Does Every Estate Plan Have a Trust?

An estate plan gives you and your loved ones peace of mind by assuring that your wishes will be carried out after you die or become incapacitated. It includes directions and important legal documents detailing the distribution of your property according to your wishes. With the help of an estate-planning attorney, your plan should detail the specific outcomes you desire for every asset in your estate in a way that minimizes tax penalties such as estate taxes and gift taxes. 

Creating an estate plan requires first carefully inventorying your assets, determining your family’s needs, and issuing the directives wish to have carried out after your death. This becomes especially crucial in complex life situations, such as divorce, where the dynamics of family structures change significantly. Divorce brings about intricate financial considerations, often involving multiple families and varied interests. This is where incorporating a trust into your estate plan can prove to be highly advantageous. Some estate plans include a trust that does all of the above. But what is a trust, and what are the benefits of adding a trust to your estate plan?

What is the Purpose of a Trust in an Estate Plan?

A trust is often the key aspect of a well-crafted estate plan because they minimize tax penalties by allowing a designated third party—a trustee—to hold assets on behalf of one or more beneficiaries named in the estate plan. Assets held in a trust typically avoid probate, saving time and money as well as taxes and court fees. Other benefits of a trust include:

• You, as the grantor, control when the distributions are made from the trust, to whom they’re made, and in what amounts
• You can retain access to the funds during your lifetime and leave the remainder to your chosen beneficiary
• You can set up protections in the trust to prevent creditors or ex-spouses from having access to the funds
• Unlike probate which becomes a matter of public record, the details of a trust remain private

Trusts serve many purposes, including expediting the process of getting funds to a beneficiary after death.

Types of Trusts

Trusts can be set up in many ways. Some examples include:

• A testamentary trust set up in a will
• A marital trust designed for a spouse as beneficiary
• A credit shelter trust that bypasses the spouse’s estate
• A Qualified Terminable Interest Property Trust (QTIP) that allots an amount of monthly income to a surviving spouse with the remainder designated for a specified beneficiary after the spouse’s death (often used for second marriages with children from a first marriage)

There are also trusts that allot a portion of an estate to charities or provide an income stream to a beneficiary with the remainder going to a specified charity after the beneficiary’s death.

Two Categories of Trusts

While there are many different types of trusts, there are two general categories of trusts—revocable and irrevocable. A revocable trust is also called a “living trust” because it allows the estate holder (grantor) to continue controlling and accessing the funds during their lifetime. The grantor may also dissolve the trust if a change of circumstances warrants it. Then the remaining funds go to a beneficiary after the grantor’s death. This type of trust remains subject to estate taxes.

An irrevocable trust transfers the assets out of the grantor’s estate so they no longer control the funds or have access to them. A named beneficiary receives the funds at a specified time (such as a set age, like when a child turns 25, or after the grantor’s death.) While the grantor loses control and access in an irrevocable trust, the funds are no longer subject to estate taxes since they are no longer part of the grantor’s estate.

Hire an Experienced Attorney to Set Up Your Trust

Adding a trust to an estate plan has many benefits, but setting up a trust is a complex legal process. An estate plan brings solace by ensuring your wishes are honored, its effectiveness can be further amplified, especially during life-altering events like divorce, through the strategic incorporation of trusts. These legal instruments not only provide clarity and protection in asset distribution but also navigate the intricate landscape of evolving family dynamics.

If you find yourself navigating the challenging waters of divorce, enlisting the expertise of an experienced estate-planning attorney becomes crucial. A skilled divorce attorney in Fort Collins can help you tailor a trust that aligns with your evolving needs, addresses the complexities of divorce, and safeguards the well-being of your loved ones. By proactively engaging legal guidance and crafting a well-thought-out trust, you can pave the way for a smoother transition and greater peace of mind during times of change.