A trust is a broad term for a document that directs how you wish your assets to be handled. Trusts are extremely flexible documents, and are frequently used to avoid probate. Trusts can also be over-used, however, and it is important to get good legal advice before you decide to create one. Some examples of trusts I have created are:
Testamentary trusts – Many people want to manage their assets for their heirs. A testamentary trust is a trust created within a will; it does become effective until your death. I had one client, Annie*, who lived in Asheville and had two children who lived outside of North Carolina. She dearly loved her son, but he struggled with substance abuse. While she wanted to provide for him after her death, Annie knew that leaving him a sum of money would be harmful to her son. Annie created a trust in her will that appointed her daughter as trustee and directed her to spend money on behalf of Annie’s son for his living expenses, health care, and education. Annie used the testamentary trust to provide for her son while ensuring he couldn’t spend his inheritance on drugs or lose it to creditors.
Living trusts – Just like it sounds, a living trust manages your assets during your lifetime, but it can also continue after your death. A living trust will avoid probate. While probate isn’t necessarily a bad thing, some people wish to speed the distribution of their assets after their death. Others use living trusts to plan for Medicaid or set assets aside for their children to use while they are still alive. One family recently created a living trust to protect several parcels of family land in Buncombe County. While the mother of the family probably has sufficient assets to pay for her long term care when she eventually needs it, that land will be protected if she requires Medicaid assistance (assuming she does not require such assistance within the Medicaid lookback period).
IRA trusts – Some assets are non-probate assets – that is, they do not pass through your will. If you have an IRA and name a beneficiary, that person will receive you money more quickly than if it passed through probate. An IRA trust may be useful if you have a beneficiary who might unwisely spend the money s/he receives from your IRA after your death, or spread distributions from the IRA out over a longer period of time to ease the tax burdens of those distributions. IRS regulations protect IRA trusts if they are properly drafted. I recently created an IRA trust for a couple who wanted to leave IRA assets to their minor grandchildren. The IRA trust will allow those grandchildren to spread distributions out over a longer period of time, increasing the total amount their receive and spreading the tax burden out over the years.
Special needs trusts – If you want to provide for a loved one who receives public benefits in North Carolina, you can give them money without jeopardizing those benefits. A special needs trust allows money to be spent for certain items that will improve your beneficiary’s quality of life without causing them to lose their benefits. One parent recently created a special needs trust to ensure that her son didn’t lost Social Security disability benefits by receiving a large inheritance.
Charitable trusts – Many people are passionate about a nonprofit or cause that they supported during their lifetime. There are a variety of ways in which planned giving can help you leave a legacy of caring after your death. Contact me to learn more about making charitable giving part of your estate plan.
You must have an attorney to create an effective trust. Wherever you live in Western North Carolina, I can assist you in creating a trust to serve your needs.
*Names have been changed
