All trusts (and other estate plan documents) should be reviewed every few years to make sure that they are up-to-date with the law and meet your goals today.  If not reviewed regularly, you may find potential problems in a trust document that is outdated.

What is a Trust?

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a trustee, holds legal title to property for another person, called a beneficiary.

Trusts fall into two basic categories: testamentary and inter vivos.

What Is a Testamentary Trust?

A testamentary trust is a trust created by your will. It does not come into effect until you die.

What Is an Inter Vivos Trust?

In contrast, an inter vivos trust starts during your lifetime. In Latin, inter vivos means “between the living. You create an inter vivos trust now, and it exists while you are alive.

There are two kinds of inter vivos trusts: revocable and irrevocable.

Revocable Trusts

Revocable trusts are often referred to as living trusts. With a revocable trust, the person who created the trust, called the grantor or donor, maintains complete control over the trust and may amend, revoke or terminate it at any time. This means that you, the donor, can take back the funds you put in the trust or change the trust’s terms. You can reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are generally used for the following purposes:

  1. Asset management. They permit the named trustee to administer and invest the trust property for the benefit of one or more beneficiaries.
  2. Probate avoidance. At the death of the trust grantor, the trust property passes to whoever is named in the trust. It does not come under the jurisdiction of the probate court, and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the grantor’s estate for tax purposes.
  3. Tax planning. While the assets of a revocable trust will be included in the grantor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, avoiding taxes when the beneficiaries die.

Irrevocable Trusts

An irrevocable trust cannot be changed or amended by the grantor. Any property placed into the trust may only be distributed by the trustee as provided for in the trust document itself.

For instance, the grantor may set up a trust under which they will receive income earned on the trust property, but that bars access to the trust principal. This type of irrevocable trust is a popular tool for Medicaid planning.

Testamentary Trusts

As noted above, a testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the grantor is probated.

Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to reduce estate taxes on the death of a spouse or to provide for the care of a child with disabilities.

Supplemental Needs (Special Needs) Trusts

The purpose of a supplemental needs trust is to enable the donor to provide for the continuing care of a disabled spouse, child, relative, or friend. The beneficiary of a well-drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs.

In this way, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing. A supplemental needs trust can be created by the grantor during life or be part of a will.

Reviewing Your Trust Checklist

All trusts (and other estate plan documents) should be reviewed every few years to make sure that they are up-to-date with the law and meet your goals today. Following is a checklist of trust features you can review yourself. But be aware that these only refer to revocable “living” trusts, not to irrevocable trusts.

Do you have the right successor trustees?

Typically you will be the trustee of your own revocable trust with your spouse as co-trustee (if you’re married). Trusts should name one or more successors in the event the original trustee or trustees are unable to serve. Make sure that you still want the successors you originally named. Also, do you want them to come on and begin acting as trustee now? And if you and your spouse are co-trustees, do you want the successor or successors to step in when the first of you becomes incapacitated or passes away, or not until neither of you can serve?

Who can remove trustees?

You can always change the trustees of your revocable trust. But do you want your heirs to have this right after you pass away? This can often avoid problems if there are communication problems or disagreements with the trustee. On the other hand, you might want to limit this to some extent to make sure heirs aren’t just looking for a trustee to do whatever they say.

Can your spouse change the ultimate distribution of trust assets after you have passed away?

Many trusts give surviving spouses a so-called power of appointment to redirect trust assets at their death. This can be important to provide for flexibility to respond to changes in family circumstances. However, this usually doesn’t make sense in second marriages. Even in the case of a first marriage, removing this provision from the trust can provide protection for children and grandchildren in case the surviving spouse remarries and becomes estranged from his family.

Does your trust protect your children and grandchildren from lawsuits and divorce?

You have the option of drafting your trust to continue for your children’s lives to provide creditor and divorce protection.

Have you funded your trust?

Attorneys often see great trust documents that don’t do all that’s intended because the clients’ assets are still titled in the clients’ names. You can avoid probate and make sure that the protections in your trust operate as planned through retitling assets in the name of the trust.

Who is named as beneficiary of your retirement plans and other investments?

Often clients spend hours with their attorneys crafting an estate plan to match their goals and then circumvent it through naming individuals as beneficiaries of retirement plans and investment accounts. Make sure these are all coordinated.

At what age will children and grandchildren receive their inheritance?

Most trusts provide that funds will remain in trust until those inheriting reach a certain age, often 21 or 25. But you can set any age you choose and even permit them to withdraw a portion of the trust at set ages, say half at 25 and half at 30, or a third each at 25, 30 and 35. This doesn’t mean that those inheriting can’t benefit from the trust assets in the meantime, but only that distribution decisions are made by the trustees until children and grandchildren have more financial experience.

Does your trust have provisions providing for maximum tax deferral if it is named the beneficiary of a retirement plan?

While you may choose to have your retirement plans go directly to your heirs — and often this is the simplest approach — if the plans are going to your trust, there must be special provisions to stretch out the annual required distributions for as long as possible.

Is your trust up-to-date for estate tax purposes?

Congress and many states have changed the estate tax laws several times in recent years. If your trust is more than five years old, or if you lived in a different state when it was drafted, it should be reviewed by an estate planning attorney to make certain it is still current.

You can check many of these questions on your own. In fact, it’s a useful exercise to make sure that you understand what is in your trust. Other issues, particularly those related to tax issues, will require consulting with an estate planning professional.

To ensure your estate plan is up-to-date and will continue to meet your goals, contact Stinson Law Firm for assistance. Our Indianapolis estate attorneys will guide you through the steps you should take to protect those you love, whether they are your parents or other elderly family members.

How our Indianapolis Estate Planning Attorneys Can Help

If you reside in Indianapolis, IN, and require help with estate planning, the legal team at Stinson Law Firm is here to assist you. Our Estate Attorneys in Indianapolis have supported numerous residents in navigating the estate planning procedure. Whether you aim to draft a will, set up a trust, or manage probate intricacies, our skilled estate attorneys are available to support you throughout the entire process. At Stinson Law Firm, we recognize the significance of safeguarding your assets and ensuring your loved ones’ welfare. Our team is committed to offering personalized and thorough estate planning services tailored to your specific requirements and objectives. From creating essential documents to offering strategic guidance, our Estate Attorneys in Indianapolis are devoted to streamlining the estate planning process for you. We prioritize clear communication, transparency, and client satisfaction to guarantee that your desires are executed effectively, providing you with peace of mind. Reach out to us now to arrange a consultation and embark on securing your legacy with assurance.

Let our estate planning attorneys provide you peace of mind with care and compassion.


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