Despite being the most commonly used estate planning tool, wills have several drawbacks.
Trusts, on the other hand, offer many benefits, such as allowing your loved ones to avoid probate and reducing liability regarding estate taxes. Trusts are highly customizable and give you more control over how your taxable estate is distributed.
Certain trusts may better suit you than others, depending on your unique concerns and your desired beneficiaries. Worried about your beneficiaries squandering their inheritance? There’s a trust for that. Are you making provisions for a loved one with special needs? There’s a trust for that, too.
With so many types of trusts, you may be unsure which one is right for you. You may wish to book a planning session with our knowledgeable estate planning attorney for personalized recommendations and guidance.
If you’re creating or updating your estate plan, you may have heard about the importance of trusts. Trusts are versatile estate planning tools that can help protect assets, minimize taxes, and provide for loved ones.
You should consider including five types of trusts in your estate plan.
Are you concerned about a beneficiary squandering their inheritance? Maybe they’re prone to taking on debt or have shown difficulty with personal finance, and there’s a chance that your legacy will end up in the hands of creditors.
A spendthrift trust can help protect your assets from a beneficiary who may be at risk of squandering their inheritance due to poor financial habits or debt. This type of trust limits their access to funds and allows you to control how and when they receive them, safeguarding your legacy from creditors and other collection agencies.
By structuring the trust this way, the beneficiary receives the assets incrementally and cannot sell them, ensuring that the assets remain protected under the trust.
We’ve all heard of the proverbial “trust-fund baby” who doesn’t need to work because their inheritance pays all the bills. An incentive trust discourages this behavior by specifying criteria the beneficiary must meet before releasing funds.
For example, you may wish to specify that a beneficiary must graduate from college before receiving the funds. They’ll be extra motivated with their studies (and far less likely to drop out) knowing there’s a reward at the end.
Like other types of trusts, an incentive trust bypasses the probate process and protects the funds from creditors.
Do you want to leave a legacy for a cause or organization near and dear to your heart? A charitable trust allows philanthropists to transfer assets to their favorite organizations while reducing their estate’s tax liability.
There are two charitable trusts: charitable remainder trusts and charitable lead trusts. A charitable remainder annuity trust earmarks remaining assets or income for a charity of your choice, whereas the charitable lead trust designates funds to your chosen charity first and gives any remainder to your beneficiaries.
Charitable trusts are irrevocable, so once yours is operational, you won’t be able to regain ownership of assets. A charitable trust is a big decision you should discuss with a lawyer.
If you’d prefer that your assets pass to your grandchildren, a generation-skipping trust should be a part of your estate plan. This trust can be used as an effective wealth-preservation tool and allows you to bypass estate taxes and the probate process.
Although grandchildren are the most common beneficiaries of generation-skipping trusts, you can also choose generation-skipping trusts to transfer assets to a nephew or mentee. The beneficiary can be anyone at least 37.5 years younger than you, provided they aren’t a surviving spouse or ex-spouse.
If you’re leaving a legacy for a loved one with special needs, you’ll want to consider a special needs trust. While done with the best intentions, enriching your loved one could ultimately be detrimental. To qualify for government benefits such as Supplemental Security Income (SSI), disabled persons must have a net worth of $2,000 or less. This type of trust preserves their eligibility for the government benefits they deserve.
Special needs planning also entails developing a comprehensive care plan for your loved one. Our experienced and compassionate special needs planning attorney can walk you through the process.
In addition to the five types of trusts outlined above, you might also want to consider one of the following:
Estate plans are as unique as the people who create them. When you work with an estate planning attorney, you’ll get personalized advice and guidance.
Now that you know the five types of trusts you may be missing from your estate plan, it’s essential to take action and ensure that your plan is complete.
Working with a knowledgeable estate planning law firm like Santa Barbara Estate Planning & Elder Law, you can create a customized plan that addresses your unique needs and goals.
Don’t wait until it’s too late to protect your assets and loved ones. Contact us today to schedule a consultation and take the first step toward peace of mind.