As you plan for your loved one’s needs, what steps should you take to protect assets? Should you set up a trust, and if so, how do you know what kind of trust is right for you?
This blog, curated by The Bristal Assisted Living, discusses the importance of setting up a trust for your loved one and also shares details about common examples of trusts.
Understanding the Importance of Trusts
A trust is an essential part of estate planning for your loved one. Establishing a trust can help protect their assets from taxes and lawsuits. A trust can also help prevent you and your loved ones from going through probate — the process of distributing assets through the court.
What Kind of Trust Is Right for You?
There are several kinds of trusts which serve different purposes. Choosing the right trust is important, and it’s best to consult with an attorney or legal advisor to help you decide the best option.
Here are some common examples of trusts:
Testamentary Trust
Testamentary trusts are created in a will and do not hold any property until the person passes away. Unfortunately, a testamentary trust won’t avoid probate.
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Living Trust
Living trusts, also known as revocable trusts, are created during a lifetime, and property is immediately transferred into the trust. This type of trust allows the grantor — the person who created the trust — to make changes to the trust at any time.
Because assets in a revocable trust are considered personal assets, creditors can access the trust’s assets to pay off any debt. You could also owe taxes on the estate if the assets meet the minimum value requirements.
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Irrevocable Trust
An irrevocable living trust cannot be changed or terminated, and it often offers the most protection from creditors and lawsuits. As the trust's creator, you or your loved one cannot access the trust's principal but can maintain the right to receive income (dividends, interest, etc.).
Any type of asset may be held in a trust, such as cash, title to the home, bank accounts, CDs, stocks, brokerage accounts, mutual funds, annuities, etc. Once five years pass, the assets held in the trust are protected, and they won’t have to be spent down on the cost of care but instead will pass to your loved one’s beneficiaries.
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Charitable Trust
A charitable trust allows your loved one to donate money to a charity after they pass away. Assets in a charitable trust aren’t considered personal assets, so they won’t be subject to estate taxes.
Planning ahead to protect assets is always smart, but the strategy will differ depending on your loved one’s age, health, family composition, and total assets. It is never too early to plan, and establishing an asset protection trust can be the first step.
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This blog was originally published on November 15, 2013, and updated in August 2023.
