Trusts are separate legal entities, in much the same way as corporations and LLCs (limited liability corporations). Their operating rules are spelled out in a legal document known as a trust agreement. The trust is managed by the trustee, for the benefit of beneficiaries. Sometimes the trust creator can also be the trustee and beneficiary. London solicitors can help prepare your trust.
Why Create a Trust?
All trusts avoid probate, which is especially important if you want to keep private affairs private and/or have overseas relatives or beneficiaries, which makes probate complicated. Trusts are commonly used as part of a will to hold funds for minor children or special–needs individuals. If you want to start drafting your will, you might want to seek assistance of a will attorney.
Trusts created separately from wills are often used to protect assets or provide for a new trustee if the trust creator becomes mentally impaired. If you need help handling your relative’s trust or assets, you may seek the services of an estate attorney.
‘A trust has no value if it has no assets’
How a Trust Owns Assets
A trust owns only assets titled in its name. For example, if you plan to transfer your home to the trust, the deed must be changed to reflect that the home is owned by the trust, and not by you individually. This new deed is filed with the county clerk and replaces the old deed. Bank or investment accounts must similarly be retitled into the name of the trust. All too often people create a trust and fail to transfer the assets to the trust. The trust has no value if it has no assets.
These trusts are the most common type of trust used in estate planning because the trust creator can retain complete control of assets in the trust and the trust avoids probate. Since the owner does not part with control when assets go into this type of trust, these trusts have no value in Medicaid lookback rule planning. However, living trusts have other advantages:
- A successor trustee can be named to become trustee if you become mentally impaired.
- Upon death, the trust becomes irrevocable and the trust spells out how the assets pass.
- A living trust uses your social security number and does not file a separate tax return.
How an ‘Irrevocable’ Trust Works
These trusts are created to protect assets and obtain certain tax benefits. The owner does part with control of the assets and that “lack of control” is what affords the tax benefits or Medicaid planning benefits. An irrevocable trust has its own tax I.D. and files its own tax returns.
Although the creator gives up most ownership rights for assets owned by the trust, these pave the way for several benefits. For example, when title is transferred to the name of the trust, the Medicaid look-back periods start to run. These trusts also have some flexibility …
- The creator no longer owns assets in the trust, but can reserve the right to receive income, or have certain expenses paid from the trust.
- Assets can be removed from the estates of wealthy taxpayers, so they avoid the estate tax.
- You can retain a limited right to change the allocation of benefits among family members or swap out assets held in the trust.
Susan G. Parker, Esq. is an attorney in Briarcliff Manor. Legal questions? > (914) 923-1600 or Susan@susanparkerlaw.com.