What is a trust? This is a common question that estate planning attorneys answer all the time. Many people have heard of “trust funds,” or have heard about creating wills and trusts, but aren’t sure exactly what a trust is. Understanding what trusts are and how they work can be vital to protecting your family and assets, so it is a good idea to talk with an estate planning attorney about exactly what trusts are and how a trust can be incorporated into your estate plan.
Biddinger & Estelle, PC can provide you with comprehensive information on what trusts are, how they work, and the benefits of creating a trust. Our legal team can also guide you through the process of creating a trust if it will be beneficial for you to do so. Give us a call today to find out more about trusts and the role that trusts play in the estate planning process.
What is a Trust?
A trust is a fiduciary arrangement that you create by using a trust document. You can create a trust by following Michigan laws for the specific type of trust that you want. You will need to fund the trust with assets, which the trust will own. You will need to name a trustee who is in charge of managing the trust assets, and you will need to name beneficiaries who benefit from the trust that you created.
Trusts can provide asset protection because they bifurcate ownership and possession: the trust owns the assets while the beneficiaries are the ones who benefit from the use and possession of the property.
There Are Different Kinds of Trusts
Although all trusts create a fiduciary arrangement using a trust document, there are many different kinds of trusts that you can create. For example, you could create an irrevocable trust or a revocable one.
A revocable trust is commonly used to avoid probate so assets can transfer more quickly through the trust administration process. A revocable trust can also be beneficial in allowing you to plan for incapacity. You can name a backup trustee who has immediate authority to take over the management of trust assets if something happens to you. Irrevocable trusts, on the other hand, can give you less control over trust assets but more protection for assets in case of creditor claims. Creating an irrevocable trust can also be helpful if you want to qualify for Medicaid to pay for nursing home care without spending down assets.
In some situations, you may also need to take advantage of trusts designed for a very specific purpose, which must follow detailed rules. For example, if you want to provide for a person who has special needs, you can’t simply make a financial gift to that person because he or she might be unable to manage the money. In addition, giving a gift could cause a loss of access to means-tested benefits that impose resource limits. A trust called a special needs trust could be created so the assets you put into the trust are managed by a trustee. The assets owned by the trust won’t cause a loss of benefits and can be used to enhance the quality of life of your loved one with a disability.
Should You Create a Trust?
Whether or not you should create a trust is going to depend upon your situation. Many people can benefit from trust creation for purposes of incapacity planning, asset protection, and estate tax avoidance. Trusts also let you maintain more control over what happens to an inheritance, which can be important if you’re concerned your beneficiaries could go bankrupt, get divorced, or get into financial trouble.
Although trusts do have a lot of benefits, there are also some downsides to consider as well. There are costs to creating and maintaining a trust, and you could have to give up some control over assets to get trust benefits, depending upon what kind of test you create. A Michigan trust lawyer can explain pros and cons and analyze your situation with you to determine if trust creation is advisable or not.
How Can a Michigan Trust Lawyer Help You?
Biddinger & Estelle, PC provides comprehensive assistance with the process of creating a trust. Our legal team will go beyond simply answering, what is a trust? We’ll work with you to incorporate trusts and other appropriate estate planning tools into your legacy planning and asset protection process.
Download our free estate planning worksheet to find out more about how trusts work within a comprehensive estate plan. You can also give us a call at (989) 872-5601 or contact us online for personalized help with the process of creating a trust.