When you hear about trusts, you might think of them as merely existing for rich people who have way too much property for their own good. However, a trust can benefit you even if you don’t own millions in assets.
Main Benefits of a Trust
The main way that trusts benefit you is by transferring ownership of your property. This affords several benefits, including:
- Protection from creditors: Some types of trusts protect you and your heirs from creditors by acting as the “owner” of the assets placed therein. This means that if you have certain debts due or if you are sued, those assets held in trust won’t be subject to seizure.
- Qualify for certain benefits: Certain benefits, such as veterans benefits or Medicaid, have very strict limitations on the worth of your assets. Setting up a trust at the right time and in the right way could help you qualify for those benefits by effectively reducing your total wealth.
- Protect your heirs: When passing property on to your children and grandchildren, you want to make sure they actually receive it. Unfortunately, divorce, seizure by creditors, and other unfortunate circumstances could befall them and result in their losing that inheritance. Certain trusts protect against that.
- Avoid probate court: Revocable trusts in particular are useful for avoiding probate court. When combined with a well-written will, a trust will make sure your estate is distributed the way you want while avoiding probate fees.
These are just a few of the basic uses for trusts. Other trust structures allow for further protections on your assets, including minimizing estate taxes, protecting real estate, and so forth.
Types of Trusts
Each type of trust has its own specific uses, so choosing the right one is key to making sure you get the benefits you need. The two basic types of trust structures are revocable and irrevocable trusts.
- Revocable living trusts: A revocable trust is one that you can modify while you’re still alive. As such, the assets placed in it are still considered to be part of your estate, so they are subject to creditors, count against qualifying for Medicaid, and so forth. However, they do help you avoid probate and can keep your assets private.
- Irrevocable trusts: Irrevocable trusts cannot be modified or revoked, so once you set it up, the property you put into it cannot be taken back out. This makes them extremely effective at protecting assets from creditors, estate taxes, and other liabilities. In addition, they can help you qualify for certain benefits that you might not otherwise be able to obtain.
These both have their own subcategories, each of which is specifically designed for a special purpose. For instance, one type of irrevocable trust is a dynasty trust that provides revenue for your children, grandchildren, and so on from generation to generation, all while avoiding estate and gift taxes.
Setting Things Up
o determine what type of trust you need and to make sure it’s designed properly, you will want legal assistance. Hart & David provides the estate planning expertise you need to set up a trust.