Trusts are an important component in planning for the future of your estate. There are many types of trusts including revocable trusts, irrevocable trusts, special needs trusts, spendthrift trusts, discretionary trusts and fixed trusts, all having their own unique applications. The most common trust types used are revocable and irrevocable trusts.
A revocable trust can be altered at any time. If you have second thoughts about the terms or even the beneficiary, the trust can be amended with the help of your attorney. In the event of your incapacitation or disability, a disability trustee named in the trust can manage your assets rather than relying upon a court-appointed trustee. Upon the Trustmaker’s passing, assets listed in the trust will pass directly to the beneficiaries, thus avoiding delays and complications often occurring in the probate process. By avoiding probate, your property and beneficiaries do not become public record, maintaining their privacy.
While revocable trusts are extremely flexible and private, they do have a drawback. Revocable trusts have no protection from creditors and all assets are subject to applicable state and federal taxes upon your death. An irrevocable trust is an alternative to avoid this issue.
Unlike revocable trusts, when a person makes an irrevocable trust, they give up their control and ownership of the property. When the person no longer owns the property, they can no longer be taxed on the value. This allows the person to pass along assets to family members without tax consequences. If the trust is to be given to charity, the Trustmaker will receive a tax deduction the year the trust was created or the family will receive a charitable tax deduction upon the Trustmaker's death.
An irrevocable trust also puts the cash assets out of the reach of creditors. If the Trustmaker is sued, assets in an irrevocable trust are untouchable and will remain intact for the beneficiaries.
- Special Needs Trusts: A trust is created for disabled or mentally ill beneficiaries to be run by a family member or trustee. A major benefit with these trusts is it allows the beneficiary to remain eligible for public benefits (Medicaid, Supplemental Security Income, etc.), The trust ensures the beneficiary is properly cared for when the Trustmaker is incapacitated or dies.
- Spendthrift Trusts: A trust is created for a beneficiary with certain restrictions in place to combat the beneficiary's inclination to overspend. In this particular kind of trust, the Trustmaker and beneficiary can be one in the same.
- Discretionary Trusts: A discretionary trust appoints a trustee who decides how much the beneficiary will receive at any given time and in some instances can also control how the funds are to be used.
- Fixed Trusts: The most limiting of all trusts, a fixed trust is extremely detailed and restrictive, giving the beneficiary little control over how the funds are used.
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To find out how you can use trusts to your advantage, call an experienced Phoenix estate planning attorney at Taylor & Lihn, PLLC today. By evaluating your assets and estate plan, they will help you choose which type of trust is best for you.