Use of Trusts in Estate Planning
1.) Revocable Living Trust
What is a Revocable (Inter Vivos) Trust? A revocable trust is a legal arrangement in which a person (the "grantor" or "settlor") transfers assets into a trust while retaining control over those assets during life (inter vivos is Latin meaning "during your lifetime"). Typically the grantor serves as the initial trustee. The grantor is also the beneficiary during their lifetime.
A successor trustee is named to act upon incapacity or death. Your successor trustee should be someone you trust to administer the terms of your trust upon your passing.
The trust is called “revocable” because it can be changed or revoked at any time while the grantor is competent.
Assets titled in the name of a trust are not owned by the individual at death. They are owned by the trust. Because of this, the successor trustee can step in immediately to manage and/or distribute the asset to the beneficiaries in accordance with the terms in the Trust. No court action is necessary to administer a Trust in most cases. This means that administration of a trust can often proceed privately and efficiently.
It is very important to fund your Trust: A trust only works if assets are properly transferred into it. This process is called funding the trust. Once the trust is established, the next step is to determine what assets should be transferred to trust. Common assets transferred to trust may include real estate, bank accounts, investment accounts, business interests or other property that the client wishes to distribute outside of probate.
Failure to fund the trust is one of the most common estate planning mistakes. Our office is happy to assist in both the drafting and funding of your Revocable Trust.
2.) Irrevocable Trusts
An irrevocable trust is a legal arrangement used to protect assets, reduce certain tax exposures, and plan for long-term financial and family goals. Unlike a revocable trust, an irrevocable trust generally cannot be changed or revoked once it is created, except in limited circumstances allowed by law.
While that may sound restrictive, irrevocable trusts serve important purposes that revocable trusts cannot accomplish.
An irrevocable trust is a trust in which the person creating the trust transfers assets to a trustee to be held and managed for beneficiaries under written instructions.
Once assets are transferred into an irrevocable trust:
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They are no longer owned individually by the person who created the trust
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The trustee manages the assets according to the terms of the trust
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The trust controls how and when beneficiaries receive property
Because ownership changes, irrevocable trusts can provide legal and financial benefits that other planning tools cannot.
Why People Use Irrevocable Trusts:
Irrevocable trusts are commonly used for several important purposes:
a.) Asset Protection Planning
In many circumstances, assets placed in a properly structured irrevocable trust are not considered the personal assets of the person who created the trust. This may help protect assets from certain future creditors or liabilities, depending on the timing and structure of the trust.
It is important to note that asset protection planning must be done in advance. Transfers made after a claim arises may not provide protection and may be subject to legal challenge.
Long-Term Care and Medicaid (MassHealth) Planning.
b.) Long Term Care Planning:
Irrevocable trusts are frequently used in long-term care planning.
When structured properly and implemented well in advance, certain irrevocable trusts may allow individuals to preserve a home or savings, qualify for certain public benefits in the future, and maintain control over how assets ultimately pass to family members.
These plans must be established well before care is needed.
Estate Tax Planning
For individuals or families with larger estates, irrevocable trusts may help reduce estate tax exposure by removing assets from the taxable estate.
These trusts can be tailored to long-term family planning goals.
Protecting Beneficiaries
Irrevocable trusts are also used to protect beneficiaries by preventing assets from being spent too quickly, protecting funds from a beneficiary’s creditors, and providing structured distributions over time.
This type of planning is often used when leaving assets to younger beneficiaries or in blended family situations.
One of the most common questions we get is, "who should I name as my Trustee?"
The trustee plays an important role in administering an irrevocable trust. The trustee may be a trusted family member, a professional fiduciary, or bank or trust company
The best choice depends on the complexity of the trust and the family’s circumstances. Of course, you cant spell "trustee" without "trust", so it is imperative that you trust the person or entity you are nominating as the trustee of your trust.
Is an Irrevocable Trust Right for Everyone?
Irrevocable trusts are powerful tools, but they are not appropriate for every situation. Because the terms are generally permanent and control over assets is limited, careful planning is essential.
In many cases, an estate plan includes both arevocable trust for probate avoidance and incapacity planning and one or more irrevocable trusts for asset protection, tax planning, or long-term care planning.
The right approach depends on each person’s goals, assets, and family situation.
Contact our office at 1-844-KUHN-LAW to schedule a time to review with Attorney Kühn.
