Trusts are Not Just for the Wealthy

Trusts are not reserved just for the wealthy — they are for a variety of people and can solve many estate-planning problems.

To begin with, plenty of people have estates worth a couple of million without realizing it. When you include life insurance, retirement plans, a residence, checking accounts and other investments, you would be amazed. You may not feel like you have a lot, but it adds up. Trusts can help you manage your assets.

There are two basic types of trusts: irrevocable and revocable.

Irrevocable trusts are primarily set up for estate, tax and asset protection reasons. When you put your assets into an irrevocable trust, they are effectively no longer your property, which removes them from your taxable estate and may relieve you of tax liability.  It also is a permanent gift for Medicaid purposes and starts the 5-year look-back period that you need to protect assets from the cost of long-term care.

Few to no changes can be made to an irrevocable trust once it is in existence. You are the grantor — the person whose trust it is. Once you give up all ownership of the assets transferred to the trust, you have no further say in what happens to those assets. However, you can retain certain defined right to assets in the trust, such as the right to receive the income generated from the trust assets or the right to live in the real estate transferred to the trust.

Irrevocable trusts are often used to transfer large sums of money, life insurance policies, residences or investment properties in a more tax-efficient manner. They are mostly used by larger estates as a strategy to reduce state and federal estate and gift taxes and by people looking to protect assets from the cost of long-term care.

Revocable, or living, trusts allow you to maintain ownership and control of your assets as long as you live or at least as long as you are competent. You may receive income from the trust and make changes, adding and removing assets whenever you want.

You may want to provide money to beneficiaries while you are still alive — and a trust is a great tool for that. And the beauty of a living trust is that you can make changes as life happens.

For such tasks as transferring business or real estate after death, taking care of a minor child, parceling inheritances over time, providing long-term care for a special needs child or leaving money to charity, a revocable trust can be an excellent tool.

A few more details

Setting up a trust keeps assets out of probate, the potentially lengthy legal process of assessing and distributing your assets after you die. Probate can take a long time if the estate is complex and if state tax law interacts with federal tax law, and it is nearly always expensive because of taxes, probate fees and administrative costs.

Probate is a matter of public record, but trust transfers remain private. However, like probate, a trust costs money. You need a lawyer to set one up for you, which means you will pay legal fees. Irrevocable trusts may require a separate income tax return each year if more than $100 of taxable income is generated within the trust.

On the other hand, a trust can give you greater control and protect your legacy, helping you feel more confident about the future because you know that your loved ones will be taken care of. Trusts can be a tax-savvy means of passing your estate to heirs.

Is a trust right for you? If so, what kind? Speak to one of our experienced attorneys today to get more details on why you do not need to be wealthy to make use of a trust.

You can count on Ericson, Scalise & Mangan, PC to provide you with sound guidance and experience in these uncertain times. For assistance with your legal needs, please contact us today at (860) 229-0369, or email us at