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TRUST PLANNING

New Albany Trust Attorney & Indiana Irrevocable Trust Lawyer

Proudly serving the residents of New Albany and the surrounding communities, including Floyds Knobs, St. Marys, Blackiston Mill, Clarksville, Jeffersonville, Galena, Georgetown, Duncan, and throughout Indiana.

As a trust attorney, I am often asked whether a trust is needed in all estate planning cases, as well as what benefits a trust may provide.  This article describes how a trust may be beneficial for certain estate planning needs, answers frequently asked questions about trusts, and describes the different types of trusts.

If you are interested in setting up a trust to protect your assets, beneficiaries, and your legacy, we invite you to contact Plitz Estate Planning to schedule a free consultation.

Indiana Trust FAQs

A trust is a legal arrangement under which one person, called the “trustee,” holds legal title to assets that benefit another person, called the “beneficiary.” The assets in trust may be for a single beneficiary or for multiple beneficiaries.

A trustee can only distribute assets in accordance with the trust document. In some cases, the trustee may have complete discretion in being able to distribute money however they wish, while in other cases there may be stringent requirements in how money can be distributed. For example, a trust may only allow distributions to support education, or only for medical bills.

No.  Most trusts are created by those with only modest wealth.

No. Since Probate deals only with assets in a deceased person’s name, and trust assets are not “owned” by a person at the time of their death, they are not included in the probate process (and thus they have the advantage of privacy because they are not part of public records).

 

There are many types of trusts, each of which serves different purposes. Even within the various types of trusts can be different language and clauses that can further achieve your goals. Some of the most common trusts include:

  • Revocable Trust. Revocable trusts (also known as living trusts) are created during the lifetime of an individual and can be changed at any time. Revocable trusts are foundational for many clients whose goal is to avoid probate and make things easier for their families.
  • Irrevocable Trust. The irrevocable trust cannot be changed. Irrevocable Trusts are used for Medicaid planning, educational planning for children or grandchildren, or as a way to set-up a legacy for their families for years to come.  Also, when a person who creates a Revocable Trust (or Living Trust) dies, that once changeable trust now becomes an Irrevocable, since the power to amend (or change) the trust is solely in the trust creator (or grantor). Understanding the benefits, as well as the risks, with utilizing an irrevocable trust in your estate planning is critical.
  • Asset Protection Trust. Asset protection trusts are designed to shield a person’s assets from claims of future creditors.  These trusts can be structured to be irrevocable for a specific term, after which time, undistributed assets can be returned to the trust creator.
  • Charitable Trust. This is a type of irrevocable trust that allows a person to make a gift to a charity or other non-profit organization without the asset being subject to capital gains tax or income tax during the person’s lifetime or the lifetime of their beneficiaries. Charitable Trusts can be set up in a variety of way to achieve the donor’s philanthropic intent. The most common forms are a Charitable Remainder Trust (CRT or CRUT) or a Charitable Lead Trust (CLT).
  • Special Needs Trust. Many government benefits, such as Medicaid, have asset limits. This means that if a special needs individual has assets above that limit, that individual may lose their government benefits.  With a special needs trust, also known as a supplemental needs trust, parents will no longer worry that the inheritance they leave them will cost their special child their much-needed benefits. Since the assets in the special needs trust are not owned by the special needs individual, they are not included in the government’s asset limits tests. Special needs provisions are an essential part of estate plans for families with loved ones with special needs.
  • Spendthrift Trust. Spendthrift trusts, and spendthrift provisions, are a way to protect the trust beneficiaries from creditors (e.g. lawsuits, bankruptcy), and often times from themselves (poor financial judgement). Depending on when a person inherits from an estate, they may not have the legal capacity (e.g. under age of 18) or maturity to not spend large sums of money.  A spendthrift trust allows the beneficiary(ies) to receive payments from the trust at such times or in such manner as may be specified in the trust document.  The beneficiary is not permitted to use the Trust assets as collateral for a loan, and if the beneficiary has creditor issues, that creditor cannot, in a majority of instances, reach into the trust to satisfy that debt.
  • Estate Tax Bypass Trust. With an estate tax bypass trust, spouses can transfer money to the other partner while limiting the amount of federal estate tax that is typically due upon death.  This type of trust is commonly known as an AB trust, and is used with married couples to ensure that each person utilizes the applicable tax exemption amount when he or she dies. Simply put, the AB trust doubles the amount of estate tax free money that can be passed to your families.

Determining which type of trust may be right for your particular situation can be challenging.  As a New Albany trust lawyer, I can listen to your estate planning objectives and provide expert guidance on whether a trust, and which trust, may be most advantageous to your situation.

