Many people mistakenly believe that only wealthy individuals use trust funds or that trusts are solely owned by beneficiaries. However, trusts are essential tools in estate planning for individuals and families with estates of all sizes. They help you manage, protect, and distribute assets efficiently, while also preserving family legacies for future generations.
What Is a Trust? Key Roles Explained
A trust creates a legal relationship involving three key parties:
- Trustor(s) (also known as grantor or trustmaker): The person or entity who creates the trust and funds it with assets.
- Trustee(s): The individual or institution responsible for managing the trust assets and distributing income or principal according to the trust’s terms.
- Beneficiary(ies): The person(s) or organization(s), such as charities, who receive benefits from the trust.
Why Use a Trust? Key Benefits You Should Know
Trusts provide several important benefits in estate and asset planning. For example, they help you avoid probate, protect your beneficiaries, and reduce taxes:
| Benefit | Description |
|---|---|
| Avoid Probate Court | Trust assets transfer directly to beneficiaries without going through probate. Therefore, beneficiaries receive their inheritance faster and with more privacy. |
| Protect Beneficiaries | Trusts can manage funds for minors, people with disabilities, or others unable to handle finances. Moreover, this ensures their long-term care and financial security. |
| Medicaid Planning | Certain trusts remove assets from a beneficiary’s countable resources, enabling them to qualify for Medicaid benefits. Generally, you must establish these trusts at least five years before applying. Official Medicaid guidelines. |
| Tax Advantages | Trusts help minimize estate and gift taxes, thus preserving more wealth for your heirs. |
| Asset Protection | Trusts shield assets from creditors, lawsuits, and family disputes over inheritance. |
Common Types of Trusts: What You Need to Know
Trusts come in various forms tailored to specific goals and timing. In addition, understanding these differences helps you choose the right option:
What is a Living Trust?
A living trust is created and funded while the trustor is alive. It allows the trustor to retain access to assets during their lifetime while setting clear instructions for how assets will be distributed after death. Thus, this trust helps avoid probate and simplifies estate management.
What is a Testamentary Trust?
This trust forms through a will and takes effect after the trustor dies. It typically benefits the trustor’s descendants and is irrevocable once established, meaning its terms cannot change.
What is a Revocable Trust?
A revocable trust gives the trustor control over assets during life and the flexibility to modify or revoke the trust as circumstances change. After death, a successor trustee manages the trust to benefit the designated beneficiaries. Learn more about revocable trusts.
What is an Irrevocable Trust?
Once established, an irrevocable trust cannot be changed or revoked. It removes assets from the trustor’s estate, protecting them from creditors and reducing taxes. For this reason, this trust is commonly used in Medicaid planning and for managing funds for minors or beneficiaries with special needs.
How Can an Estate Planning Attorney Assist You?
Creating trusts involves complex legal and financial decisions. Therefore, consulting an experienced estate planning attorney is essential. They will help you structure trusts tailored to your family’s unique needs and financial goals.
Have Questions? Ready to Protect Your Family’s Future?
Contact us today at 501-834-2070 or schedule a consultation online. Our Sherwood, Searcy, Benton, and Little Rock offices are ready to help you create the right trust solutions for your needs.
Quick Summary: Why You Should Consider a Trust
- Trusts help you avoid probate and keep your estate private.
- They protect beneficiaries who may not manage assets themselves.
- Medicaid planning trusts can help qualify for government benefits.
- Trusts provide tax advantages and asset protection.
- An estate planning attorney can customize trusts for your goals.