering tax laws. You might avoid capital gains tax and qualify for an income tax deduction depending on the circumstances. Providing an income for a noncharitable beneficiary is also possible with multiple types of charitable trusts.
With a generation-skipping trust, you can leave behind assets for a later generation. Instead of creating a trust to benefit your children, your grandchildren can enjoy the benefits. The person you skip must be a natural person at least two generations below you. A generation-skipping trust allows a later generation to avoid estate taxes since the assets don’t transfer to the previous generation.
Qualified Personal Residence Trust (QPRT)
A qualified personal residence trust (QPRT) transfers a personal residence into a revocable trust. As the trust owner, you maintain control of the property and can continue to live there during the specified term. Your home will pass to the named beneficiaries when the term ends, and you lose your ownership and rights. A significant advantage of establishing a QPRT is that it removes the residence from the estate, lowering the value and removing it from estate tax liability.
If you have minor children, a children’s trust can protect their financial future. You set up and fund the trust while alive. You can maintain control of all assets during your lifetime. Your successor trustee will manage the trust when you die according to your instructions in the trust agreement. It is a beneficial way of preventing your children from being irresponsible with their money. Instead of going on a shopping spree or buying extravagant items, the successor trustee will oversee distributions and only transfer funds on a predetermined schedule or when your child reaches certain milestones, such as graduation, marriage, or a specific age.
Credit Shelter Trust
A credit shelter trust moves assets out of the estate to shield them from creditors and avoid probate. Only married couples can use a credit shelter trust. You protect your spouse by minimizing federal estate taxes on the assets held in trust and allow them to receive distributions immediately upon your death without going through probate.
Qualified Terminable Interest Property Trust (QTIP)
A qualified terminable interest property trust (QTIP) allows you to provide for your spouse when you pass away. You might also qualify for the unlimited marital deduction. A QTIP can pass to designated beneficiaries when the surviving spouse dies. It is a desirable option for people with children from previous marriages or married couples with assets significantly different in value.
Creating a spendthrift trust gives you control to fund it how you want. You also manage it while alive and determine which assets to transfer into and out of it. As a trustee, you maintain ownership. When you die, your successor trustee can take over and manage the assets remaining in the trust. You should create a schedule or instructions for distributions. For example, you might want the successor trustee to only transfer funds to the beneficiary for specific purposes such as medical care or buying a house.
How Can a Sun City West, AZ, Trusts Lawyer Help Me?
The DIY approach may save you time and money. However, a mistake can cost you more in the future. Any aspect of an estate plan requires help from an experienced trusts lawyer in Sun City West, AZ.
When you hire Pennington Law, PLLC, we will guide you through various aspects of trust creation, including:
- Handling complex issues such as foreign assets or planning for a blended family
- Determining the types of trusts suited to your needs
- Making necessary changes to a revocable trust to reflect life changes
- Reducing your beneficiaries’ tax consequences
- Applying the appropriate laws while setting up the trust, so it’s legally enforceable
- Guiding you in selecting a responsible and trustworthy successor trustee who will properly and confidently fulfill their duties
- Achieving your estate planning goals
- Avoiding the probate process by incorporating specific assets in the trust, so they’re not part of your estate
Contact a Sun City West, Arizona, Trusts Attorney Today
At Pennington Law, PLLC, our legal team has the experience and resources to protect you and your family from unnecessary litigation, probate, and other complications. We can safeguard your assets by creating a trust suited to your needs and goals.
If you want to discuss the options for creating a trust for your estate plan or modifying an established trust, call or contact us online for a free consultation.