The Importance of Having a Trust
July 16, 2024
When you plan for the future, you ensure that your loved ones are taken care of. Setting up a trust is an important part of a comprehensive estate plan.
Our attorney, Julie A. Schejbal, will take a closer look at the importance of having a trust, how to create one, and how it benefits you and your family. Whether you're just starting to think about estate planning or looking to refine your current plan, our firm can give you valuable insights and practical tips.
What Is a Trust?
A trust is a legal document that manages your assets during your lifetime and distributes them after your death. Unlike a will, a trust can help avoid probate and save time and money for your beneficiaries. Trusts come in various forms, each serving a different purpose and offering different benefits.
A trust involves three main parties: the grantor, who creates the trust; the trustee, who manages the trust assets; and the beneficiaries, who receive the benefits from the trust. Depending on the type of trust, these roles can be filled by one or more individuals or entities.
Benefits of Having a Trust
A trust offers many benefits to you and your heirs. Let's explore a few:
Asset Management
A trust helps you manage your assets effectively. By choosing a trustee, you make sure your assets are handled according to your wishes, even if you're not in a position to make decisions. A trust keeps your financial matters running smoothly and avoids disruptions. It also provides a structured way to manage complex investments and business interests.
Avoiding Probate
Trusts can bypass the probate process. Probate can be lengthy and costly and delay the distribution of your assets. A trust ensures that your beneficiaries receive their inheritance without legal hurdles. This can be particularly beneficial if you own property in multiple states, as it prevents the need for separate probate proceedings in each jurisdiction.
Privacy Protection
Unlike a will, which becomes a public record during probate, a trust remains private. This keeps your financial affairs and beneficiaries' details private. Sensitive information, such as the nature and value of your assets, remains shielded from public scrutiny. This confidentiality protects your family from fraud or unwanted attention.
Tax Efficiency
A trust can be a powerful tool for reducing estate taxes. Certain types of trusts, such as irrevocable trusts, remove assets from your taxable estate, lowering the overall tax burden on your heirs. Thus, more of your wealth is preserved for future generations. Some types of trusts also offer income tax benefits by shifting income to beneficiaries in lower tax brackets.
Care for Minors
A trust can designate funds for the care and education of minor children until they reach adulthood. By creating specific terms within the trust, you can make sure that your children's future needs, such as schooling, medical expenses, and general welfare, are taken care of.
Protecting Your Legacy
A trust offers long-term control over your assets so that they serve the intended purpose even after your passing. This can preserve family wealth and support charitable causes you care about to protect and perpetuate your legacy. You can also include stipulations that protect the trust assets from creditors, divorce settlements, and other threats to your family's financial security.
Types of Trusts
There are 5 main types of trusts:
Revocable Living Trust
A revocable living trust gives you control over your assets. You can make changes or revoke the trust entirely if your circumstances change. This flexibility allows you to adapt the trust to reflect new family dynamics, financial situations, or legal requirements.
Irrevocable Trust
Once established, an irrevocable trust cannot be altered or revoked. While this may seem restrictive, it offers significant benefits, such as asset protection and tax advantages. Assets placed in an irrevocable trust are shielded from creditors and may reduce estate taxes.
Special Needs Trust
A special needs trust provides for a beneficiary with disabilities without jeopardizing their eligibility for government benefits. It ensures the beneficiary's needs are met while preserving their access to essential services and support.
Charitable Remainder Trust
A charitable remainder trust allows you to donate assets to a charity while still enjoying the benefits of those assets during your lifetime. You or your beneficiaries can receive income from the trust for a specified period, after which the remaining assets are transferred to a charity of your choice. This type of trust not only supports a cause you care about but also provides potential tax benefits.
Spendthrift Trust
A spendthrift trust protects beneficiaries who might not be financially responsible. It restricts their access to the principal, preventing them from wasting or mismanaging the assets. The trustee has the authority to manage distributions according to the terms you set. This type of trust is useful for ensuring that an inheritance is preserved and used wisely over time.
How to Create a Trust
Creating a trust involves several steps:
Identify your goals: Consider what you want to achieve with your trust, such as providing for your family, protecting assets, or supporting a charitable cause.
Choose a trustee: The trustee will manage your assets and carry out your wishes. You can choose a family member, friend, or professional, such as a banker or attorney.
Draft the trust document: An estate planning attorney will help you establish the terms of the trust, specify how assets should be managed, and set up the distribution plan for your beneficiaries.
Fund the trust: To activate your trust, you need to transfer assets into it, a process known as "funding" the trust. This can include various types of assets such as real estate, investments, bank accounts, and personal property. The trust must be fully funded to avoid assets being subject to probate.
Review and update: Regularly review your trust with your estate planning attorney to keep it aligned with your goals and update it with changes in your personal or financial circumstances and applicable laws. You can also include new assets or reassess your choices for trustees and beneficiaries.
Trust Laws in Maryland
It's important to understand trust laws in Maryland to make sure your trust follows state regulations.
Maryland Trust Act: The Maryland Trust Act offers guidelines for creating, managing, and terminating trusts. It also lays out trustees' responsibilities, beneficiaries' rights, and dispute resolution procedures.
Estate taxes: Maryland imposes both estate and inheritance taxes. A well-structured trust can minimize tax liabilities and preserve more of your assets for your beneficiaries.
Guardianship considerations: If you have minor children, you must have a designated guardian in your trust to ensure your children are cared for in all respects. If you fail to do so, the court may appoint a guardian on your behalf.
Consult an Estate Lawyer
At the Law Offices of Julie A. Schejbal, CHTD, we have over 25 years of experience in estate law. We provide high-quality legal services and focus on estate planning, drawing on our attorney's background of working with the IRS legal team.
Our attorney works closely with our clients and takes the time to explain everything. Call the Law Offices of Julie A. Schejbal, CHTD to schedule a consultation. Located in Dunkirk, Maryland, we serve clients throughout Calvert County, Prince George’s County, Charles County, and St. Mary's County.