In Wisconsin, as throughout the U.S., trusts are a remarkably effective tool when it comes to estate planning. Although for some people the word “trust” conjures up an image of a mansion and a butler, at Borakove Osman, our dedicated attorneys use trusts for multiple purposes with a wide range of clients, many with moderate assets.
There are two types of trusts: revocable and irrevocable trusts. As the names suggest, a revocable trust is flexible and can be changed, but an irrevocable trust cannot be altered without a court order or approval by its beneficiaries. While all trusts have benefits, not all of those benefits will be suited to your particular needs.
For this reason, when considering establishing a trust, it is always wise to work with one of our knowledgeable estate planning attorneys to ensure that you receive sound advice about which of the following will be most helpful to you and your family:
Avoiding Probate
One of the primary reasons individuals opt for a trust is to avoid probate. Probate is the legal process through which a deceased person’s estate is validated by the court, then administered and distributed under court supervision. In addition to being a public process, probate can be time-consuming and costly, especially for those with high-net-worth or otherwise complex estates.
Creating a revocable living trust allows assets to pass directly to beneficiaries without going through probate court, saving time, reducing costs, and maintaining privacy.
Lowering Estate Taxes
Trusts can also be structured to minimize estate taxes. Certain types of trusts, such as irrevocable life insurance trusts (ILITs) or irrevocable charitable remainder trusts (CRTs), can help reduce the taxable value of your estate by taking funds our of your name and ownership, potentially saving your beneficiaries significant amounts in taxes. Also, while a revocable trust doesn’t offer tax benefits during your lifetime, it can become irrevocable upon your death, potentially reducing estate taxes.
Planning for Medicaid
For individuals concerned about future long-term care costs, trusts can be instrumental in Medicaid planning. By transferring assets into a Medicaid asset protection trust (MAPT), you can keep those assets from being counted towards Medicaid eligibility requirements, thus preserving them for your heirs while maintaining your eligibility for Medicaid coverage if should need long-term nursing care.
Managing Finances During Incapacity
Depending upon the particular terms of a trust, both a revocable or irrevocable trust may allow you to appoint a trustee to manage your financial affairs in the event of your incapacity. This can be crucial for ensuring that bills are paid, investments are managed, and assets are preserved while you are out of commission without the need for a conservatorship or guardianship in order for your family to remain well cared for.
Supporting Family Members with Special Needs
If you have a family member with special needs (child or adult) who relies on government benefits like Medicaid or Supplemental Security Income (SSI), a special needs irrevocable trust (also known as a supplemental needs trust) can ensure that your loved one receives financial support to enhance their quality of life without jeopardizing their eligibility for government benefits.
Protecting Beneficiaries from Financial Mismanagement
Trusts are invaluable for protecting beneficiaries who may not be capable of managing money on their own. This may include individuals who are vulnerable to exploitation or those who are struggling with addiction issues or poor money management skills. By structuring a trust, you can provide oversight and control over how and when distributions are made to ensure the long-term well-being of these beneficiaries.
Protecting Your Assets from Lawsuits, Divorce, Creditors
Trusts can also shield assets from potential creditors, lawsuits, or divorce settlements involving your beneficiaries. Assets placed in certain trusts, such as spendthrift trusts, can be protected from claims against the beneficiary, ensuring that your hard-earned wealth remains intact for its intended purposes.
Distributing Your Assets as You Wish
One of the most common trusts used by our clients is a testamentary trust, a trust detailed within a will that only goes into effect after your death. It outlines specific instructions for managing and distributing your assets to your beneficiaries. In such a trust, you can structure precisely how you want your estate handled by establishing, for example, at what age your beneficiaries should inherit, or what conditions they must have met, or what their inheritance must be used for.
The Takeaway
As you can see, there are numerous benefits to creating trusts. Our skilled attorneys are happy to discuss any of the above with you in greater detail, and to craft one or more to your specifications as part of a comprehensive estate plan customized to meet your needs. Whether you are concerned about avoiding probate, protecting assets and loved ones, keeping estate taxes as low as possible, or maintaining access to government benefits, contacting Borakove Osman today to explore your options is the right move.