Sometimes a Last Will & Testament is not enough to adequately manage an individual’s estate after their passing. In such cases a trust is used. In a trust, property is held by one party for the benefit of another. The trust is created by a settlor, who transfers the property to a trustee. The trustee holds that property for the trust’s beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets will pass to the beneficiaries. Trusts usually avoid probate and will allow your beneficiaries to gain access to the assets more quickly than they might if the assets were transferred by using a will. Assets held in an irrevocable trust may not be considered part of the taxable estate, thereby reducing the estate taxes that will be paid upon your death. For more information about how a trust can work to protect your estate and provide for you beneficiaries, call The Smith Firm at (501)-454-2092.
Trusts are a set of legal instructions on how and when you want your estate to be distributed among your heirs after your death that can help to reduce estate taxes and protect your estate from lawsuits and creditors.
A trust gives you control over how and when your estate will be distributed to your heirs. It can distribute during your lifetime, after your death, or at a specific date or event that you choose. You also have the power to choose which assets will be included in the trust.
Assets within a trust also do not pass through probate. There is no public record of what was placed in the trust or who gave it to you. By avoiding probate, assets can be distributed immediately and without delay.
In an irrevocable trust, the grantor or creator of the trust no longer owns the assets in the trust. Therefore, trust assets cannot be taxed as part his or her estate or subject to Medicaid.
In a revocable trust, the creator of the trust retains ownership of the assets in the trust and is, therefore, subject to the claims of creditors, estate taxes, and Medicaid.
A revocable trust does not protect your assets from your creditors. This is because a revocable living trust can, by its terms, be changed or terminated at any time. Due to these terms, the trust creator maintains ownership of his assets. Therefore, a creditor could force the owner of a revocable living trust to terminate the trust and surrender the assets. Revocable trusts are also not protected from Medicaid which can force the creator of the trust to use trust assets to pay for care.
In an irrevocable trust, the creator no longer legally owns the assets used to fund the trust. Consequently, the creator surrenders control of those assets and the ability to later modify the trust. However, because of the change in ownership, the assets in the trust are protected against the claims of any future creditors. Assets in an irrevocable trust are protected from Medicaid.
