PARENTS & HOMEOWNERS: MY 7-STEP ESTATE PLANNING PROCESS WILL PROTECT YOUR HEIRS
From Creditors, Predators & Bad Choices, And Will Help You Become a (Bigger) Hero to Your Family!
What is a Trust?
Hello! I’m Eric Ridley from The Law Office of Eric Ridley in California. Today, I’m here to talk about something that might sound complex but is quite simple: trusts. You might have heard this term thrown around in legal circles or seen it in movies, but what exactly is trust? Let’s dive in, but I promise to keep it as straightforward as a coffee chat.
Not Just for the Wealthy
First things first, trust is not just for the super-rich. It’s a handy tool for many people, especially here in California. Simply put, a belief is a legal arrangement where you (the ‘trustor’) give control of your assets to a trust (managed by a ‘trustee’) for the benefit of someone else (the ‘beneficiary’). Think of it like giving someone the keys to your safe, where they can only open it for others based on your instructions.
The Different Flavors of Trusts
Trusts come in different shapes and sizes; each type has perks, depending on your needs. Here is a detailed list of the different types:
- Revocable Living Trusts:
- Flexibility: As the name suggests, a revocable living trust is flexible. You can alter, amend, or revoke this trust during your lifetime.
- Control: You maintain control over the assets in the trust. You can be the trustee, which means you manage the assets as you see fit.
- Probate Avoidance: Upon your death, assets in a revocable trust bypass the probate process, which can save time and keep matters private.
- Estate Planning: This trust allows you to plan for incapacity. If you cannot manage your affairs, a successor trustee can step in without needing a court-appointed guardian.
- Irrevocable Living Trusts:
- Permanence: You can’t easily change or revoke an irrevocable trust once created. This permanence has both legal and tax implications.
- Asset Protection: Assets in an irrevocable trust are generally protected from creditors and legal judgments, making them a good option for asset protection.
- Tax Benefits: Since the assets are no longer yours legally, they may not be subject to estate taxes, offering potential tax advantages.
- Medicaid Planning: These trusts can be used for Medicaid planning, as assets in an irrevocable trust are often not counted as personal assets for eligibility purposes.
- Activation After Death: A testamentary trust is created as part of your will and only occurs after your death.
- Probate Process: Unlike living trusts, assets placed in a testamentary trust go through probate since the faith is part of the will.
- Guardianship for Minors: This trust is often used to manage assets for minor children, as you can set terms for how and when the assets will be distributed to them.
- Lower Upfront Involvement: Since this trust is part of your will, you don’t need to manage or fund it during your lifetime.
Other Types of Trusts
- Charitable Trusts:
- Philanthropic Goals: These trusts are set up to benefit a particular charity or the public and can offer significant tax benefits.
- Types: They can be set up during your lifetime (charitable lead trusts) or through your will (charitable remainder trusts).
- Special Needs Trusts:
- Benefit Disabled Individuals: Designed to benefit someone with a disability without disqualifying them from receiving government assistance like Medicaid or Supplemental Security Income.
- Spendthrift Trusts:
- Protection from Beneficiaries’ Creditors: These trusts protect the trust’s assets from being claimed by a beneficiary’s creditors.
- Controlled Distributions: The trustee controls how and when distributions are made to the beneficiary, which is helpful if the beneficiary is not financially responsible.
- Insurance Trusts:
- Life Insurance Policies: An Irrevocable Life Insurance Trust (ILIT) holds a life insurance policy, removing it from your estate and potentially reducing estate taxes.
Why Consider a Trust in California?
In California, where I practice, trusts are beneficial. They can help you avoid the lengthy and public probate process (the court process to settle your estate after you die). This means your beneficiaries can access their inheritance more quickly and privately.
Making Trusts Understandable
I get it. The word ‘trust’ can seem daunting, like it’s something out of a legal drama. But in reality, it’s just a tool to help you manage your assets and ensure they go exactly where you want them to, whether that’s to your kids, a charity, or even your pet dog.
The Bottom Line on Trusts
So, what’s the takeaway? Trusts are a flexible, powerful way to manage your estate. They can offer privacy, save time and money, and give you peace of mind, knowing that your assets are handled precisely as you wish.
Let’s Chat About Your Trust Needs
Don’t hesitate to reach out if you’re curious about setting up a trust or have more questions. I’m here to make the complex world of estate planning simple and approachable. Your consultation is free, and I promise I won’t bite. Call me at (805) 307-7713 or contact me online for a free initial strategy session. Let’s ensure your estate planning is as precise and comforting as a good morning coffee.