Should you set up a trust? You’re about to read a brief introduction to trusts in Iowa, and if establishing a trust is the answer that you’ve been looking for, you will need the personalized advice and legal services that a Cedar Rapids estate planning attorney will provide.
What are the advantages of establishing a trust? Are there disadvantages? What are the different types of trusts, and is a trust right for you and your family? If you’ll continue reading, these questions will be answered in this brief introduction to trusts, but first – what is a trust?
What Is a Trust and What Can a Trust Do for You?
The precise definition of a trust is a legal document in which one party, the “settlor,” gives another party, the “trustee,” the right to hold title to assets or property for the benefit of a third party, the “beneficiary.”
Depending on what type of trust you choose to establish, a trust can help with asset protection against lawsuits and creditors, reduce your tax burden, transfer assets, and/or allow your beneficiaries to avoid the probate process – and the high cost of probate – after your death.
When you establish a trust, your assets and properties can be transferred to the trust throughout your lifetime and distributed to your beneficiaries after your death by the person you name as your trustee. A trustee’s duties are similar to the duties of the executor of a will.
Like a last will and testament, a trust can spell out who inherits what after your death, and it can also ensure that your wishes are honored and that your instructions are carried out faithfully at that time.
What Are the Different Types of Trusts?
Trusts are established by settlors and their estate planning lawyers, who then decide which of the settlor’s assets and properties will be transferred into the trust and when. A trustee then manages the trust and holds the trust assets for the beneficiaries of the trust.
Every trust is unique – or should be – because a trust should be designed with the settlor’s needs and goals in mind. While there are many types of trusts, and each is different, the basic and most popular common types of trusts are discussed below.
A revocable trust (or a “living trust”) is a trust that may be amended, revised, or revoked entirely at any time. With a revocable trust, the trustor may transfer property and assets into – or out of – the trust throughout his or her lifetime.
You may already know what probate is. It’s an extensive legal process that resolves and closes someone’s financial affairs when that time comes. Especially if that person’s estate and finances are complicated, probate can be a quite costly and lengthy legal process.
Probate pays your remaining taxes and debts and transfers what is left of taxable estate to your beneficiaries. Avoiding probate is a leading reason why people establish revocable trusts. Properties or assets that are owned by a trust at the time of the settlor’s death are not subject to the probate process.
When you transfer your properties and assets to your revocable trust, you retain the control over those properties and assets, and you can revise or revoke the trust if and when you choose. By avoiding probate, a revocable trust transfers assets quickly after your death to your beneficiaries.
An irrevocable trust cannot be revised or revoked after it has been established. When a property or asset is transferred into an irrevocable trust, it cannot be transferred out. Irrevocable trusts let you give away assets during your lifetime so that those remaining assets are not subject to estate taxes.
Asset protection and not being subject to estate taxes are a leading reason why people in Iowa establish irrevocable trusts. When you transfer a property or an asset into an irrevocable trust, you no longer have legal ownership of it – the trust does – so the asset or property is legally shielded from creditors and lawsuits.
For additional protection, the terms of an irrevocable trust may direct a trustee to terminate or temporarily withhold asset distributions to a beneficiary of the trust if that beneficiary files a bankruptcy petition or is named as a defendant in a lawsuit.
Charitable Remainder Trusts
It’s not uncommon for people with no spouses and no children to leave their entire estate to a charity by establishing a charitable remainder trust. After discussing your goals with a Cedar Rapids trust attorney, that attorney can:
- set up your charitable remainder trust
- confirm that the charity you’ve selected has Internal Revenue Service approval
- move the assets you’re giving the charity into the trust
- name the charity as the trust’s trustee
Special Needs Trusts
In Iowa, if one of your children has special needs, you can set up a special needs trust with the advice and guidance of a Cedar Rapids estate planning attorney. A special needs trust ensures your child will be cared for properly after your death or if you become incapacitated.
Federal law provides that assets for special needs children may be held in a special needs trust without risking a child’s eligibility for public benefits, provided that the trust meets several precise legal requirements.
If your child has special needs or if a child with special needs depends on your financial support, let a Cedar Rapids trust attorney design a special needs trust – compliant with all federal and state regulations – to provide for the child after your death or if you become incapacitated.
What Else Should You Know About Trusts?
As mentioned previously, there are many kinds of trusts for many kinds of circumstances. Revocable trusts are perfect for some families, irrevocable trusts work better for other families, and if you have no family, charitable trusts might be the option that works for you.
A trust is just one element of a comprehensive estate plan. An Iowa estate planning lawyer can help you learn more about the different types of trusts and estate planning and will discuss with you the full range of your trust and estate planning options.
After discussing your goals and reviewing your current finances and your estate, your Iowa estate planning attorney can set up a trust – or a comprehensive estate plan – that will both protect assets in your estate and provide security to your loved ones both now and in the future.