Many estate planning clients ask if they need a trust.
A trust is a complex estate planning tool that an experienced North Dakota estate planning lawyer might recommend as a part of your estate plan. Similar to a Will, a trust transfers assets to your beneficiaries. A trust, however, gives you additional control and allows you to specify how and when your assets will pass to trust beneficiaries. While a trust is more complicated to set up, once created, a trust is easy to modify.
A trust involves three people: the trust-maker, the trustee, and the beneficiaries.
Once an estate planning lawyer drafts a trust, the attorney or the trust-maker must fund the trust by titling assets in the name of the trust. The assets are then managed by the trustee on behalf of the beneficiaries. In some cases the trust-maker and the trustee are the same people. In other cases the trust-maker and the trustee cannot be the same person.
A trust allows a person to quickly transfer assets at their death, or at another time they specify, without having to go through probate. A trust might be a good choice if you want to save time, court costs and, in some cases, taxes. But the costs to draft and fund a trust can be higher than those for other estate planning options.
Trusts also allow assets to pass privately. Unlike assets that are transferred through probate court, which is a public process, by using a trust the trust-maker can transfer assets to the trust beneficiaries without the oversight of the probate court. Because the probate court is not involved the asset transfer remains private.
A trust also allows the trust-maker to exercise some control over the wealth transfer. For example, a trust-maker might require that assets remain within the trust until a beneficiary reaches a certain age.
Different types of trust can be created to address different estate planning needs.
An initial distinction is whether the trust is a Living Trust or a Testamentary Trust.
A living trust, also known as an inter vivos trust, is in effect during the trust-makers lifetime. Some or all assets are transferred to the trust while the trust-maker is still living.
A testamentary trust, by contrast, goes into effect once the trust-maker has died and comes into being under the terms of the trust-maker’s Last Will and Testament. Assets are transferred to the trust at the time of the trust-maker’s death.
Another important distinction is whether the trust is revocable or irrevocable. In a revocable trust the trust-maker retains control over the trust and can make changes during his or her lifetime. In a revocable trust, the trust-maker will often name a trustee to serve upon the death of the trust-maker. This person or entity will manage the trust assets upon the death of the trust-maker. A trust-maker can also name a successor trustee to take over if they become incapacitated, thus avoiding the need to appoint a guardian. In a revocable trust, the trustee is free to make changes to the trust at any time, or even dissolve the trust.
An irrevocable trust cannot be changed by the trust-maker. Once the trust-maker creates and funds the trust, those assets are no longer owned by the trust-maker. This can reduce the value of the trust-maker’s estate and can be used to leave a legacy to a future generation.
A trust can be used to address a variety of estate planning needs, such as avoiding probate, preserving a legacy for a young person, or to allow a person with special needs to remain eligible for important government benefits.
If you wish to avoid probate and quickly transfer assets at the time of your death, a revocable living trust might be right for you. In this arrangement, your estate planning attorney would create the trust and you would fund it. Your lawyer would help you to properly title assets so that they are owned by the trust. Other assets might be titled jointly so that a spouse will take them over immediately upon the death of the trust-maker. Your lawyer might also recommend naming a spouse or other family member as a beneficiary on an insurance policy, or that you include a transfer on death provision on certain accounts and real estate. By properly titling your assets and placing them in a living trust, you can avoid probate and exercise more control over how and when your assets will transfer.
A trust can be used to achieve many of the same objectives as a Will. However, a trust often has more flexibility, can be used to reduce a person’s taxable assets, and avoids probate. However, unlike a Will, a trust will not adapt to changing circumstances, is more expensive to create than a Will, and requires ongoing maintenance.
If you are considering leaving assets to a young person but are concerned that the beneficiary will not spend the money responsibly, you might consider a spendthrift trust. In this arrangement, the trustee will manage the funds on behalf of the beneficiary until the beneficiary reaches a certain age. In this case, the trust-maker hopes that the beneficiary will become mature enough to manage the assets responsibly. A spendthrift trust can also be used to give a beneficiary money on certain conditions, such as for the purchase of a house, or at certain intervals, such as giving the beneficiary access to some of the money at age 25, a little bit more at age 30, still more at age 35, and the rest at age 40.
Likewise, if a beneficiary has special needs, a special needs trust can be used to pass on the trust-makers legacy without jeopardizing the recipient’s eligibility for government benefits. A special needs trust allows a person to remain eligible for government assistance programs, such as Medicaid or Supplemental Security Income (SSI) while receiving a gift from a trust-maker. There are different types of special needs trusts available to suit individual circumstances, but they share the common characteristic of allowing a trust-maker to pass assets on to a beneficiary without the beneficiary jeopardizing their eligibility for government assistance.
If you are wondering whether a trust is right for you, consult with an experienced North Dakota estate planning attorney. Estate planning is complicated and should not be left to a DIY computer program. There are strict formalities that must be observed, and a small mistake could make your estate planning document meaningless. It’s better to work with an experienced professional who knows how to prepare your estate planning documents the right way. Having your estate planning documents prepared the right way is important because, when it comes time for an estate planning document to work, it’s too late to go back and make changes.
A good estate planning attorney does more than just prepare documents. An estate planning lawyer will learn about your unique situation, understand your needs, and explain the impact of decisions that you make. Through these decisions you will come up with an estate plan that works for you, and give you peace of mind in knowing that your estate plan was prepared the right way.
If you are considering a trust as part of your estate plan, North Dakota estate planning attorney Leslie Thielen can answer your questions and help move your forward.
Contact the North Dakota estate planning attorneys at Fremstad Law today by calling (701) 478-7620.
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