When people think about their legacy and how their assets will be distributed after death, everyone’s interests and concerns are different. A Charleston trusts lawyer from our office works with clients to understand their unique needs and how to structure a trust to meet those needs.
One of the key benefits a trust offers is that heirs will not have to go through the probate process. Other interests that clients may have include protecting themselves and heirs from lawsuits or ensuring that means-tested government benefits are not jeopardized.
Types of Trusts
A trust can be revocable or irrevocable. As the names suggest, the difference is whether or not they can be changed. A revocable trust is one where the grantor (the person who establishes and funds the trust) can still change beneficiaries and the terms of the trust. With an irrevocable trust, the terms are locked in place. The reasons for choosing to live with the more inflexible terms of the irrevocable trust can range from preferential tax treatment to greater protections of assets in the event the grantor needs to enter assisted living.
The age of the grantor(s) can be a key factor in determining whether a trust is revocable or irrevocable. It’s important to work with a Charleston trusts attorney who stays in contact with clients. The decision on when to move from revocable to irrevocable can make a substantial difference in the size of the estate that is ultimately left behind.
Another distinction is the choice between a living trust and a testamentary trust. In the living trust, the grantor puts assets into the trust while they are still alive. A testamentary trust, by contrast, is created in a will and stipulates that assets be transferred to the trust immediately upon death.
The disadvantages of putting assets into a living trust is that they can be more difficult to access in the event a client wants them. A big advantage of the living trust is that if the client can’t access the assets, neither can plaintiffs or creditors. A trust is effectively a legal entity unto itself, so if anyone from a business associate to an ex-spouse files a lawsuit, the assets in the trust are not available to them. Business owners and others with more complex financial holdings may find some security in the liability protections a trust offers themselves, their families, and their heirs .
Here’s an example: The grantor owns a successful business and has left ownership to their children. But the grantor is concerned that in the event an adult child goes through a divorce, their share of the business could be lost in a settlement. Placing the business shares in a trust might be a way to address that concern (as long as the trust is properly structured).
How Trusts Are Structured
Trusts can distribute assets in two different ways. One way is to do it all at once, immediately upon the death of the grantor, at which point the trust is dissolved. Another way is for the inheritance to be paid out incrementally, over time. The trustee (someone chosen by the grantor to manage the trust) is responsible for distribution in either case.
The advantages of an incremental approach include liability protections. Once assets are given to heirs, they become the property of the heirs and subject to creditors and lawsuits. Assets in the trust are the property of the trust.
Other reasons can involve eligibility for government benefits. One example is an adult child who is disabled. Their parent wants to provide for them but giving their inheritance all at once can jeopardize access to benefit programs, which are conditioned on income levels. A trustee can oversee the disabled adult child’s needs and distribute income in a way that maintains eligibility.
Another example might be if a grantor is worried about the capacity of their children to handle a large sum of money. Perhaps the kids are young adults, or maybe a parent is concerned about an adult child’s lifestyle. In the case of grantors with large and complex holdings, the managing of the inheritance could be difficult for anyone. The grantor might simply feel more confident in selecting a qualified trustee to oversee their estate.
Along these same lines, grantors might choose to structure their trusts so that they pay out at certain points in the lives of their heirs. Graduation from high school or college and getting married are common trigger mechanisms. There are limits in the conditions a grantor can use — for example, they cannot condition an inheritance on doing something illegal, getting a divorce, or changing one’s religion.
The number of possibilities for how trusts work is as large as the number of people who need them. That’s why experience, knowledge, and communication are what Hooser Legal Counsel, LLC brings to the table. We’ll take the time to learn what’s important to you and how we can best meet that need.
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