One thing people can truly say is that times have changed. The America of today is no where near the America outlined in the days of old. That is both a good and bad thing. One thing people have to look in today's economy is learning how to cover your assets!
To make this as basic as we can so that there is no doubt, we're gonna lay a foundation of understanding as to what is a trust and why you may want to consider it.
A trust is a legal instrument, strategy, formation designed to do the following for the recipient:
Shields your asset from the public domain
Protects your assets from potential liability
Positions the items in the trust to avoid, delay and or reduce taxation
Removes items within the trust from probate
The trust holds and manages the assets placed in it for the benefit of another. A myth that has been taught to the general public is that you need to be at a certain income level in order to establish a trust. The truth of the matter is that anyone at any time can set up a trust. Establishing a trust should be considered (in our opinion) before establishing a will. Allowing the courts to control and distribute your assets is a frightful thought, even more frightening is the thought of outside influences that may attempt to make claims on your assets! We work long and hard for what we have, protecting it should be the first priority. A trust allows for the individual, family or business to keep control, keep private, and keep the ability to distribute assets based on timeframes and criteria set by the owners, not the government.
There are several types of trusts, each designed to serve different purposes and meet various needs. Here are some common types:
1. Revocable Living Trust: This trust is created during the lifetime of the grantor and can be altered or revoked at any time. It's often used to avoid probate and provide for the management of assets during incapacity.
2. Irrevocable Trust: Once established, this trust generally cannot be altered or revoked. It's commonly used for estate planning purposes, asset protection, and minimizing estate taxes.
3. Charitable Trust: This trust is set up to benefit a charitable organization or cause. It can provide tax benefits for the grantor while supporting charitable endeavors.
4. Special Needs Trust: Also known as a supplemental needs trust, this trust is designed to provide for the needs of a disabled beneficiary without disqualifying them from government benefits such as Medicaid or Supplemental Security Income (SSI).
5. Asset Protection Trust: This type of trust is used to shield assets from creditors and legal claims. It's often established in jurisdictions with favorable asset protection laws.
6. Testamentary Trust: Created within a will and only takes effect upon the death of the grantor. It can be used to manage assets for beneficiaries, especially minors or those with special needs.
7. Bypass Trust: Also known as a credit shelter trust, this trust is designed to maximize the use of estate tax exemptions for married couples. It allows one spouse to leave assets to the other spouse while minimizing estate taxes.
8. Generation-Skipping Trust: This trust allows assets to be passed down to grandchildren or later generations while bypassing the children. It's often used to minimize estate taxes.
9. Constructive Trust: Implied by law rather than created by the grantor, this trust arises when a court determines that someone holds legal title to property but is obligated to hold it for the benefit of another.
10. Totten Trust: Also known as a payable-on-death account or informal trust, it's created by depositing funds into a bank account in the owner's name with instructions that the funds be transferred to a beneficiary upon the owner's death.
These are just some examples, and there are many other specialized trusts tailored to specific circumstances and needs. Consulting with a legal or financial professional is essential to determine the most appropriate type of trust for your situation.
Lastly many have the question, "Can I establish a trust without a lawyer?" The answer is of course "yes." That being said you have to also ask yourself the question "Should I try to do this without a lawyer?" There are times when "DIY" will work for you and for some it becomes a nightmare. Attention to detail and understanding of the laws places this function squarely in the hands of competent legal professionals. Pay for the services to set them up properly or pay for services to review what has been done, provide options to a possible better structure if you choose to go solo. "Those who have never built a car will always be at the mercy of those who do it for a living!" Time and money are two variables that you can control in this process, your decisions will either waste them or use them to your advantage. Choose wisely.