Specific Uses for Trusts in Estate Planning

Trusts in estate planning can help you meet your financial objectives and ensure your wishes are met after your passing — or even during your lifetime. Importantly, trusts can be used in a variety of ways and there are specific uses for each type. Depending on how you set one up, a trust can be used to provide for your loved ones, protect your assets, reduce your estate tax burden, give money to charity, and more.

What are Trusts in Estate Planning?

A trust is an estate planning tool in which a trustee holds and manages assets on behalf of the trust’s beneficiaries. The structure allows the trust creator to control when and how the assets are distributed. Depending on how it is set up, a trust can also be used to pass assets to your chosen beneficiaries after your death — or plan for the possibility of your incapacity.

In order for a trust to be effective, it must be funded. This means that in addition to drafting a written trust instrument, property must be placed into the trust. The specific procedures to transfer assets into a trust will depend upon the type of property. However, in all cases, the ownership of the property must be transferred to the trust, whether this is done by deed, beneficiary designation, or retitling the assets.

How Can Trusts Be Used in Estate Planning?

Trusts can be used in estate planning in a variety of ways, and they can be tailored to your specific needs. Generally, trusts fall into one of two categories. A trust can be either revocable, which means they can be amended or altered during the creator’s lifetime — or they can be irrevocable and not subject to modification or revocation. Each has its own pros and cons, based on your objectives.

The following types of trusts in estate planning can help you achieve your goals:

• Revocable living trusts — A revocable living trust allows you to manage and control your assets during your lifetime and specify how they should be distributed after your passing. While a revocable trust can be changed at any time, it does not protect your assets from creditors.
• Testamentary trusts — A testamentary trust is created as part of a last will and testament. With this type of trust, you leave instructions in your will regarding how your assets will be distributed. Notably, these types of trusts do not avoid probate.
• Spendthrift trusts — A spendthrift trust is a legal arrangement that limits the amount a beneficiary can receive, and how quickly they can receive their inheritance. These trusts are often used when a beneficiary is fiscally irresponsible and could potentially put their inheritance at risk.
• Life insurance trusts — A life insurance trust is created when ownership of a life insurance policy is transferred to a trust. This can help protect your beneficiaries from incurring a substantial estate tax burden and help to preserve your family’s wealth.
• Special needs trusts — A special needs trust allows the creator to provide for a loved one with a disability while ensuring they maintain eligibility for government benefits.
• Credit shelter trusts — Also referred to as bypass trusts, these instruments are used to safeguard the wealth of a married couple by transferring the assets into the trust upon the death of the first spouse.

The financial situation and family dynamic of every individual is unique. It’s important to identify your objectives and discuss them with an estate planning attorney who can help you structure a trust in a way that will meet your desired outcome.

What are the Advantages of Using Trusts in Estate Planning?

Using trusts in estate planning can come with a variety of benefits. Based on the type of trust you set up, you can help your loved ones avoid the lengthy, public, and costly probate process. A trust that is structured properly can also offer a level of protection against creditors or lawsuits. This can be crucial for those who are in high-risk professions or have accumulated a substantial amount of wealth.

Unlike a last will and testament, a trust is private and typically does not become part of the public record. It can also become effective during your lifetime in the event you become incapacitated and can no longer manage your own financial affairs. In addition, a trust can ensure you have control and flexibility when it comes to how your assets are managed and distributed, both during your lifetime and after your passing. They can be used to minimize estate taxes so more of your assets are left to your loved ones.

Learn More About the Specific Uses for Trusts in Estate Planning

Setting up a trust can be a complex process and it’s vital to have the counsel you need to help ensure your objectives are satisfied. At Mundahl Law, our estate planning attorneys assist our clients with creating thorough estate plans and creating trusts that will meet their goals. Located in Maple Grove, Mundahl Law works with clients throughout Minnesota for a wide array of estate planning matters.

To learn more about how we can assist you, or to schedule an appointment, contact Mundahl Law at 763-575-7930, or click schedule a consultation to speak with our Client Advocate.