Estate Planning Trust: The Different Types & When and How to Use Them

A trust refers to a legal fiduciary arrangement that makes it possible to have your assets under the management of a third party. The party in this type of estate plan arrangement is usually referred to as a Trustee.

The firm or person who has power of attorney over the estate or assets is typically in charge of making sure that the estate is managed in the manner set out in terms of the trust agreement.

While many people believe that trusts are only beneficial for those with huge estates, the reality is that both large, small, and medium-sized estates can benefit from a trust. Even though it is commonly held that Trust is an instrument of the rich, the fact is that even a moderately wealthy or typical middle-class person can benefit from them.

As compared to wills, some of the benefits of a trust include:

• Avoiding probate upon the death of the grantor
• Privacy of the family
• Protection of assets from legal encumbrances
• Elimination or reduction of gift and estate taxes
• Better control over the wealth as there are laid our terms for asset distribution

There are different kinds of Trusts, and it is critical to consult with an attorney before setting up a Trust. At The Law Office of Paul Black, we will assess your goals and needs before we advise you on the best estate plan for you. So, give us a call and book a free consultation with our expert attorneys.

What and Who Is Included in Estate Planning Trusts?

There are several financial assets that are more suitable for the funding of your Trust. The types of assets that can be included in a Trust include:

1. Home or other real estate properties
2. No qualified annuities
3. Tangible property such as vehicles, jewelry, collectibles, and antiques, among others
4. Bonds or stocks held in the form of certificates
5. Retirement accounts that name the Trust as the beneficiary
6. Business interests
7. Non-retirement investments and brokerage accounts that are retitled in the name of the Trust
8. Large assets
9. Bank accounts, including checking and savings accounts, CDs, and money markets. Keep in mind that you will have to be very careful transferring CDs as early withdrawal during the retitling could result in penalties.
10. Real estate

There are several parties involved in the administration and creation of a trust that includes:

1. Trustor – He or she is also referred to as a settlor or grantor. The grantor will be the one responsible for setting up the Trust.
2. Trustee – He or she is the party responsible for managing the property and other assets of the trust agreement.
3. Beneficiary – This refers to the heir of the assets in the Trust
4. Successor beneficiary and trustee – In some instances, the beneficiary, trustee, and trustor refer to the same person. For instance, if you have a middle-class net worth, you might not have the money to pay someone to manage the Trust. This could be the case if you are already the manager of most of your assets. In such instances, a surviving spouse, children, or other family members may be designated as both trustee and successor beneficiary.

Another thing you have to take into account is that in such circumstances, you will also have to assume all the roles and appoint a successor beneficiary and successor trustee. The successor trustee will take over if the original trustee appointed declines to serve or dies.

Given the many pitfalls in the legal process for the creation of trusts, it is always advisable to consult with an attorney before embarking on such a process. Paul Black is well-versed in trust law and will help you navigate the many financial and legal issues involved.

There are many reasons people are deciding to set trusts over wills. Some of the many benefits that trusts provide over other types of estate plans include:

Reducing or Avoiding Estate Taxes

Reducing or avoiding gift and estate taxes is probably one of the most popular reasons people create trust. Although there is no estate tax in Georgia, there is a possibility that you owe money to the federal government. For 2020 and 2021, estate taxes will only be applicable if you have more than $11.7 million in assets. The federal estate tax exemption goes up to $12.06 million for 2022.

The good thing is that you get to enjoy the estate tax marital deduction. With such a deduction, you are exempted from paying any federal taxes on your estate if the estate directly passes to your surviving spouse. (Note that income tax may have to be paid on the trust assets upon the death of the spouse.)

This means that you will not have to worry about federal estate taxes, no matter how large your estate is. However, given that some tax provisions may kick in much earlier, it is always advisable to consult a trust’s attorney upon the death of a grantor.

Avoiding Probate

Unlike with wills, in which all assets have to go through the probate court, you can avoid this with trusts. The legal process can be time-consuming and could end up costing between 3 and 8 percent of the Trust’s assets in fees.

With a trust, the assets quickly and directly transfer to the beneficiaries on the death of the grantor.

