Trusts
A trust involves three key players: the grantor (or trustor) who establishes the trust, the trustee who manages the trust after the grantor’s death or incapacity, and the beneficiaries who ultimately receive the trust’s assets. But with various trust types available, choosing the right one for your situation is crucial. The following section will explore the two main categories of trusts: revocable and irrevocable.
A trust is a sophisticated legal arrangement that allows an individual (the grantor or settlor) to transfer ownership of assets to a trustee, who then manages those assets for the benefit of designated beneficiaries. This fiduciary relationship creates a separate legal entity that can hold and manage property, investments, or other assets according to the grantor’s wishes. Harbor law generally offers revocable living trusts for estate planning and irrevocable trusts for asset protection, but each trust is personalized to the needs and goals of the client.
Trusts offer several potential advantages in estate planning and asset management. They can help avoid the time-consuming and potentially costly probate process, provide greater control over how and when assets are distributed to beneficiaries, offer potential tax benefits, and maintain privacy regarding the distribution of assets. Trusts are particularly useful for managing assets on behalf of minors, individuals with special needs, or those who may not be capable of managing their own finances. Additionally, trusts can be structured in various ways to meet specific goals, such as charitable giving, asset protection, or providing for multiple generations of a family.
A trust is a versatile legal arrangement that can benefit you both during your lifetime and after your passing. For Washington State residents, a trust can mean:
- During your lifetime:
- Flexibility to manage and control your assets and their distribution
- Ability to make changes as your circumstances evolve
- Potential protection in case of incapacity
- After your passing:
- Efficient transfer of assets to beneficiaries
- Avoidance of probate, saving time and money for your heirs
- Increased privacy, as trusts don’t become public record like wills do in Washington
- Potential tax benefits, depending on the trust structure
- Control over how and when your assets are distributed
- Additional benefits:
- Protection of assets for beneficiaries with special needs
- Ability to manage assets for minor children
- Flexibility in estate planning, allowing for various goals such as charitable giving
Harbor Law Firm can help you create a trust tailored to your unique needs while ensuring it adheres to Washington’s legal requirements. This provides peace of mind that your wishes will be carried out efficiently and your loved ones will be provided for according to your intentions
Establish a trust with us today.
Revocable living trust
A revocable living trust is a way to transfer property that avoids the probate process. After creating and funding a revocable living trust, the grantor (the person who began the trust) is no longer the legal owner of those possessions. The trust becomes the legal owner. However, the grantor still has the rights to those possessions and may transfer vehicles, bank accounts, investments, real estate, and other property to and from the trust (except those transactions occur in the name of the trust). It is also possible to add sub-trusts that function like a testamentary trust (see below). A revocable living trust avoids the probate process, saving heirs time and money. Once the grantor passes away, the trustee makes distributions to beneficiaries according to the terms of the trust.
Testamentary Trust
A testamentary trust is established under the provisions of a will and only activates after the grantor dies. Therefore, a testamentary trust does not exist while the grantor is alive. Testamentary trusts are used by those who don’t want to create a revocable living trust but still desire some control over how beneficiaries use their assets. For example, if a beneficiary is young, has issues like a gambling or addiction problem, or needs to pay for education or medical care. The trust can also protect assets from a beneficiary’s creditors and prevent assets from leaving the family due to a beneficiary’s divorce or death. A testamentary trust may bequeath money monthly, annually, or upon certain landmarks like college graduation or a specific birthday. One significant drawback to a testamentary trust is that it does not avoid the probate process.
Irrevocable life insurance trust (ILIT)
This trust holds a life insurance policy on the grantor. Because the trust owns the policy, the proceeds are not typically taxed as part of the grantor’s estate (although they become taxable as part of the beneficiaries’ estates). An ILIT can hold either an “individual” or “second to die” (also known as a “joint and survivor”) life insurance policy. The primary purpose of an ILIT is to minimize estate tax.
Generation-skipping trust
This trust transfers assets to grandchildren or later generations tax-free (beneficiaries must be at least 37½ years younger than the grantor). Because a generation-skipping trust avoids estate taxes that would apply if the next generation inherited them, these types of trusts are a wealth-preservation tool.
Spendthrift trust
This type of trust limits the beneficiary’s access to the trust’s assets. Instead of distributing an inheritance all at once, the trustee has discretion over how and when distributions are made to a beneficiary. These types of trusts for estate planning help protect an inheritance from poor spending habits, creditors, and unfortunate life events, like a divorce. A Spendthrift trust will help keep the funds distributed more evenly, and the strict plan and timeline of the trust will allow it to last well into the future, often for the remainder of the beneficiary’s lifetime.
Special needs trust
These types of trusts are for dependents with physical or cognitive disabilities who receive government benefits, such as Social Security disability or Medicaid. This trust ensures that the beneficiary gains some revenue without risking their eligibility for programs that require their income to remain below a specific limit.
Choosing the Right Trust
Understanding which trust best suits your situation is crucial for a smooth and secure inheritance process. Harbor Law’s experienced estate planning attorneys can guide you through the legalities, answer your questions, and help you establish a plan that fulfills your wishes and protects your loved ones. Don’t hesitate to contact Harbor Law today for a consultation and ensure your legacy is handled with care.
