In the 21st century, estate planning typically includes much more than just a basic Last Will and Testament. Although your Will my continue to serve as the cornerstone of your comprehensive estate plan, you will likely decide to build on that foundation using additional estate planning tools and strategies. One common addition to any modern day estate plan is a living trust. Only your estate planning attorney can evaluate your estate planning goals and objectives and help you decide is a living trust would be a beneficial addition to your estate plan; however, it certainly cannot hurt to have a better understanding of what a living trust is and why it might help you reach those goals and objectives.
Trust Basics – Elements of a Trust
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a “Maker” or “Trustor,” who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Though you likely have never thought about it, you likely enter into basic trust agreements on a regular basis. For example, if you ask an associate in your office to hold onto an important document until your niece can get by to pick it up, you have created a trust agreement wherein you are the Settlor, your associate is the Trustee and your niece the beneficiary.
Testamentary Versus Living Trusts
All trusts fall into one of two categories – testamentary trusts or inter vivos (living) trusts. A testamentary trust is one that does not activate until the death of the Settlor whereas a living trust, as the name implies, is a trust that becomes active once all the formalities of creation are in place and the trust is sufficiently funded. Though there are a number of uses for a testamentary trust, they are often used by the parent of a minor child as a way to ensure that their estate assets are protected in the event the parent dies before the child reaches the age of majority. Because a minor child cannot inherit directly from the parent’s estate, the assets can be held in the trust until such time as the child can take possession of them. A testamentary trust is preferable because there is no need for the trust unless the parent dies prior to the child reaching adulthood. Therefore, it makes no sense to activate the trust and incur trust expenses while the parent is alive.
Revocable and Irrevocable Living Trusts
Living trusts can be further divided into revocable and irrevocable living trusts. Because it does not activate until the death of the Settlor, a testamentary trust is always a revocable trust until it takes effect at which time it becomes an irrevocable trust. Living trusts, on the other hand, can be revocable or irrevocable at the time of their creation. A revocable living trust is one that can be modified, amended, or revoked at any time, and for any reason, by the Settlor of the trust. An irrevocable living trust typically cannot be modified, amended, or revoked by anyone but a judge and then only for good cause.
Common Uses for a Living Trust
Trusts in general have come a long way from the days when they were used almost exclusively by the very wealthy as a way to pass down the family wealth while simultaneously limiting exposure to tax obligations and retaining a certain degree of control over the assets even after they were passed down to future generations. Now, living trusts are commonly found in the estate plan of the average person and used to accomplish a wide range of estate planning goals and objectives, including:
- Incapacity planning
- Probate avoidance
- Asset protection
- Special needs planning
- Medicaid planning
- Pet planning
- Tax avoidance
Living trusts have evolved to the point where there is likely a specialized trust available for whatever you estate planning purpose may be – and if one does not exist you may be able to create one yourself with the assistance of your estate planning attorney.
Contact Us
For additional information, please download our fee report “Trust Administration: Prior Planning Prevents Problems.” If you have additional questions or concerns regarding Medicaid planning, or would like to get started with your plan, contact the experienced New Hampshire estate planning attorneys at Debruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
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