Trusts & Estate Planning

Trusts & Estate Planning

Many people have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children.  However, this is far from the truth; trusts can be very valuable tools in the estate plans of any person regardless of the size of their estate. 

A trust is simply an arrangement where one party holds property for the benefit of another party.  In an estate planning context, a trust is created by the person doing the estate planning (the grantor) who authorizes another person (the trustee) to manage his or her assets for the benefit of a third party (the beneficiary).  While alive and not incompetent, the grantor, the trustee, and the beneficiary can all be the same person.  Thus, someone desiring to establish a living trust can be the grantor, the trustee, and the beneficiary of the trust. 

There are many reasons for establishing trusts, including avoiding probate, providing for the needs of underage beneficiaries, protecting beneficiaries’ inheritances from their creditors or from the beneficiaries’ own spending habits, and in some cases to minimize estate taxes.
Some types of trusts that may be useful in estate planning are:

  • Revocable living trusts.  Revocable living trusts are documents completely separate from wills (which are only effective upon death), and can be used to manage a client’s finances in the event he or she should become incapacitated while alive.  Trusts can also be useful to avoid probate upon death, and to protect the estate beneficiaries’ inheritances from creditors, divorcing spouses, and other threats to maintaining the inheritance for its intended purposes.  Married people can establish trusts to protect property for their surviving spouse after their death, and ensure that it ultimately goes where it needs to go.  For example, a husband can put some of the couple’s property into his separate trust so that when he passes away it is used for his surviving wife’s benefit, but cannot be taken by anyone whom she may marry after his death.  Similarly, a wife with grown children from a previous marriage may put property in trust for her husband to use after she passes away, but design the trust so that it goes to her children after her husband’s death.
  • Trusts for children. Many people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan.  This is typically done to ensure the money is there for the children’s benefit while they are younger for their support, education, and medical expenses, etc.  Once the children reach a certain age or achievement level (such as obtaining a bachelor’s degree), they may receive certain distributions from the trust to do with as they please, while ensuring that other assets remain in the trust to grow and be available at later stages of the beneficiaries’ lives.   While assets remain in the trust, they are protected from creditors and divorcing spouses of the beneficiaries.
  • Special needs trusts. Special needs trusts are tools that enable a person to leave property to an individual with special needs.  Many individuals with special needs receive government benefits and if they were to suddenly inherit money, they could be disqualified from receiving those benefits until the inheritance is spent on the services provided by the benefits.  Special needs trusts protect those individuals’ government benefits while allowing them to have money for needs which are not covered by those benefits.  
  • Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) can be used in order to move a person’s life insurance proceeds outside his or her estate for estate tax purposes. 
  • Spendthrift trusts. Spendthrift trusts are generally established to protect the beneficiaries’ assets from both themselves and creditors.  These trusts usually have an independent trustee which has complete discretion over the distribution of assets of the trust, and can be incorporated into a general living trust.

As you can see, there are many different types of trusts, each of which can be customized to serve a valuable purpose in accomplishing the wishes of those planning their estate.  An experienced estate planning attorney can help clients assess their goals to determine the best vehicles to preserve their assets and legacies, and promote family harmony.

Law Office of Judith A. Schening, LLC is located in South Elgin, IL and serves clients throughout Kane, DuPage, DeKalb and Cook Counties and the surrounding areas.

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