There are many tools at your disposal when preparing for your family’s future. A trust is an entity established to manage funds and property and achieve your long-term goals. Common goals include protecting assets, avoiding probate, and providing beneficiary care. A trust is a more complex tool than a will and ensures your wishes are seen through. A will is a document outlining your instructions, whereas a trust is a legal arrangement that transfers the ownership of funds and property to be distributed at the designated interval. This means a trust secures your family’s future against any unforeseen circumstances. Trusts vary depending on your needs, so we’ve outlined some key features and uses for the various trust options.
Revocable Trusts vs Irrevocable Trusts
A revocable trust is a common tool for financial planning due to its flexibility. A revocable trust can be altered or canceled by the grantor or originator. This allows a person to plan for the future while still having control over the assets and the option to alter the trust. On the other hand, an irrevocable trust is a helpful tool for reducing the size of an estate. In an irrevocable trust, the assets are transferred to the trust and because the terms cannot be altered, those assets belong to the trust fully and not the grantor. This limits the size of a person’s estate in hopes of more money going to the beneficiary directly rather than an estate tax.
Special Needs Trusts
When planning for your family’s future, it’s important to factor in the unique needs of each individual. Special Needs Trusts are designed to financially support special needs individuals without compromising their assistance eligibility. There are two categories of special needs trusts.
Self-Settled Trust
A self-settled trust is funded by the persons benefiting from the trust to ensure assistance eligibility remains intact. When the trust terminates, any remaining funds in the Self-Settled Trust must be used to repay the state for any Medicaid benefits the person received during his or her lifetime.
Third-Party Trust
A third-party trust is funded with assets from someone other than the beneficiary, often times, a parent. Trusts funded by a third party do not require payback to the state for benefits received.
These are just a select example of uses of trusts. As you plan for your family’s future, it’s important to consult a lawyer, a tax advisor, and your financial institution when weighing your options. For more on Evolve’s Personal Trust services, click here.
