A trust is an agreement between a person and a trustee for the trustee to hold property for the benefit of a beneficiary. The person setting it up usually signs an agreement which transfers property to a trustee for the benefit of a beneficiary. This agreement sets forth the terms and conditions of how the trustee is to administer the property.
There are many different kinds of trusts. They can be used for tax planning. They can also be used to take care of beneficiaries who cannot otherwise take care of themselves. They can be used to avoid probate. Trusts are not just for the super wealthy, and they need not be complex. It is not uncommon to have a trust agreement that is 10-15 pages long.
In some cases, such as with a revocable trust, the person setting up the trust is also the trustee. Family members can be trustees. Also, several large banks have the trust departments that can serve as trustees.
In nearly all cases, the trustee has a fiduciary obligation to the beneficiaries to use trust property in the interest of the beneficiaries. More often than not, they are not supervised by courts.
Revocable Trusts (Living Trusts)
Revocable trusts are also called living trusts or inter vivos trust.
A person can set up a revocable trust during the person’s lifetime and transfer property into the trust. Usually the person is the trustee of the trust during the person’s lifetime, and then another person takes over as trustee when the person dies.
Some people set up a revocable trust to avoid probate. If property is transferred into a revocable trust during a person’s lifetime, the person will not own the property at the time of the person’s death, so it will not be necessary to probate the person’s estate to distribute his/her property.
Since a person maintains control over the property during his/her lifetime, there is no favorable tax benefits associated with a revocable trust. Also, distributing assets to a revocable trust does not increase a person’s chance to be eligible for a medical assistance payments in the event a person must move into a nursing home.
A person can prepare a will which leaves his/her estate to a revocable trust. A will should be coordinated with the revocable trust so that property is distributed in the same manner upon the person’s death. One advantage of a revocable trust is that a back-up trustee will be in place to administer a person’s assets in the event the person becomes incapacitated.
Special Needs Trusts
Government payments can cover much of a disabled person’s expenses in order to qualify for them, individuals cannot have assets in their own names that exceed a certain amount.
A supplemental needs trust allows parents or third parties to provide funds to pay for certain expenses that enhance a disabled person’s quality of life – from residential treatment programs to movie tickets or haircuts – while not cutting off access to government benefits, such as Medicaid or Supplemental Security Income. A special needs trust is similar, except it is created with assets that belong to the individual with a disability.
Funds transferred to a trust are not considered to be assets of the special-needs individual, as long as there is an independent trustee who controls distributions of the money. A trust also insures that a qualified individual will be watching over the money which can be an advantage, since many disabled individuals are not able to manage money on their own.
There are other steps families with special needs can take. Parents may want to create a power of attorney or a guardianship for finances and health care, naming themselves as the child’s agent or guardian when the child turns l8. Without this, parents of special needs children over age 18 may not be able to get access to their chi1d’s medical records or financial records to make decisions concerning health care or finances.
A lawyer should be consulted to prepare a special needs trust, power of attorney, or guardianship.