An especially useful and versatile tool in estate planning is a Trust. A Trust deals only with control of your property retitled in the name of the Trust and doesn’t replace other documents such as a will, durable power of attorney or healthcare proxy. A Trust can give you more control of your property and can operate both during your lifetime and afterwards. An estate attorney can discuss your individual circumstances and goals and determine whether a Trust might be right for you.
The basic concept of a Trust is simple: it’s an arrangement where you (the “Settlor” or “Grantor”) put your property under the control of a person (the “Trustee”) who manages that property according to your instructions for the benefit of another person or organization whom you have chosen (the “Beneficiary”). The three persons can all be different, or the same person can hold two or even all three roles (with some limits). In all cases, a Trustee holds a “fiduciary duty” to the Beneficiaries, which is a high standard of responsibility that requires the Trustee to act at all times in the Beneficiaries’ best interests.
You can create a Trust either during your lifetime or in your will. Working within this general framework, an attorney can customize a Trust to serve your particular needs and objectives for your future and that of your family or anyone else to whom you want your property to go, even your pets. A Trust’s flexibility makes it a useful tool – Trusts aren’t just for the wealthy.
A Living or Revocable Trust (the same thing) is a commonly used estate planning tool with several advantages and is set up while you are still alive. Although you place your property in the Trust, you can keep control by also being the Trustee (you can even cancel or change the Trust, meaning it is “revocable”). This allows you to use your property as you normally would for yourself or your family. This arrangement also allows you to name a successor Trustee to manage the Trust should you become incapacitated or when you die. And it allows you to choose who will receive your property after your death by naming successor Beneficiaries. This way, a Living Trust can do what a will and power of attorney do, but with even more control. While a will passes your property directly to the people you choose, under a Trust arrangement, the successor Trustee would manage that property for the benefit of those people according to the terms you’ve set up. That might be preferable if the recipients are children or you have doubts about the recipients’ ability to manage their own finances because of poor judgement, substance abuse, etc.
Another advantage of a Living Trust is that upon your death, whatever property is held by the Trust passes directly to the successor Beneficiaries and does not go through the probate process. This avoids the delay of probate and also keeps the transfer private. By contrast, probate goes through the court and is public. That may invite challenges to the Will or claims against your estate by relatives or creditors. Avoiding probate may also reduce probate costs, fees, and taxes.
Other examples of Trusts
A Special Needs Trust can be established to provide funds for a child or other dependent with special needs without impacting their qualification for government assistance.
An Irrevocable Trust, unlike a Living Trust, cannot be cancelled or changed, but offers the advantages of reducing or avoiding estate taxes and creditor and MassHealth protection. However, you give up control over those assets during your lifetime.
So called Credit Shelter Trusts can be used to reduce estate taxes by keeping property out of the estate of beneficiaries, commonly the surviving spouse. In Massachusetts, only estates valued at over $1 million are subject to the estate tax. But your estate includes all property held in your name, including your home, retirement plans and life insurance proceeds. With inflation and rising home values, it’s surprisingly easy for an estate to exceed that $1 million figure. Couples can use Credit Shelter Trusts to protect $2 million from Massachusetts estate taxation.
Trusts can be used for many other purposes that an attorney can review with you after learning more about you and your needs. For example, Medicaid may seek reimbursement from your estate for long-term care, and a Trust may protect your property from such claims. However, there are also drawbacks to any Trust, including greater complexity and set-up costs, as well as management fees if someone other than you serves as Trustee. A consultation with an estate attorney will determine the best estate plan for you.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
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