For many (including those with minor children or other dependents) a trust may be the most efficient way to hold, manage and distribute property, with the additional benefit of reduced probate taxes.
Not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier. Keep in mind that both revocable trusts and irrevocable trusts avoid probate for the assets that are transferred to them.
A revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust).
This means you could:
- Add or remove beneficiaries at any time
- Transfer new assets into the trust or remove ones that are in it
- Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
- Terminate or end the trust completely.
When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries. But you may be able to change certain terms of the trust, as long as they are purely “administrative” terms. In other words, changing the successor trustees. But changing the beneficiaries may not be allowed under Louisiana law.
The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.
An irrevocable trust has a big advantage: it can allow you to become qualified for long-term care benefits. Plus, it can protect your assets from creditors, and in certain cases, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes can be avoided.
But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.
Speak with an experienced estate planning or probate attorney to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.
When a trust is implemented, the appointed trustee controls legal title to the property that has been transferred into the trust. The trustee then decides when, and for what purpose, distributions of property are to be made to the beneficiary.
For example, a trustee might make a distribution to a beneficiary to pay for the expenses of attending college or medical expenses. The trustee might also make a distribution that is predetermined by the trust. For instance, the trust documents might direct the trustee to distribute all of the property in the trust to the beneficiary when he or she reaches a certain age. The trust documents will outline and regulate how, when and why a beneficiary would receive the benefits of the property held in the trust.
Types & Categories of Trusts
There are two main types of trusts:
- Revocable Trusts – A trust that is created such that provisions can be altered or canceled as the settlor wishes.
- Irrevocable Trusts – A trust that can’t be modified or terminated without the permission of the beneficiary. The settlor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the Trust.
The most common types of trusts include:
- Testamentary Trust – is created within a Will and thus comes into being at the moment of the settlor’s death without reference to the acceptance of the trustee. These trusts are irrevocable as they are established upon the settlor’s death.
- Inver Vivos/Living Trusts – are trusts that are created to take action while the settlor is still living. These trusts often hold property that generates income for the beneficiary and are often used to avoid probate fees when the settlor does pass. Living trusts can be created as Irrevocable or revocable trusts depending on the wishes of the settlor.
- Special Needs Trusts – these trusts are meant to benefit a person or persons with special needs in a way that will not cause them to lose any government benefits they are receiving.
- Special Needs Trusts may be created as first-party meaning the beneficiary is also the owner of the property held in trust; or third-party meaning someone other than the beneficiary is the owner of the property held in trust.
Let Us Help You Create The Right Trust Based On Your Situation
When you meet with Leon, he will explain the duties involved in being a trustee and can assist you in deciding who the best family member, friend, or professional is for that role. Our experience in estate planning can also help you develop a detailed and comprehensive plan for how funds held in Trust should be distributed to best reflect your wishes.
The best way to determine if a trust is the right fit for your estate planning needs is to meet with a qualified attorney to discuss your individual situation. Call 504-521-4814 to schedule a free consultation with us.