Many people in Schenectady, New York, think creating an estate plan is only for rich people. However, they have several options available for estate planning their estate regardless of income. Trusts allow the creator to protect assets, and there are several types.
Irrevocable and revocable trusts
One type of trust is the revocable trust, which allows the grantor to add, sell, or remove assets as they see a need. While a revocable trust is a useful estate planning tool to avoid probate, asset protection is not removed.
An irrevocable trust does not allow the removal of assets after its creation unless permission is obtained from the beneficiaries. The biggest benefit of irrevocable trusts is the grantor avoids taxes, since they no longer own the assets.
Other types of trusts
A special needs trust protects beneficiaries who receive government aid, so they won’t lose their benefits from too much income. While government benefits are commonly based on net worth, the assets in the trust will not reduce benefits or disqualify them. However, the trust must be irrevocable, and the beneficiary cannot control the distributions or their frequency.
If the grantor thinks a beneficiary will misuse assets, they can set up a spendthrift trust to control access. The beneficiary will receive the assets periodically based on the grantor’s instructions, but it also protects them from creditors.
A trust that helps married couples minimize tax liability is a bypass trust, which creates a marital trust and a survivor’s trust. The survivor doesn’t own the property, but they can do what they want with it and pay no taxes if it stays below federal exemptions. When the second spouse passes, the assets left in the survivor trust pass to the heirs without tax liability.
There are a variety of trusts to fit different situations and needs. However, the grantor still needs a will to control assets not in the trusts.