Creating a living trust is an essential step in estate planning for many families. It offers many benefits, including avoiding probate and protecting your assets for the benefit of your loved ones. However, choosing the right type of living trust for your specific financial situation can be challenging without knowing which options are available to you. Here’s what you need to know to determine which living trust may suit you best.
Understanding Living Trusts
A living trust is a legal document in which an individual places their assets during their lifetime, to be managed by a trustee for the benefit of the individual and eventually transferred to beneficiaries upon death. There are two main types of living trusts – revocable and irrevocable. A revocable trust can be modified or terminated during the individual’s lifetime, while an irrevocable trust cannot be changed once it is established. Understanding the differences between these trusts is crucial in determining which option aligns with your specific financial situation and goals. Read more about living trusts by reading Understanding the Basics: How a Living Trust Works.
Revocable Living Trusts
A revocable living trust, also known as a “living trust” or a “revocable trust,” is a popular option for many individuals. With this type of trust, the individual placing assets into the trust maintains control over those assets during their lifetime and can make changes or revoke the trust at any time. These trusts are often used to avoid probate and provide continuity of management in case of incapacity or death. They also offer more flexibility than irrevocable trusts because they can be amended or terminated if circumstances change. However, they do not protect assets from creditors or estate taxes in the same way an irrevocable trust can.
Individual Living Trust
This is a trust created for an individual that contains only that individual’s assets.
Joint Living Trust
This trust is created by two or more people, typically spouses, that contains assets owned jointly. Traditionally, married couples would have their own separate living trusts. However, there are many benefits to having a joint trust for a couple. For example, this makes it easier to have a joint bank account. Joint living trusts are more popular in community property states for tax reasons. If you have a question about which living trust makes sense for you, talk to an estate planning attorney.
Irrevocable Living Trusts
This type of trust cannot be changed or revoked once it has been created. As a result, it can offer more protection for your assets. They are often used for estate planning purposes and can help reduce estate taxes. However, because they cannot be changed, they offer less flexibility than revocable trusts. If you’re trying to figure out which living trust is right for your individual needs and circumstances, it’s important to consult with a estate planning attorney.
Medicaid Asset Protection Trust
A Medicaid Asset Protection Trust (MAPT) is a specialized type of irrevocable living trust designed to protect your assets from being counted for Medicaid eligibility purposes. In other words, it protects your house and other assets from the nursing home. By placing assets into the trust, you are essentially transferring ownership to the trust, which can provide protection in case you require long-term care and need to qualify for Medicaid benefits. It’s important to note that there are certain rules and regulations surrounding MAPTs that vary depending on each state’s Medicaid program. Consulting with an attorney who specializes in elder law or estate planning is recommended when considering a MAPT. (If you need help in Arizona, give us a call at 602-443-4888.)
Factors to Consider When Choosing a Living Trust
Choosing the right living trust can be challenging, especially because there are different types of trusts designed for different purposes. One important factor to consider when choosing a living trust is your financial situation and goals. Another factor is the complexity of your estate plan. For example, if you have a large estate with many assets, you may need a more complex trust than someone with a smaller estate. Consulting an experienced estate planning attorney can help you understand your options and choose the living trust that best fits your needs. Additionally, it’s important to periodically review and update your living trust as circumstances in life change.
Summary: Which Living Trust To Choose.
Deciding which living trust to use can be a complex process, and it’s important to seek the advice of a qualified estate planning attorney who can help you determine the best option for your unique situation. Here are some factors to consider when choosing a living trust:
Revocable vs. Irrevocable Trust:
A revocable trust allows you to change or revoke the trust at any time during your lifetime, while an irrevocable trust cannot be changed once it is established. Revocable trusts offer more flexibility, but irrevocable trusts can provide certain tax benefits.
Single vs. Joint Trust:
If you are married, you can choose to create a joint trust that includes both you and your spouse, or you can create separate trusts for each of you. A joint trust can simplify administration and can be more efficient from a tax perspective, but separate trusts may be necessary if you have different estate planning goals or if you want to protect separate assets.
Depending on your estate planning goals, you may want to include specific provisions in your trust, such as provisions for charitable giving, special needs beneficiaries, or complex distribution schemes. Work with an attorney to ensure that your trust meets your specific needs and goals.
Each type of living trust has its own unique characteristics and benefits. So it’s important to carefully consider your individual circumstances and goals when choosing the type of trust that’s right for you. Consult with an estate planning attorney in your jurisdiction who can provide guidance on estate planning and trust administration.
Do You Need Help in Arizona? Call Us.
At SWPL, we specialize in creating personalized trusts that meet the unique needs and goals of our clients.
Don’t leave the future of your estate to chance. Our experienced attorneys can guide you through the process of creating a living trust that reflects your wishes and provides peace of mind for you and your family. We’ll help you find which living trust is right for you.
Take the first step towards securing your legacy today. Contact us at 602-443-4888 to schedule a consultation and learn more about the benefits of trusts and how we can help you create one that’s right for you.
We’ve been helping people create every type of trust since 2001. Attorney Paul Deloughery is AV rated, which is the highest rating accorded by Martindale-Hubbell, the legal directory that rates attorneys for expertise and ethics.