Understanding the Most Common Types of Trusts
Estate planning involves taking a comprehensive look into the present and future to create legal instruments that protect you and your loved ones, not only after you’re gone but while everyone is still here. A last will and testament is probably the one legal document most people have heard of, and it is generally associated with who gets what after you’re gone.
The problem with a will is that it will get tied up in probate court proceedings for months and sometimes a year or more. A perfectly legal and easy-to-administer option to avoid probate is by creating a living trust. A living trust, however, is not the only use for trusts. Trusts can also be established to care for a child with special needs, to ensure that both your current spouse and children from a previous marriage are provided for, to make charitable donations, and more.
For all your estate planning needs in and around Redlands, California, contact the estate planning attorney at The Elder & Disability Law Firm, APC. Attorney Esther C. Wang has been helping clients since 1991 formulate comprehensive estate plans that cover life’s certainties and unforeseen future events. She also proudly serves clients in Rancho Cucamonga, Palm Springs, and Riverside, California.
Types of Trusts: The Living Trust
A trust should usually be backed up by a will. A trust can do many things, but it cannot be used, for instance, to name a guardian for minor children. Only a will can do that. A will also will help fill in any gaps in planning. If you acquire assets after setting up a trust and forget to include them, a will can be used to transfer those assets into the trust upon your death.
So, what is the most basic form of a trust? A living or revocable trust is one of the first options in comprehensive estate planning. In establishing a living trust, you assign all of your assets to the instrument and name a trustee to oversee those assets once you are gone or become incapacitated and cannot do so yourself. In the interim, while you are still alive and healthy, you remain the trustee and can manage those assets yourself.
A living trust is also known as a revocable trust, since it can be canceled or amended at any time. In contrast, if you establish an irrevocable trust, you cede control of your assets to the trustee you name. Irrevocable trusts are mostly used to protect assets against liability – a shield against lawsuits – and also for tax purposes. However, an irrevocable trust cannot be canceled or modified, and the grantor loses control of the assets placed in the trust.
The Qualified Terminable Interest Property (QTIP) or marital trust is an important tool if you’re on a second or third marriage and wish to provide for your current spouse and your children from a previous marriage. Each spouse can set up a QTIP trust.
When the first spouse dies, the surviving spouse retains a “life estate” interest in the assets. Also, they get to continue using any real estate in the trust and to receive any income the assets produce. The surviving spouse, however, cannot sell or give away any of the assets. When the surviving spouse dies, the assets transfer to the final beneficiaries, who could be children from a previous marriage.
Special Needs Trusts
A special needs trust can be established to help provide for a child who relies on government benefits for a disability they suffer from. Government benefits such as Medi-Cal and Supplemental Security Income (SSI) place limits on the income and assets a recipient can own or receive.
When you pass on and leave your assets to your special needs child without a trust, those assets could forfeit your child’s right to government benefits. Setting up a special needs trust can avoid that dilemma while still providing care for your child.
To fund a child’s education, you can set up an educational trust. This type of trust can take effect while you are alive or after you’re gone, depending on your age and the age of the beneficiary. An educational trust fund, which will be managed by a trustee you name, will prevent your child from recklessly spending the money on personal pursuits and desires rather than education and advancement in life.
Deciding on Which Trusts Are Right for You
In addition to the trusts described above, there are also trusts for other purposes. You can set up a charitable trust to create a legacy for yourself after you’re gone. You can establish what is called a spendthrift trust for an heir who might otherwise spend the money on pursuing a lavish or frivolous lifestyle. You can even set up a pet trust to care for your “best friend” after you’re gone.
With all these options available, you need to consult and work with a knowledgeable and experienced estate planning attorney. If you’re in the Inland Empire cities of Redlands, Palm Springs, Riverside, and neighboring areas contact The Elder & Disability Law Firm, APC, to begin the estate planning – and trust creation – process or to review and augment what you already have. Reach out today for an initial consultation.