A trust can be an important estate planning tool. Basically, a trust is created when you (the settlor) transfer property with the intention that it be administered by a trustee for another person's benefit. There are many different types of trusts which we can assist you with, depending on your specific needs. Some trusts are used to provide tax savings while others are used to protect the assets of the beneficiary.
Trusts can be either inter vivos or testamentary. An inter vivos trust is a trust which is created, becomes operational, and is usually funded during the settlor's lifetime. A testamentary trust is a trust established after your death in accordance with the provisions of your Will.
Below is a summary of the more common trusts used in our elder law practice to assist our clients:
Credit Shelter or By-Pass Trust
This type of trust is a testamentary trust that can be used by a married couple to decrease the amount of the Federal estate taxes owed by their estate. Presently, the Federal estate tax is not owed on an estate of five million dollars or less because of the Federal credit, which is available to each spouse. If you or your spouse own assets in excess of five million dollars, it is important that you let us know so that we can assist you in preparing your Wills with credit shelter or by-pass trusts in them. Without using the credit shelter or by-pass trust, the estate of the spouse who dies first will lose the Federal credit, which will cause the estate to incur a substantial tax liability. The five million dollar exemption is set to expire after 2012.
Special Needs Trust
This type of trust can be either inter vivos or testamentary. It is usually established for the benefit of a disabled individual who is receiving governmental benefits such as Medicaid or Social Security Supplemental Income. By placing the disabled individual's funds in a properly prepared special needs trust, that individual will not lose their governmental benefits, and the trust income and principal can be used by the trustee to pay for the individual's special needs.
Following the disabled individual's death, if the original source of the funds in the trust came from the disabled individual, any funds remaining will have to be used to reimburse the government for funds expended on behalf of the disabled individual. If the original source of the funds in the trust was from someone other than the disabled individual, the funds can usually pass to the disabled individual's heirs.
Revocable Living Trust
This type of trust can be created by you during your lifetime. You transfer assets, which can include personal and real property, to the trustee to manage the assets. You can serve as the trustee of the trust as long as you have legal capacity. If you become incapacitated, a successor trustee, specified in the trust document, would take over the management of the trust assets. Upon your death, the trustee will make distribution of the assets in accordance with the terms of the trust.
The advantage of this type of trust is that it provides for the management of your assets and payment of your debts and other expenses during your lifetime. At your death, the assets will pass to your beneficiaries without the need to probate your Will. This type of trust, however, could have an adverse impact on your eligibility for Medicaid benefits because the assets in the trust are countable to you (the settlor) as if you owned them outright.
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