There are several misconceptions associated with the concept of estate planning, but perhaps the most prominent is that a trust is intended for the “rich & famous,” and if you aren’t dripping in wealth, a trust is useless. This is completely false! Everyone who owns assets or property should have a trust to keep their hard-earned assets safe and save their families from financial jeopardy down the road.
There are several ways that you and your family can benefit from you creating a trust, but trusts aren’t one-size-fits all. There are several different types of trusts to choose from based on your unique goals and financial situation.
Before we explain a few different types you may want to consider, it’s important that you understand what a trust does so that you can make the best choice!
Two Major Benefits Of Trusts
- They prevent probate
Probate (proving a will is valid) is a lengthy but often necessary legal process that has to take place when a decedent doesn’t have a trust at the time of their death in order for their assets to be distributed to their beneficiaries. This Florida court process can not only take anywhere from 6 months to a year, but can rack up hefty legal fees. Because probate is stressful, there are often disputes and even lawsuits that can arise because of feuding family members, which extends the process, thus costing even more. While assets named in wills have to go through probate before they can be inherited, trusts do not, as the assets are passed directly to named beneficiaries without any court involvement being necessary.
- They protect the assets you worked so hard for
When you transfer your assets into a trust, the trust owns the assets, thus protecting your money from any type of risk. While the different types of protection vary with each kind of trust, all trusts can offer a layer of security which is better than no protection at all. You also have full control of the trust, which means you get to set the terms. Have an irresponsible family member that you can’t trust to spend their inheritance responsibly? You can opt to have it distributed in small increments over a set amount of time. Need to qualify for Medicaid? You can transfer your assets into an irrevocable trust that eliminates the possibility of them counting against you, without losing your life savings! There are several ways your assets can be protected by a trust, and if you’re planning for your family’s sake, it will keep them from having to deplete your assets in order to pay for the court fees associated with probate, because probate won’t be necessary.
Revocable Vs. Irrevocable Trusts
Before choosing which kind of trust is right for you, it’s important to understand what each one can do. There are two main categories of trusts: revocable and irrevocable trusts.
A revocable trust allows you, the grantor/creator, to modify the terms of your trust at any point in time. You can add beneficiaries or remove them if circumstances with family members change; you can add assets into the trust or take them out. Flexibility is a key benefit of a revocable trust, unlike an irrevocable trust. With this type of trust, once it is established, you cannot modify the terms without the approval of all beneficiaries. If you have a difficult family member who doesn’t want to agree to a modification, your hands may be tied, unless you have a judge’s order. Even then, modifications may not be possible.
At first glance, opting for a revocable trust might appear obvious – after all, who would choose something so rigid? However, irrevocable trusts can provide impenetrable security. A trust attorney can help you understand the benefits of each type so that you can make an informed decision on which kind is best suited to your needs. Below are a few kinds of revocable and irrevocable trusts that an attorney may suggest:
Special Needs Trust
A special needs trust is a particular type of trust that is set up to provide financial assistance for those with disabilities while simultaneously maintaining their eligibility for public benefits like SSI and Medicaid. There are third-party trusts, first-party trusts, and pooled trusts, all of which can be revocable or irrevocable.
Joint Trust
A joint trust is created by two people (typically a married couple) and can establish that money and possessions be handled the same way in the event that one spouse passes away.
Asset Protection Trusts
An asset protection trust is one that holds onto your assets and shields them from creditor claims. It can prevent lawsuits and costly litigation before it even begins.
Charitable Trust
A charitable trust is an irrevocable trust where a donor gives ownership to a charity or creates a charitable foundation to manage and distribute assets. The IRS also offers attractive tax benefits for creating this particular type of trust.
Why You Shouldn’t “DIY” Your Trust
Creating a trust is often a task that many people are intimidated by. It requires careful planning and thought, and the legalities of it all can make the process seem rather complicated. In your search for more information about trusts, you’ve likely come across some “do-it-yourself,” templates that offer the appeal of low cost and effort. However, templates like these should be avoided as they typically are lacking necessary legal language and cannot offer an understanding of your unique needs in a trust the way an attorney can. These tools could also lead to you making a mistake that invalidates your trust, making it useless to you and your loved ones. That’s why it’s important to always seek the guidance of an attorney who can help you draft a comprehensive trust that is legally compliant!
At Elder Law, P.A., our lead attorney Ryan J. Smollar has 10 years of experience helping clients create wills and trusts that clarify their wishes and shield their assets so that they can later be used to protect their loved ones. He can help you do the same! Call today for a free consultation and learn about which trust might be right for you.
