A well-thought-out and comprehensive estate plan is the best way to protect yourself, your assets, and the people you love. That protection can work both during your lifetime and after you are gone. For most people, a Last Will and Testament serves as the foundation of their initial estate plan; however, a Trust may be added later to help achieve additional estate planning goals. Our attorney at Amato Law, PLLC will work with you to develop an estate plan that is uniquely tailored to fit your needs and goals.
Do I Need a Will or Trust?
The simple answer is “yes.” People frequently operate under the mistaken belief that only individuals who own considerable assets need an estate plan. The truth is that everyone can benefit from having a basic estate plan in place in the form of a Will and/or a Trust. If for no other reason, having a Will or Trust in place prevents you from leaving behind an intestate estate. If you die intestate, the state intestate succession laws determine what happens to your estate assets. Even if those assets are not high-value assets, you probably care what happens to them. Moreover, you may have promised those assets to a family member, friend, or charity. If you die without a Will or Trust, there is no guarantee that those promises will be honored.
What More Can a Will or Trust Do for Me?
Although a primary motivation for creating a Last Will and Testament or Trust agreement is often to avoid leaving behind an intestate estate, there are other important estate planning goals that Although a primary motivation for creating a Last Will and Testament or Trust agreement is often to avoid leaving behind an intestate estate, there are other important estate planning goals that can also be furthered using a Will or Trust. A Will, for example, allows you to appoint an Executor who will be responsible for administering your estate after you are gone. If you are the parent of a minor child, your Will also offers you the only official opportunity to nominate a legal guardian for your child in case one is ever needed, while a testamentary Trust lets you choose a Trustee to protect and invest assets you designate to provide for your child(ren).
In contrast, if you decide to use a Revocable Living Trust as your primary estate planning document, it can be used as a Will substitute and avoid probate if you retitle your assets to your Trust during your lifetime including your property that may be located in your home state or another state, cash and brokerage accounts, stocks, CDs, and U.S. Treasury Bonds. While certain accounts including IRAs, IRA Roth, 401(k), and Annuities will pass by operation of law to the designated beneficiaries and will bypass probate.
Because the administration of the Trust bypasses the probate process, the administration of your estate will be held privately and distributions can be made shortly after your death instead of getting held up in probate for months, even years.
In addition, a Revocable Living Trust can be used as an incapacity planning tool as well as to avoid leaving lump-sum gifts to your loved ones who may be unprepared to handle a large inheritance. A carefully chosen and properly drafted Revocable Living Trust can even offer asset protection benefits or protect the inheritance of a child with special needs.
Types of Trusts
Even if you have a Will, Trusts can add a layer of protection for your loved ones and legacy once you’re gone. There are different types of Trusts, and each has its own rules and benefits depending upon the size of your estate and your objectives. The following are examples of some of the different types of trust that can be included in your estate plan depending upon your goals.
- Revocable Living Trust: This is a type of Trust that can be revoked or revised during the lifetime of the grantor and does not become irrevocable until the grantor’s death. It is used to avoid probate, address estate tax liability, and offers management of the grantor’s property, both during life and after death.
- Creditor Protection Trust or Disclaimer Trust Planning: A Trust can be created for married couples that provides creditor protection and reduces estate tax liability upon the passing of the surviving spouse. The techniques are considered the backbone of estate planning, however, the Trust must be drafted using specific provisions so that the surviving spouse can take advantage of this tax benefit because the tax benefits are not automatic.
- Irrevocable Life Insurance Trust (ILIT): This type of Trust is a more advanced planning strategy and is used to prevent estate taxes on insurance proceeds received at the death of an insured. By transferring the ownership of the policy to the Trust the death benefit will bypass estate tax liability, thus preserving the inheritance earmarked for the beneficiaries of the estate.
- Charitable Remainder Trust (CRTs): This type of Trust is designed to reduce estate tax liability by allowing the donor to transfer property to a charitable Trust and retain an income stream from the property transferred. The donor receives a charitable contribution income tax deduction and avoids a capital gains tax on transferred property.
- Grantor Retained Annuity Trust (GRATs): This type of Trust provides tax advantages by allowing the grantor to retain a right to a stream of annuity payments for a term of years. During that term, the grantor gets these payments and whatever remains goes to the remainder beneficiaries. It might go to those beneficiaries outright or in Trust.
- Qualified Personal Residence Trust (QPRT): This type of irrevocable Trust allows the grantor to remove a personal home from their estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.
- Qualified Domestic Trust (QDOT): This is a specific type of Trust designed to take advantage of the unlimited marital deduction when a spouse is not a U.S. citizen. It allows the surviving spouse to take the marital deduction on estate taxes, even if the surviving spouse is not a U.S. citizen.
- Spousal Lifetime Access Trust (SLAT): This is a specific type of irrevocable Trust where one spouse makes a gift into a Trust to benefit the other spouse (and potentially other family members) while removing the assets from their combined estates.
- Generation-Skipping Trust (GST): This type of Trust is also known as a dynasty Trust. It offers tax advantages by providing a mechanism to bypass a generation when leaving assets to grandchildren or anyone who is 37.5 years younger than the grantor. If the beneficiary is not a relative, he or she is called a “skip-person.”
- Special Needs Trust (SNT): This type of Trust is designed to supplement the benefits that a disabled person receives from Medicaid or SSI without interfering with their Medicaid or SSI eligibility. There are three different types of special needs Trusts including First Party SNT, Third Party SNT, or a Pooled Income Trust that can be created depending upon the circumstances of the disabled person and the objectives of the grantor.