Do you need a trust, or want to learn more about trusts? Our trust attorney can help! Whether you have a simple estate or something far more complex, we can design a trust that caters to your needs. A trust is one of many ways you can create a strong legal foundation to protect yourself and your family. Below is some general information about trusts and how a trust may benefit you.
What is A Trust?
Technically speaking, a trust is an instrument that allows one party, called a “trustee,” to hold legal title to assets on behalf of another party, called the “beneficiary.” Put more simply, a trust is one of many tools used by estate planning attorneys to ensure that your family and estate are protected should a tragedy strike. Among other things, a trust contains provisions to protect and distribute your property should you pass away or become incapacitated. They also contain terms to provide for the financial well-being of your minor children should it become necessary. Additionally, trusts can be arranged in many ways and can specify exactly how and when the assets pass to your successor beneficiaries.
Revocable and Irrevocable Trusts
Depending on their purpose, trusts fall into one of two categories. Revocable or Irrevocable. Some of the differences between each are outlined below:
A revocable trust, as the name suggests, is a trust that may be revoked any time. In other words, the person controlling the trust may alter or amend the terms of the trust. Such changes could be small, such as changing a beneficiary. On the other hand, the change could be rather large, such as revoking or tearing up the entire trust. Your common “living trust” is a type of revocable trust.
While revocable trusts can be revoked at any time, irrevocable trusts typically cannot be amended after they are executed. Because the trust is irrevocable, assets placed in the trust are typically owned by the trust, not the person who gifted the asset to the irrevocable trust. For this reason, these types of trusts are generally used in asset protection strategies. Common examples include special needs trusts, life insurance trusts, and asset protection trusts.
Common Types of Trusts
There are dozens and dozens of types of trusts. More than we can discuss in this article. That said, some of the most common types used by estate planning attorneys are as follows:
Revocable Living Trust or Living Trust
A revocable living trust is perhaps the most common trust. It is sometimes shortened to simply “living trust” or “revocable trust.” It may also be called an “inter vivos trust.” The different names for the revocable living trust refer to its chief characteristics. It is a “trust” which is “revocable” and made while you are living. Revocable living trusts are used by estate planning lawyers to organize and protect your assets for you and your family. They avoid probate, allow for tax planning, gift planning, and disability planning. They also allow for the financial support of your minor children in your absence. A revocable trust is generally the cornerstone of every well-drafted estate plan. For more, see our articles What is a Revocable Trust? and 8 Reasons a Living Trust Can Be the Most Important Document in Your Estate Plan. For more, see our Free Estate Planning Resources.
Special Needs Trust
A special needs trust is a type of irrevocable trust used to pass wealth to a disabled person without interfering with his or her Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, and subsidized housing. Another common name is “supplemental needs trust.” The trust holds cash or other property for the benefit of the disabled person. As a result, the assets in the trust are not counted as the disabled person’s assets for purposes of means-tested state or federal benefits. As such, the trust provides a mechanism by which the disabled person can receive gifts and inheritances without interfering with his or her benefits. Here is more on special needs trusts.
Asset Protection Trust
An asset protection trust is a type of trust designed to hold an individual’s assets and protect those assets from creditors or governmental entities. Asset protection trusts are irrevocable. Because the trust is irrevocable, the assets in the trust will likely not be considered yours. This means if a creditor gets a judgment against you, the likelihood is much better that the assets residing in the trust will be protected. Asset protection trusts are not for everyone. They are much different than your everyday revocable trust.
Depending upon your needs, you may benefit from one of the following:
- Irrevocable Life Insurance Trust / ILIT Trust
- Qualified Terminable Interest Trust / QTIP Trust
- Asset Protection Trust
- Charitable Remainder Trust
- Generation Skipping Trust / GST Trust
- Individual Retirement Account Trust / IRA Trust
- Pet Trust
- Testamentary Trust
- Charitable Lead Trust
- A Private Family Foundation, or
- Other Important Estate Planning Tools Unique To Your Needs.
A good trust lawyer can establish the proper trust agreement which will be the cornerstone of your estate plan.