A living trust is one of the most commonly-used forms of trust. It is a foundational element for people who want to avoid probate. A living trust is also known as a revocable trust.

With a revocable living trust, an individual (or couple if it is a joint trust) will place title (also known as ownership) to their assets in the name of their trust.  The person who’s assets go into the living trust is known as the Trustor (also known as grantor or settlor). During the life of the trustor(s), the assets in the trust are used for the benefit of the trustor, making the trustor also the beneficiary.

The main benefit of a revocable living trust is that is full force and effect if the trustor becomes incapacitated (e.g. major injury or dementia) thus avoiding the need for a conservatorship or guardianship. And then, when the trustor ultimately dies, the assets then distributed in accordance with the terms of the trust without the need for the court proceeding, Probate.

The trustee of a trust is the “manager” or decision maker of the trust assets. The trustee has a fiduciary duty to carry out the provisions of the trust. In most cases, the trustee (or co-trustees for a couple creating a joint trust) of a living trust will be the person or people creating the trust (the person creating the trust is also called the “trustor” or “grantor” or “settlor”).

While the maker or makers of the living trust is alive, the primary beneficiary will be that person or people. The beneficiaries for when those people die are whoever you want. It can be your favorite charity or charities, your church, your family, children, grandchildren. You are in control of naming where your assets will go within the language of the living trust.

No, living trusts do not protect your assets from your creditorsBecause you, the person creating the trust, will have control over the trust assets (and the ability to modify the trust terms at any time), living trusts do not shield assets from the reach of creditors with respect to the person creating the trust. However, the living trust can be written to protect the inheritance you leave your beneficiaries from their creditors.

When I meet with a client, we can explore whether a living trust may be beneficial.  For individuals who have a modest estate, or do not want to protect their children’s inheritance, or simply wants the normal probate process, a trust may not be necessary, and we can set-up a Last Will to distribute assets upon death.  For all others, a trust may be the optimal solution to avoid make things easier for those they love.

The process of creating a living trust generally involves:

  1. Meet to determine the overall objectives of the trust, including how assets are to be handled both before and after the death of the trust grantor, as well as discussing and ultimately determining who your successor trustee(s) will be;
  2. We will then drafting the trust in line with the grantor’s objectives legally, and do so to be efficient and effective now, as well as when the grantor dies;
  3. Once the document is reviewed, the final trust is signed and in full force and effect; and
  4. The final step is placing assets into the name of the trust. This includes re-titling bank accounts, vehicle titles, home ownership, and other financial assets.

 

An irrevocable trust is a legal arrangement that’s set up to hold assets. You can’t take back the money or assets that you put into an irrevocable trust, nor can you change the language of the trust itself, which is why it’s called “irrevocable.” As such, an irrevocable trust becomes permanent once it is signed, and it cannot be modified or terminated.

When assets are transferred into a Trust, the trust creator, called the grantor (or trustor or settlor) relinquishes their ownership rights to the property. The Trust becomes a written agreement between the individual and the Trustee—the person named to manage the assets in the Trust. The assets are owned by the Trustee, who will have the legal authority to distribute them during the trustor’s lifetime to named beneficiaries of the trust.

While irrevocable trusts cannot generally be modified, an individual can name a trust protector who can have the power to make certain adjustments to a trust if there are changes in the law and to make certain other changes without petitioning a court for authorization.

Most elderly Indiana residents do not have enough money to pay for the exorbitant costs associated with long-term care, nor do they have long-term care insurance to cover that expense. A meticulously crafted irrevocable trust may help preserve some money, investments, and other assets if nursing home care is required.

Medicaid planning is complex and is best done at least five years before a person needs nursing home care.  In general, assets transferred into an irrevocable trust are not counted as being owned by an individual if they have been in the trust for at least five years before the person is seeking Medicaid assistance.

If a person is in immediate need of nursing home assistance, the asset preservation options will be much more limited.  If you or a family member are interested in protecting assets and are concerned with potentially exorbitant nursing home expenses, I invite you to call me to learn about your options.

Schedule a Consultation with an Experienced New Albany Trust Attorney Today!

As an experienced trust lawyer serving New Albany and the surrounding communities in Indiana (as well as clients in Arizona and New Mexico), I would welcome the opportunity to  listen to your estate planning objectives, provide guidance on whether a trust may be beneficial, and carefully craft an estate plan that meets your goals and provides peace of mind for your beneficiaries. If you would like to learn more about the benefits of setting up a trust in Indiana, please call my office at (812) 578-5348 to schedule a free consultation.

 

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Southern IN Estate Planning Lawyer James Plitz