Note that insurance policies and retirement accounts are usually not subject to probate as they usually name the beneficiaries.

Protecting the Estate

A properly constructed trust could protect your assets from creditors and lawsuits brought against the beneficiaries. Trust shields your estate and assets from taxes and other liabilities.

Retaining Control of Your Assets

When you create a trust, you get to dictate when and how you want your assets and property to be managed and distributed upon your death. This is some kind of insurance policy that ensures that your life’s work will not be wasted.

Providing Support

When you need to provide support for dependents with special needs or minor children, trusts will always be superior to wills. With a trust, you can set out the exact way your money will be managed as opposed to a will, which can be disputed and have to go through a probate process, where your beneficiaries could lose their support.

Maintaining Privacy

Unlike wills, where the terms can be made public in probate court, the terms of a trust are usually not public.

Prior to establishing your Trust, it is important to have a good idea of your goals, which will make it easier to go with a trust that is best suited to accomplish those goals.

Living Trust

This is usually created while you are still alive. It usually designates a trustee with the power of attorney that will manage the estate plan on behalf of your beneficiaries when you pass on.

Apart from the living trusts, there are several other types of trusts with their own purpose and nuances.

Revocable Living Trust

This is a revocable trust created while you are still alive and, as such, can be revoked or altered in your lifetime. It is one of the most effective ways to avoid probate court processes while you are still living.

However, you have to note that if you want to use a revocable living trust to protect your property and assets, it is not the most ironclad instrument. Creditors will find it hard to access the assets, but they could be available to them while you live.

Irrevocable Trusts

Typically, the terms of irrevocable trusts cannot be altered or changed once the Trust is established, although sometimes there are ways to amend the conditions of irrevocable trusts. This type of Trust will legally transfer the rights of ownership of anything given to the Trust to your loved ones.

For example, an Irrevocable Life Insurance Trust (ILIT) can move your life insurance policy into an irrevocable trust. Once the trust is created, the policy’s value is removed from your taxable estate.

In some instances, you can remove yourself from ownership of any assets by locking them into an irrevocable trust. This type of asset protection can be ideal if you are in a profession that is vulnerable to lawsuits, for instance, doctors or attorneys.

Since the property no longer belongs to you, you do not have any tax liabilities on the income generated, even though you may have to pay income tax on distributions.

Joint Trusts

This is a trust set up for two people that could be family members such as brother and sister or wife and husband. As long as both parties are alive, they jointly control all assets and property in the Trust, and each is a co-trustee. They can change the terms of the Trust at any time, and when one partner dies, the other partner will immediately assume the role of Trustee.

Testamentary Trusts

This is a trust that you create within a will and comes into effect upon your death. It is typically known as a Will Trust or Trust Under Will and will usually be in the last will and testament. It provides instruction on the establishment of the actual Trust.

Since the Trust is not created during your life, it is not deemed a living trust. You have to remember that setting up a testamentary trust can trigger the probate court process when you pass on. Since the terms of the Trust are established in the will, there will be less privacy.

Call us today for a consultation on what is the best type of Trust for your circumstances. At the Law Office of Paul Black, we have attorneys with experience in trusts. We will help you navigate the financial and legal aspects of asset management so that you can protect your legacy from estate tax and cumbersome legal procedures.

Charitable Trusts

If you set aside certain estate assets for a particular charity, the rest of your property and assets transfer to your beneficiaries when you die. With a charitable Trust, you can allocate your assets for definite periods of time. All trust assets you designate for charity will be given to charity. This way, you can craft an inheritance in your estate plan.

A charitable trust is sometimes called a charitable remainder trust, and it represents a tax-efficient way to support a charitable cause. A Charitable remainder annuity trust (CRATs) and a Charitable remainder unitrust (CRUTs) are common types of charitable trusts.

A charitable trust enables an individual to receive tax-free reinvestment and income for the rest of their life while benefiting your charitable cause. In other words, a beneficiary receives an income from the trust for a certain period of time or the rest of their life. After their death, the remainder, or the remaining assets, go to the designated charity.