When Do you Need a Trust?
Everyone person should have some sort of an estate plan. That said, not everyone needs a trust. The need for a trust is driven by a number of factors including your goals, asset portfolio, and profession. Family dynamics also play a large role in determining whether you need a trust. Are you married or single? Is it a second marriage? Do you have minor children? Here are some common situations where a trust is usually recommended:
Second Marriages & Separate Children
Are you in a second marriage? Do you have a blended family with separate children? If so, you likely need a trust. Without proper planning, the law will give most or all of your wealth to your new spouse—not your children—when you pass. Later, when your new spouse passes, his or her estate (including assets inherited from you) will go to their heirs leaving your children empty handed. Preparing an estate plan can prevent your children from being left in the cold. For more, see our article Saying “I Do” Again, Estate Planning for Second Marriages.
Do you own business? If so, proper planning is necessary to ensure your business is not left without a leader. An estate plan allows you to appoint a decision maker to ensure your business continues to thrive if you are unavailable. Planning is also imperative if you have a partner. A trust, in conjunction with a well drafted buy-sell agreement, will ensure that ownership of the business does not end up with an unintended family member upon the death of a partner.
Parents with Minor Children
Do you have a child that is a minor? If so, you likely need a trust. The purpose of the trust is to provide for your child financially while he or she is a minor. Additionally, a guardian can be appointed to care for your children’s welfare if you are unable to do so yourself.
Disabled Child or Heir
It is common to have a family member or friend that is challenged by a physical, mental, or developmental disability. If you have an heir that is disabled, you should consider the use of a special needs trust. Especially if the person is receiving, or plans on applying for, state or federal benefits such as Medicaid and Supplemental Security Income (SSI). A special needs trust allows the disabled person to receive a gift or inheritance without interfering with his or her benefits.
Avoidance of Probate
One of the primary purposes of every estate plan is to avoid probate. This can be done a number of ways depending on the types of assets you own. In some cases, a trust becomes necessary because of a type of asset you own. The best example would be a business interest. For more on the probate process in Michigan, see our Guide to Probate in Michigan.
Funding a Trust
You must fund your trust! Funding a trust is the process by which a person, or their lawyer, places the desired assets into their trust. The precise way each asset is placed into the trust depends largely on the type of asset. The mechanics for each will be different depending on a number of facts including whether the property is real or tangible. While I am not going to delve into a step-by-step guide to funding a trust, the message here is that you ordinarily must take some additional action—beyond merely executing the trust document—to properly place you assets into the trust.
Funding your trust is arguably the most important part of creating a trust. After all, the trust itself is useless unless it controls the intended assets. Your trust will only control property which has actually been moved into the trust. This is why most attorneys assist their clients with the initial funding of the trust.
When to Update Your Trust
If you have a trust, then you have already taken the first step to protect your property, yourself, and your family. It is critical, however, to make sure that your trust and other estate planning documents are kept up-to-date to avoid unintended consequences.
This is particularly true if you have a trust that was drafted when the estate tax exemption was much lower. Your trust may be designed to split upon the death of the first spouse into an “A” and a “B” Trust, or perhaps even a “C” Trust. Sound confusing? Well it is. These types of trusts were designed to reduce taxes. However, in the current tax climate this split is often unnecessary. Thus, your older trust may cause an administrative nightmare without providing any financial benefit.
Michigan Trust Lawyer
At Atlas Law, PLC our trust lawyer takes estate planning very seriously. We have exceptional resources to help you determine and address your estate planning needs. We believe that each client should receive a complete estate plan. We offer exceptional legal services in the areas of wills, trusts, special needs trusts, probate, living trusts, revocable trusts, charitable trusts, medical power of attorney, durable power of attorney, and more!
Our trust lawyers serve all of Southeast Michigan, including Wayne County, Oakland County, and Washtenaw County.
We offer free consultations and flexible appointments to meet your needs, including weekends and after hours appointments.
We will even come to you!
To learn more about your options, call our Michigan lawyer at (248) 773-5555.
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