You’ve likely heard the estate planning term “trust” before, but did you know that different types of trusts offer varying advantages for elderly individuals? At the Law Offices of Alice A. Salvo, you can gain information and assistance with how trusts work and how to choose the best option for you or an aging family member.
Defining Trusts
A trust works similarly to a will in that it grants assets to beneficiaries. The critical difference between trusts and wills is how the title transfer occurs. Trusts place asset titles in the name of the trust upon one’s passing, or while they’re still alive, before transferring to the beneficiaries to avoid the lengthy, public probate process that occurs with wills.
Essentially, you fund the trust with trust assets and define who will assume them and when. Many types of trusts exist, offering varying advantages, like avoiding estate taxes on properties. You can create trusts with flexible rules, like when they go into effect and whether or not you can edit the terms.
The Basic Types of Trusts
While dozens of specific trusts exist, the primary categories are as follows:
Revocable Trusts
Revocable trusts allow you (the trustor) to make changes or dissolve the terms at any point during your life. You can add new items, remove financial gifts, and revoke the trust entirely if you choose to do so. For example, if you go through a divorce, you may need to alter the beneficiary on your assets.
Irrevocable Trusts
Irrevocable trusts are permanent once established. While you cannot reverse the trust, you can potentially protect your assets from specific taxes by removing them from your estate.
Seniors hoping to qualify for government programs like Medicaid may also benefit from irrevocable trusts as the items in a trust won’t be in their name. Plus, the government typically cannot seize assets in a trust as payment collection after one’s passing.
Living vs. Testamentary Trusts
Living trusts transfer the assets into the trust while you’re still alive while testamentary trusts do not enact the transfer until you pass. With a testamentary trust, you may place the surviving spouse or a responsible child in charge as the trustee to make important decisions for a parent. Because testamentary family trusts don’t go into effect until one passes, they often still require probate.
Joint Trusts
Joint trusts allow couples to pool their assets into one trust together. When one spouse passes, the other will assume control over the trust.
Specific Trusts to Benefit Seniors
Aside from the primary types of trusts above, elderly individuals often benefit from specific documents catered to their needs, such as the following:
- Charitable trusts benefit a nonprofit organization.
- Marital trusts pass assets on to a surviving spouse.
- Bypass trusts protect beneficiaries from the tax burdens on large estates.
- Asset protection trusts protect assets from creditors after you pass.
- Blind trusts prevent beneficiaries from learning about assets before you pass so you can avoid conflict.
- Insurance trusts prevent estate taxes on insurance policies specifically.
- Spendthrift trusts give your trustee full authority to distribute assets as they see fit.
- Qualified terminable interest property (QTIP) trusts ensure the surviving spouse has income until they pass.
- Credit shelter trusts can reduce estate taxes on large estates.
