Thanksgiving is a time to give grace for what you have. Undoubtedly, at the top of almost everyone’s “Giving thanks” list will be their families and friends. Family and friends are what make our lives worthwhile, and we want to make sure that we provide for them even after we are gone. One way to do that is through estate planning. This Thanksgiving, give thanks in a tangible way by protecting your family long after you’re gone. Here is how:
Using a Trust
Trusts are one of the best ways to give thanks tangibly. A trust is a three-party relationship between a beneficiary, donor, and a trustee. The donor is the person who signs over title to the property to the trustee. The trustee is entrusted (see, some legal terms do make sense) with the property until a designated date. The date, picked by the donor, is the date on which the trustee transfers actual and legal title of the property to the beneficiary. The beneficiary is the intended recipient of the trust from the start.
Types of Trusts
As with anything in the law, nothing is ever 100% straightforward, and there are many different types of trusts from which to choose. While these options might seem confusing, the variety of choices is actually a good thing. An estate planning attorney will be able to tell you which, in his or her professional judgment, is the best setup for you and your situation.
We’ll talk about five common types of trusts today: revocable, irrevocable, asset protection, charitable, and constructive.
Revocable v. Irrevocable Trusts
As mentioned, a trust is a legal document. Trusts can be made revocable or irrevocable. Revocable trusts are not quite tools of asset protection in the same way that irrevocable trusts are. Revocable trusts are also called living trusts. With a revocable trust, the donor (person granting the property) still holds onto the ability to take away the property during their lifetime. However, once the donor dies, the revocable trust usually becomes irrevocable.
A revocable trust helps you avoid probate. An irrevocable trust cannot be changed or removed by the donor. No one can take the property from the trust or modify the terms. It’s effectively set in stone.
Asset Protection Trusts
These types of trusts are designed to ward off claims from future creditors. This trust insulates your assets from creditors, and they are usually irrevocable for aa set term of years and the donor is not the beneficiary. The trust places the assets out of the hands of creditors. After a period of time, undistributed assets that were in the trust revert back to the donor. These undistributed assets usually are returned to the donor as long as there is no remaining creditors to try to take the property.
If you have a charity that you really like, you might consider a charitable trust. These trusts can benefit a specific charity, or they can be used to benefit the public in general. These trusts are useful as a way to avoid gift or estate taxes. Consider these trusts both an altruistic tool, as well as a savvy financial one.
A constructive trust is the trickiest on this list, though it sounds deceptively simple on the surface. A constructive trust is implied. The court creates it based on certain facts. The court might decide, for example, that the owner of property intended to form a trust even though there was no formal trust document. Therefore, the court might honor the owner’s intent and distribute the property to someone else. Constructive trusts generally take fairness into account.
These are really just the basics. One good thing about estate planning law is that it doesn’t skimp on the types of tools and financial ways to protect your assets. There are many more ways you can transfer property to family members or friends, and consulting an estate planner is the best first step towards doing so.