WHAT IS A TRUST
A trust is a contract and a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
Trust can protect your assets in the event of your death. If disbursement of your estate is the primary reason for the trust, you can use either a revocable or an irrevocable trust. Trusts can usually avoid probate and lawyer liquidation, which means your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using a will.
Like a will, but with more certainty, a trust can ensure your estate is divided up according to your wishes as expressed in the trust documents. Since the trust has direct control over your assets upon your death, there’s greater certainty they will be distributed according to your specific wishes.
REVOCABLE VS. IRREVOCABLE TRUST
There are many types of trusts; a major distinction between them is whether they are revocable or irrevocable. Each carries it's own pros and cons.
Revocable Trust: Also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor's) lifetime. It is flexible and can be dissolved at any time, should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor.
You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but make provisions for a successor trustee to manage them in the event of your incapacity or death. Although a revocable trust may help avoid probate, it is usually still subject to estate taxes. It also means that during your lifetime, it is treated like any other asset you own.
Irrevocable Trust: An irrevocable trust typically transfers your assets out of your (the grantor's) estate and out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.
An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. Also, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets. It will also be protected in the event of a legal judgment against you.
Common Law Trusts Vs Statutory Trust
Common law trust and statutory trusts have different requirements for filing and operating. Common law trusts are created without public officials and operates in the private. It gives you an even higher level of protection than that of a statutory trust. The individuals of the trust are eligible to legally sue, or be sued, for violating the terms of the common law trust. However, they must do so in their own name.
Economically, common law trust are very advantageous because it can provide a high level of protection and privacy, without the legal liability or management cost that could be associated with a statutory trust. The primary function of a common law trust is to protect and secure the asset, not to engage in business activity of any kind. Therefore, it does not need to acquire a bank account or any other public interaction that is required to engage in business.
A statutory trust, on the other hand, is considered to be a juridical category. It is separated from the trusts parties and a legal lawsuit can be initiated in its name. The statutory trust is often regarded as a type of business organization. Statutory trusts must follow a number of rules which include, rules are binding and cannot be overruled in the business documents, it cannot have a donative purpose, there must be an entire document on trusts in the articles of incorporation and there must be a charging order provision included.
Medical Protection Trust
While one of the primary purposes of an asset protection trust is to protect the settlor's assets from creditors' claims, such a trust can also be used to help make you eligible for Medicaid by reducing the assets in your name. If you are planning to set up a trust for this purpose, it's important to consult with an adviser with experience in this area, as not every trust can help you comply with Medicaid's eligibility requirements.
An asset protection trust can be a vital tool in securing and protecting your property. Because it's crucial that any trust to be set up properly, you are welcome to work with our team of professionals to assist you in the establishment of your trust.