For most people, a Last Will and Testament provides the foundation for their estate plan – at least initially. As their estate and family grows, additional estate planning tools and strategies may be included in their estate plan to help achieve inter-related goals. One of the most common of those additional tools is a trust. In fact, trusts are now commonly found in even the most simple estate plans. If you decide to include a trust in your estate plan, one of the first decisions you will need to make is whether to create a testamentary or a living trust. To help you make that decision, the living trust attorneys at Nash Bean Ford & Brown, LLP discuss common uses for a living trust.
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries.
Testamentary vs. Living Trusts
All trusts are broadly divided into two categories – testamentary and living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Trustor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Trustor. A living trust, on the other hand, activates during the Trustor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. As the name implies, an irrevocable trust cannot be changed, modified, or terminated by the Trustor once it activates. If the trust is a revocable living trust, however, the Trustor may modify or terminate the trust at any time.
Common Reasons to Create a Living Trust
Although there are a seemingly endless number of reasons why you might include a living trust in your comprehensive estate plan, some of the most common reasons include:
- Probate avoidance – assets gifted using your Will become part of the probate process, meaning they cannot be distributed to the intended beneficiaries until the end of that process. Assets held in a trust, on the other hand, bypass the probate process altogether. Consequently, beneficiaries receive the intended gifts immediately after your death if the terms of the trust so provide.
- Incapacity planning — as Trustor of the trust, you name yourself as the Trustee, and create the trust terms. You also name the individual you wish to take over control of your assets in the event of your incapacity as the Successor Trustee. You then transfer assets into the trust. In the event of your incapacity, the person you named as the Successor Trustee will take over your role as Trustee automatically. By doing so, he or she will also gain control over your most important estate assets.
- Special needs planning – a Special Needs Trust is a special kind of irrevocable living trust that allows you to provide for an adult child with special needs without jeopardizing your child’s eligibility for much needed assistance programs such as Medicaid or SSI.
- Medicaid planning – also a special type of irrevocable living trust, a Medicaid trust can help protect assets while ensuring your eligibility for Medicaid benefits to help pay for the high cost of long-term care when you are a senior.
- Charitable gifting – people often choose to create a living trust to facilitate their charitable gifting. Along with potential tax and administrative benefits, using a trust to distribute charitable gifts can also allow your philanthropy to continue long after you are gone if you so choose.
Contact Moline Living Trust Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding how and when to include a living trust in your estate plan, contact the experienced living trust attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.