Trusts are one of the most powerful tools in the estate planning toolbox. They are versatile and can be adapted to your particular situation and goals.
You can use a trust to provide for your loved one’s years after you are gone, promote a cause dear to your heart, or minimize estate taxes.
Weiner Law Group, LLP, can help with all your trust needs. Our trust lawyers can advise you on how setting up one or more trusts can help you meet your estate planning goals and help you set those trusts up.
Or, we can help you set up a trust designed to operate during your lifetime, allowing you to oversee its operation. Reach out today to get started.
What Is a Trust?
A trust is a fiduciary arrangement you can make to give control over assets to a trustee to hold on behalf of one or more beneficiaries. When we talk about trusts, three roles are involved:
- Grantor—the trust’s creator;
- Trustee—the fiduciary who administers the trust; and
- Beneficiary—the person who benefits from the trust.
The trustee holds legal title to trust property but must only use it, per the terms of the trust, to benefit the beneficiaries. The three roles can be filled by different people or entities, or two or even the same person.
In revocable trusts, the Grantor can serve in all three roles. However, in an irrevocable trust, one person cannot be the sole trustee and the sole beneficiary.
What Types of Property Can Be Placed into Trust?
You can place most types of assets within a trust. Many people put their money or investments into trusts, including valuable art pieces. You may also place other types of personal property into trusts and real estate.
When you place property into a trust, it is a non-probate asset as long as it remains in the trust. That means it can be transferred to beneficiaries after the grantor’s death without going through probate, potentially saving time and money.
Non-probate assets include property that passes to another person upon the holder’s death outside a will. Besides trusts, non-probate assets include retirement accounts, life insurance, and shared financial accounts.
Because they already bypass probate, you rarely put those assets into a trust.
What Are the Benefits of Trusts?
Trusts can be designed for many different purposes. Some common benefits of trusts include:
- Control over assets;
- Legacy creation and protection;
- The ability to provide for loved ones in difficult situations;
- Minimizing taxes.
- Control over distribution of property;
- Providing privacy over your personal financial affairs.
Trusts must follow parameters set by the law, but within those confines, you can customize them as you like. A trust attorney can help you tailor your trust to meet your goals.
What Types of Trusts Exist?
There are two primary distinctions between trusts based on when the trust is created and whether it is revocable. There are many varieties of trust purposes.
Living vs. Testamentary Trusts
The trust can be created when the grantor is alive or after the grantor dies. If created when the grantor is alive, the trust is usually created by a trust instrument, signed by the grantor, setting out the terms of the trust’s operation. Trusts created when the grantor is alive are known as living or inter vivos trusts.
If created after the grantor dies, the trust is usually made through the grantor’s will. Trusts that come into being after the grantor dies are known as testamentary trusts.
Revocable vs. Irrevocable Trusts
Trusts are revocable or irrevocable. Grantors can change the terms of revocable trusts and, if they choose, revoke them. Because the grantor retains that power, the IRS refers to revocable trusts as “grantor trusts.”
Revocable trusts are treated as the grantor’s property for tax purposes, including estate tax purposes, and the grantor owes taxes on income the trust generates.
An irrevocable trust cannot be amended or revoked after it is created unless all beneficiaries consent. Depending on the amount of control the grantor retains under the terms of the trust, irrevocable trusts can be treated as grantor trusts for tax purposes.
However, an irrevocable trust sufficiently independent of the grantor’s control pays income taxes out of its own resources and can bypass estate taxes.
(Also, to learn more about the differences between Simple Trust vs Complex Trust, read our blog article on it.)
Charity
To create a charitable trust, you must dedicate it to a particular charitable purpose. By law, charitable purposes include:
- Relief from poverty,
- Advancement of education or religion,
- Promotion of health,
- Governmental or municipal purposes, or
- Other purposes beneficial to the community.
If you do not select a charitable purpose, the court can choose for you.
Asset Shielding and Asset Protection
You can place some assets into a trust called a spendthrift trust to keep them out of reach of creditors. Typically, you create a spendthrift trust to benefit someone else.
In many cases, trusts are an effective advance planning tool both for estate planning and for asset protection during your lifetime. Individuals in occupations with exposure to litigation or credit risk may incorporate trusts as an important aspect of their asset protection plan.
Avoiding Probate or Estate Taxes
Most trusts can avoid probate, allowing assets to transfer quicker and without going through the probate process. Irrevocable trusts can also avoid estate taxes owed after the grantor dies.
Caring for Pets
Our pets are part of the family, so it is no surprise that many people want to create provisions to ensure their pets are cared for after death.
The animal must be alive during the grantor’s lifetime. Because the trust beneficiary is an animal, you must ensure the trustee is someone you trust.
Caring for Loved Ones
Many types of trusts allow you to provide for your loved ones. You can create a trust that will enable your children to control money only after they reach a certain age.
Or, you can create a trust to benefit a disabled loved one without putting their disability benefits in jeopardy. You can also ensure that your loved one will receive regular income for years to come.
When Do I Need a Trust Lawyer?
If you are considering using a trust or wondering whether a trust could benefit you, consult a trust lawyer. Trusts are legally complicated documents; your lawyer can help ensure you set your trust up right correctly.
If you set your trust up incorrectly, it can be invalidated, defeating your goals in attempting to create it. You may also owe back taxes and penalties for making what the IRS considers an “abusive” trust.
But how much does a trust lawyer cost? The best way to find out is by reaching out to speak with one. How much you will end up paying varies based on how complicated your goals are.
That said, if you speak with a lawyer and explain your needs, we should be able to estimate the costs involved.
How Can a Trust Lawyer Help Me?
When setting up a trust, your attorney can handle all the complicated legal work. We will listen to your goals and provide insights on what type of trust best meets your needs.
Then we draft the trust instrument before working through it with you step-by-step to ensure the trust will accomplish your goals.
Once we are all satisfied with how the document reads, we guide you through the process of creating the trust, whether it is a living trust or ensuring you have met all the requirements of a testamentary trust. If necessary, we can also defend your trust against challengers.
The experienced attorneys at the Weiner Law Group have been practicing in the estate planning arena for decades. We can also help with other estate planning needs, like drafting a will or powers of attorney.
If you find yourself in need of a New Jersey or New York trust attorney, we are here to help. Contact us today to schedule a consultation.