Estate planning refers to the process of creating a plan with legal documentation to distribute your assets after you die. In some estate plans, trusts are formed to ensure that each beneficiary gets his share of their loved one’s assets. These legal documents help preserve, safeguard and adequately distribute your financial assets.
Estate planning is a way to ensure your final wishes are granted regarding this distribution of your personal belongings and financial assets. Trusts can help you secure financial stability for your surviving spouse, children, or grandchildren, or any other parties named as the beneficiary. Let’s take a closer look.
2 Primary Categories of Trusts
Trusts fall under one of two main categories:
Revocable trusts can be altered, changed, or completely voided by the trustor at any time while they are alive. These are also referred to as living trusts. The trustor of a revocable trust has the flexibility to remove or add beneficiaries and modify the terms through which assets are managed.
On the other hand, irrevocable trusts are essentially etched in stone. They cannot be altered, modified, or canceled except in specific circumstances as detailed by the court. Once an irrevocable trust is created, the trustor loses all rights to control the assets as described by the terms and conditions of the trust.
One of the main benefits of irrevocable trusts is that they help beneficiaries save money by avoiding the probate process.
Different Types of Trusts
Within the two categories mentioned above are different types of trusts. This includes:
Charitable trusts are irrevocable trusts that name a non-profit organization as the beneficiary.
A testamentary trust gives ownership and control of all designated assets to the trustee after the trustor’s death. This is a great way to provide a stable income for your spouse or preserve the wealth of your estate for your children. One of the most significant benefits of testamentary trusts is they are cost-effective.
Special Needs Trust
Special needs trusts are unique in many ways. They create a fiduciary relationship that protects the inheritance of disabled beneficiaries who have cognitive or mental disabilities or chronic illnesses that allow them to take advantage of government assistance, such as social security disability or Medicare.
These are irrevocable trusts and require a trustee to manage the assets. One of the main benefits of special needs trusts is that they provide additional assistance to your beneficiaries while preserving their current government assistance. These funds can be used for transportation, healthcare bills, medical aid, and other financial obligations not covered by government assistance. Keep in mind that a special needs trust must be created before the beneficiary turns 65.
If the heir or beneficiary of a trust has a history of wasting money, a spendthrift fund can be established to restrict excessive spending of the financial assets of a trust. This means that money from the inheritance can’t be used if the beneficiary is in debt or owes someone money.
Contact Ensberg Law Group for a Free Consultation
If you need help deciding which type of trust is suitable for your circumstances, contact our compassionate Azusa probate lawyer team for a free consultation.