Trusts
In some cases, it may make sense to create a trust for your assets instead of leaving them outright to your beneficiaries. Trusts offer more control over who receives your money and the way in which they receive it. For instance, if you left money outright to a spouse who later remarried, that money could flow through the second marriage and may or may not find its way to your children. Under certain circumstances, trusts can also protect assets from a beneficiary's creditors or ex-spouse.
There are dozens of types of trusts. Some of the more common ones are designed to provide for children and/or special needs individuals or to save taxes.
Family Trust
A family trust is designed to provide for your children. It can be structured to distribute assets to your children or grandchildren in a way that is not directly and immediately payable to them upon your death. For example, you may want the trust to provide for their healthcare and education and to distribute their inheritance when they reach certain ages.The family trust is one of the most frequently used trusts. It is essential that couples with young children set up such a trust in the event of their untimely deaths. The document containing this trust can provide for the administration of their assets, name a trustee to administer the trust funds and name guardians to care for and raise their young children.
The family trust can be included in a will or in a separate revocable trust. Depending upon your circumstances, we can recommend the best location for such a trust in your estate plan.
Special Needs Trust
For decades, many young children who today would qualify as special needs children went undiagnosed and have now reached middle age. With better awareness and testing now available, many of today's children are being diagnosed and are receiving government benefits.
Many of the government programs providing benefits for special needs individuals are "need" dependent meaning that the individual must sustain a certain poverty level in order to continue to receive benefits. Improperly planned estates by grandparents and parents can inadvertently disqualify a special needs individual from benefits. If you are planning to leave assets to a special needs individual receiving government benefits, you must first obtain a Determination Letter from the Social Security Administration which will indicate the basis upon which the individual qualifies for benefits. Using that letter, we can begin to advise you whether a Third Party Funded Special Needs Trust should be part of your estate plan to protect the individual from losing government benefits.
The Third Party Funded Special Needs Trust may allow you to leave assets to provide for the disabled individual in a way which does not result in a disqualification of government benefits.
Disclaimer Trust
A disclaimer trust [whether included in your Will or in a revocable trust] is generally a type of tax bypass trust. It allows your surviving spouse to have assets transferred into the trust by disclaiming ownership of a portion of the estate. The disclaimed property interests are transferred directly to the trust as a beneficiary, usually without being taxed. Depending upon the terms of the Disclaimer Trust, your designated Trustee can make payments from the trust to your surviving spouse.
Proper implementation of the disclaimer trust following the death of one spouse requires strict adherence to the Internal Revenue Code section dealing with disclaimers. If we are contacted promptly at the death of the first spouse, we can be very helpful in preserving the tax benefits that were originally intended by the inclusion of the disclaimer trust in the documents.
The disclaimer trust, when properly prepared and implemented, can provide flexibility while often avoiding the mandatory tax bypass trust for the surviving spouse. The use of the disclaimer trust can allow the surviving spouse to analyze, with our help, the tax situation at the time and decide whether to disclaim assets which would then be used to fund the tax bypass disclaimer trust. The proper use of this technique can often later result in substantial tax savings for the children.
Tax laws now provide a new technique known as "portability." Use of this technique oftentimes can simplify the handling of an estate, avoid the need for a tax bypass disclaimer trust and yet preserve many of the tax benefits. We can help you analyze which technique would be most likely to provide the most benefits for your children and you.
Learn more about Revocable Trusts
Learn more about Irrevocable Trusts