Estate planning involves multiple legal documents that serve numerous purposes. You might think a last will and testament is enough to communicate your last wishes and set up your family’s financial future. However, a trust is an element of an estate plan that does much more than leave behind assets to beneficiaries.
At Pennington Law, PLLC, we have the experience and resources to guide you through the trust creation process. Our attorneys will advise you of the types of trusts that can meet your goals and secure your family’s future. Call or contact us online for a free consultation with a trust lawyer in Surprise, AZ, to learn more about how we can help.
What Is a Trust?
A trust is a fiduciary arrangement between you (the grantor) and a trustee. You have control over managing and distributing your assets before and after death. With a living trust, you can be the trustee to decide how to fund it, which assets to leave to loved ones, and whether to revoke it. You manage every aspect while alive.
Your appointed successor trustee takes over when you die. They are responsible for handling the assets and distributing everything to your beneficiaries according to your instructions in the trust agreement.
What Are the Benefits of Creating a Trust?
Setting up a trust is beneficial for many reasons, including:
- Controlling Property Distribution – A last will and testament dictates the distribution of assets. A living trust does the same but with more options. Instead of your beneficiaries receiving everything at once, the trust agreement can indicate whether they should receive assets when they turn a specific age or access funds on a predetermined schedule. You can decide how you want the trust assets controlled to prevent frivolous spending.
- Avoiding Probate – Assets in a will must go through probate. That means a court determines whether the will is valid and oversees the administering of the property. A trust can bypass probate, allowing your beneficiaries to receive the assets you leave automatically after your death. They don’t have to wait for a judge to approve the distributions.
- Maintaining Privacy – Probate is a matter of public record. That means once a will enters probate, every document related to the case is on the court’s website for anyone to view. But transferring assets into a trust keeps them private. No one can search for information about your property or the value of your trust assets.
- Protecting You During Incapacitation – If you set up your trust agreement correctly, your successor trustee can manage your finances if you’re incapacitated. They can transfer funds to cover your medical bills, pay household expenses, or provide for your minor children.
What’s the Difference Between a Revocable Trust and an Irrevocable Trust?
The ability to change the legal document after creating it is one of the significant differences between a revocable trust and an irrevocable trust. You can modify a revocable trust while alive if you are competent. However, an irrevocable trust requires court approval and signed authorization from the beneficiaries.
You control a revocable trust. You can transfer assets in and out or revoke the document whenever you want. That means it is subject to estate tax. An irrevocable trust owns the assets it holds. That might shield them from an estate tax.
An irrevocable trust is permanent. It becomes effective when you sign the trust agreement, lasting during your lifetime and after you pass away. But a revocable trust lasts as long as you want, according to the terms you include in the document.
What Is an Irrevocable Life Insurance Trust (ILIT)?
The primary goal of a life insurance policy is to relieve your family’s financial struggles when you die. They can collect a death benefit to pay for your funeral, final medical bills, and other expenses. Typically, the proceeds aren’t taxable but can affect the value of your estate. A large enough estate might subject your beneficiaries to estate taxes, preventing them from receiving the full death benefit.
You can establish an ILIT to reduce the value of your estate, as it can lower the taxes owed on your life insurance when your beneficiaries collect the proceeds. Because the trust holds the policy, it avoids estate taxes. It also avoids probate.
What Is a Special Needs Trust (SNT)?
A special needs trust (SNT) is a type of trust that supports a person with special needs while preserving their eligibility for Supplemental Security Income, Medicaid, and other government benefits. The beneficiary doesn’t own the trust assets. That allows them to continue to collect the necessary benefits to care for themselves.
An appointed trustee can provide funds to supplement benefits government assistance doesn’t cover, such as housing, food, and clothing. However, they can’t use the trust to replace government benefits or pay for anything the benefits already cover.
What Are Other common Trusts?
You can select from multiple types of trusts during estate planning, such as the following:
Qualified Personal Residence Trust (QPRT)
A qualified personal residence trust (QPRT) holds a person’s home for a specific term. When you set up a QPRT, you retain your rights to control and live in the home until the term ends. Then it will pass to your named beneficiary without going through probate.
With a spendthrift trust, you can limit a beneficiary’s access to the assets. You choose a trustee to manage the assets held in the trust when you die. They can use their discretion to decide when to transfer funds and how much. For example, the trustee might assign a specific dollar amount to distribute monthly so the beneficiary can cover their living expenses.
If you want to leave a legacy and give back to the community long after you’re gone, setting up a charitable trust can accomplish that. You might have close family members whom you want to help out financially but also want to donate to charities you supported throughout your life. By transferring assets into a charitable trust, you avoid taxes, allowing the charity to receive the amount you leave behind.
A generation-skipping trust skips your children, leaving assets to your grandchildren or a later generation instead. You might have financially stable kids who don’t need much to live a secure life. By creating a generation-skipping trust, you ensure your grandchildren’s financial well-being.
Parents often want to provide for their children. You might want to leave money to your kids but fear irresponsible spending. You can control their finances by establishing a children’s trust. Your chosen successor trustee will follow your instructions for distributing assets and money according to a schedule, or when your children reach certain milestones, such as graduation or marriage. You can also instruct your successor trustee to fund specific needs such as college tuition or medical care.
Credit Shelter Trust
A credit shelter trust is a beneficial irrevocable trust for married couples. It avoids probate, reduces federal estate taxes, and prevents creditors from filing claims against the assets held in trust. The surviving spouse access the funds for principal and income to meet their needs upon the other spouse’s death. When they die, named beneficiaries can receive the remaining assets held in trust.
Qualified Terminable Interest Property Trust (QTIP)
A qualified terminable interest property trust (QTIP) is another option for married couples. It might qualify for an unlimited marital deduction. The surviving spouse can receive income from the trust when the other spouse dies. When the surviving spouse dies, the remaining trust assets can pass to designated beneficiaries.
How Can a Surprise, AZ, Trusts Lawyer Help Me?
Peace of mind is one of the most important reasons to hire a trust lawyer. Planning for your future and your family’s well-being is overwhelming. You might constantly put off the discussions and decisions because it seems like a daunting task. However, you can make the right choices and establish well-prepared trusts with help from an experienced Surprise, AZ, attorney.
Pennington Law, PLLC knows state laws regarding all types of trusts and will apply them while creating the necessary documents. We can ensure they are valid and legally enforceable to prevent future legal issues within your family. Whether your estate is small or contains complex matters such as business ownership, multiple marriages, or a blended family, you can count on us to handle it.
Contact a Surprise, Arizona, Trusts Attorney Today
A trust is a valuable tool in estate planning, whether you want to care for your loved ones, keep your assets out of the hands of creditors, or avoid probate. Pennington Law, PLLC takes a personalized approach to tailor our advice and guidance to each client’s needs.
We will review your estate to determine the type of trust that can work best for you and implement an iron-clad document that fulfills your wishes and goals. If you want to set up a trust or update an existing one, call Pennington Law, PLLC, today for a free consultation.