A trust is an estate planning tool that allows you to avoid probate. You can use a trust to avoid probate by essentially either retitling your assets or passing your assets to the trust, which is a legal entity, so that when you die a probate isn’t necessary. This is a bit of an over-simplification, and there’s more to trusts than that one point. However, essentially, when you use a trust, you are giving your assets to the trustee—which could be you during your life—for the benefit of your beneficiaries in the future.
The most common type of trust that is used in estate planning is the revocable living trust. The reason it is used so often is that it helps people avoid probate, as well as lengthening the distribution of their estate to protect from creditor claims or other life misfortunes. It’s also the most flexible type of trust because the person creating the trust, often called the grantor, gets to be the trustee for the remainder of their life. This means that the grantor keep absolute control. The grantor gets to revoke the trust if they don’t want it anymore, and they can amend the trust and change its rules anytime they feel like it. They can also add things to the trust. For instance, they can buy a new house or a cabin or a boat and put it in the trust with the rest of the assets and property. The grantor can also decide they’re going to sell the house or other piece of property and take it out of the trust. This high level of flexibility makes revocable living trusts so appealing for estate planning, particularly for people who may still want or need to access and/or utilize their assets during their lifetime.
There are plenty of variations on the revocable living trust, because people do have other needs within the trust itself. If the estate is getting close to being taxable, we can create a trust that helps with tax planning. For instance, we can make a trust that takes care of RMDs (Required Minimum Distributions) from retirement accounts or that maybe other tax deferral techniques can be utilized.
Another major variation exists for people who have children with special needs or other individuals with disabilities who are dependent on them. In general, people with special needs and disabilities, both children and adults, require more extensive medical care and accommodations than the average person. Most people do not have enough money to pay for all of those needs out-of-pocket or even with most standard insurance plans. As such, many people with special needs receive government assistance. However, the income cutoff for government assistance is very low, and receiving an inheritance would almost always put someone over that line.
This is where special needs trusts (sometimes called “supplemental needs trusts”) come into play. When one of these trusts is established, the grantor’s child with special needs or other dependent can get an inheritance, without being disqualified from the benefits that enable them to receive the housing, support, and medical care that they need.
Another relatively common type of trust used in estate planning is an irrevocable trust often for the purposes of reducing a person’s taxable estate or qualifying for Medical Assistance. This type of trust is not quite as popular, mainly because, as the name implies, it is irrevocable. This means that unlike revocable trusts, which you can put things into and take things out of as you wish, once you put something into an irrevocable trust, you lose ultimate control. However, in some estates, this sort of trust makes the most sense, and is worth the sacrifice of control. This all depends on the details of each individual estate and the needs of the people involved.
How Often do you Want People to Review and/or Update Their Estate Planning Documents?
At a minimum people should consider reviewing their estate planning documents for potential updates every three years.
In fact, when our clients come in and see us, we get their consent to put them on a timed list. This basically reminds us to call them in three years if we haven’t already heard from them or if they haven’t already heard from us. Usually, these calls are just to catch up and check in and see if anything new has happened in their lives that might necessitate an update of their estate planning documents.
A lot of times, people have big life changes that happen in the space of the intervening three years. We often hear things like, “Yes, actually, we had two more kids”, or “Yes, we sold our house,” or, “Yes, remember the sister who used to be my main beneficiary? I don’t talk to her anymore.” So much can happen in the space of three years, especially if you are younger and your life is changing and you have things (and people) added to it over time.
Older individuals still want to have their estate documents reviewed about as often, particularly to make sure that they still feel confident about the people they chose as beneficiaries. Things can change at any time. A person could have died or gotten sick, or people could have a falling out, or any other change in status may have occurred. All of these things are enough to make someone want or need to change their fiduciary, guardianship, and beneficiary appointments.
Our firm provides all estate planning documents in a binder and electronically, so our clients don’t have to keep digging through their originals. We find it makes it easier to review the plan without worrying about opening up those originals and damaging or losing them.
For more information on Estate Planning In Minnesota, an Estate Planning Strategy Session is your next best step. Get the information and legal answers you are seeking by calling (952) 222-7895 today.
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