There are many benefits of having a trust. When you start doing your estate planning, you need to decide whether a will, a trust, or a combination of the two is right for you. Unfortunately, there’s a misperception that having a trust is only for rich people. The truth is that trusts can be set up for different purposes and benefit people even if their bank accounts aren’t bursting at the seams.
What is a Living Trust?
A Massachusetts living trust is a legal document that can hold legal title to your assets. It’s like a box that holds your assets for your benefit during your lifetime, and thereafter for the benefit of another person (beneficiary).
- You can manage the trust yourself as the trustee or choose someone else to be the trustee.
- If you manage the trust, when you pass away the successor trustee you named in the trust takes over the management of the trust assets.
- The trust can instruct that property gets distributed before death, at death, or later.
The most important thing to remember is that once you create the trust, it’s just an empty box. You have to transfer property to the trust, so that box is holding something. Otherwise, the trust is useless.
What Are the Benefits of Having a Trust?
No matter what size your estate is, you want to protect it. A trust can help do that because it can accomplish the following:
- Avoid probate. You’ve probably heard that avoiding probate—a court process that an estate typically goes through if there’s only a will or no estate planning at all—is a good idea. The reason to avoid it is that it takes a good amount of time, which means your beneficiaries will have to wait to receive the assets. Plus, it can be expensive with various costs and fees involved.
- Keep your wishes private. A will has to be filed with probate court, so it becomes public record. Even a complete stranger can get a copy of your will from the county court once probate is filed.
- Ensure your trust assets are managed. Another benefit of having a trust is if you ever become incapacitated, you’ll have a trustee to take control of the assets in your trust and follow the guidelines for doing so that you’ve included in the trust.
- Protect your minor children. If you have a minor child when you die, you can have someone you trust (trustee) manage your child’s inheritance for them until the child is an adult and can manage it on their own. You can even set up your trust so it gives money to your child over a period of time. For example, you could choose to give your child 25% of their inheritance when they turn 21, 25% at 26, and 50% at 30.
- Protect beneficiaries who have a history of irresponsible behavior. Maybe a beneficiary just isn’t good with money or has an addiction that could make them spend money in an unwise way. A trustee can make sure the beneficiary’s needs are being met and ensure that the inheritance isn’t being spent carelessly.
- Protect a family member with special needs from losing their government benefits. When a person with special needs receives money, it can affect their eligibility for government benefits that are crucial to their daily lives. Special needs trusts create a way to provide some funds for the benefit of a disabled person without causing them to lose their eligibility for government benefits.
- Care for your pet. If you pass away or become incapacitated, a pet trust will make sure that your pet is well taken care of.
- Shield your estate from excessive taxation. An AB trust can save on estate taxes, so your heirs inherit more of your estate.
Revocable vs. Irrevocable Trust
There are two types of trusts: revocable and irrevocable. Revocable trusts can be changed at any time during your lifetime. You can put an asset into it, take an asset out of it, update your successor trustees or beneficiaries, and change other details in the trust document. Irrevocable trusts can’t be changed or dissolved, and you must name a third-party trustee (meaning you can’t be the trustee) to manage the assets. Irrevocable trusts are less flexible, but they do offer more protection for the assets in them.
Benefits of an Irrevocable Trust
An irrevocable trust offers more protection because the assets in the trust don’t legally belong to you anymore; they belong to the trust.
Protect assets from MassHealth. As long as your assets are in your irrevocable trust for 5 years before you apply for MassHealth coverage for long-term care, those assets don’t count toward your MassHealth eligibility. So, if you need long-term care, assets will be shielded in an irrevocable trust to stay in the family while helping you be eligible for MassHealth coverage.
Protect assets from lawsuits and creditors. Since the assets in the irrevocable trust don’t legally belong to you, a lawsuit brought against you can’t get access to them. The same is true if a creditor is trying to collect a debt from you.
Reduce estate taxes. Since you’ve given up ownership of anything listed in an irrevocable trust, that property can’t be taxed when you die. It’s technically owned by the trust.
Keep in mind there are different types of irrevocable trusts, so make sure you communicate your goals to a skilled Massachusetts trust attorney.
Set Up a Free Consultation to Find Out More
As an experienced Massachusetts trust attorney, I have extensive knowledge about trusts and can work with you to determine the best option for you and your specific situation. Contact us today to set up a free, confidential consultation.