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FAQ: Who Should Have a Trust?

According to the Huffington Post, most of us do our best to avoid thinking about our own mortality. Then, a close friend or family member passes away, and it hits us hard. We start thinking about what would happen following our own death. Would our assets go to those we want them to go to? Would our lack of estate planning leave our loved ones with a huge mess to deal with? Would it be better to have a will or a trust? And on and on. While most of us will reach this point in our lives, it is important to realize that accidents can and do happen and that planning our estate should definitely be something done sooner, rather than later.

Of course, thinking of our own death—or the death of a loved one—is never pleasant, evinced by the fact that, according to AARP, only about 40 percent of American adults have a will, let alone a comprehensive estate plan. The process of estate planning can be a relatively painless experience when you contact a knowledgeable California estate planning attorney like Mark Gullotta. Attorney Mark Gullotta can help you take that first step toward estate planning and can thoroughly explain how a trust can help you easily pass your wishes and wealth on to your loved ones.


What is a Trust?

A trust is a legal vehicle which significantly expands your options when it comes to managing your assets. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of beneficiaries. While many people believe trusts are only used by the super-rich, in fact, a trust can benefit virtually every family, no matter their economic background. A trust allows you to control how your assets will be disbursed, as well as how the money will be paid out if a minor child or a family member who has difficulty managing money is part of the equation. Trusts can minimize taxes, protect assets, and spare your loved ones from having to go through the probate process.


What are the Advantages of a Trust Over a Will?

For those who want to avoid probate—the court-supervised process of transferring assets from a decedent’s ownership into the names of beneficiaries—a trust can do that. A revocable living trust does not require probate because the trust owns the assets, and the person has died, not the trust. A trust allows you to maintain your privacy; while a will is public, but a trust is not.

A will is a matter of public record, allowing anyone with an interest to stop by the courthouse and read it, thereby knowing what you owned, and who you left it to.  A trust allows you to plan for incapacitation, as your successor trustee will step in and handle your affairs if you are no longer able to do so. While a trust has many advantages over a will, you could still need a will, particularly if you have minor children who will need to have a guardian named for them.


What are the Different Trust Types?

A spendthrift trust prevents the beneficiary from selling his or her interests from the trust; the spendthrift trust increases the protection from creditors of a beneficiary until the property is completely distributed out of the trust. The primary types of trusts are revocable living trusts and irrevocable living trusts. These trusts allow the trust maker (known as the “settlor” or “trustor”) to transfer the titles of properties to the trust, naming beneficiaries in the event of the trust maker’s death, and a successor trustee to manage the distribution of the trust.  

A revocable living trust can be changed or revoked at any time, while an irrevocable trust cannot. Once property is transferred to an irrevocable trust, no one (not even the trust maker) can take the property out of the trust. An asset protection trust is designed to protect a person’s assets from claims of future creditors. A constructive trust is an implied trust established by a court who believes there was an intention on the part of the property owner that the property goes to a specific person or be used for a specific purpose. 

A Bypass Trust allows one spouse to leave money to the other and can have the effect of reducing the overall federal estate taxes which would be payable on the death of the second spouse. A special needs trust is set up for a disabled or special needs person who receives or will need to receive government benefits to avoid disqualifying that person from such benefits. A charitable trust benefits a specific charity, or the public in general, and is usually established as a part of an estate plan to lower or avoid estate taxes and gift taxes. 

Can a Trust Help Reduce Taxes?

While trusts offer a way to avoid probate of an estate following a death, there is little or no income tax savings on most trusts. A trust essentially acts as a “flow-through” entity, and even a trust which is taxed as a separate entity may have a higher tax rate. There are ways to defer or reduce income tax liability with a trust, in the form of an irrevocable trust. Under an irrevocable trust, the grantor’s ownership to the trust assets are surrendered, and trust assets must be re-titled in the name of the trust, rather than the grantor.


What is the Trust Process?

While the trust process differs, depending on your specific circumstances, the basics remain the same. You will appoint a trustee (usually yourself), as well as an alternate or successor trustee. A bank or trust company can act as trustee in lieu of an individual if necessary. Next, you will select the beneficiary or beneficiaries for the trust—those you want to leave your assets to. A declaration of trust will be drafted stating the trustee, successor trustee, beneficiaries, whether the trust is revocable or irrevocable, and will include a list of the assets in the trust as well as instructions for the successor trustee regarding distribution. The declaration of trust will be signed (usually in the presence of a notary public) then the chosen assets will be transferred to the trust. If titled assets are transferred to the trust, the name on the titles must be changed to the name of the trust.


How Attorney Mark Gullotta Can Help You Determine Whether a Trust is Right for You

If you are considering a trust, or you want to speak to a knowledgeable California estate planning attorney about a comprehensive estate plan, Mark Gullotta can help you. Mark believes in a proactive estate planning approach, which makes the entire process much more predictable. Contact attorney Mark Gullotta today to discuss trusts and a flexible estate plan which can grow with you and your family. If you are in the San Mateo County area, including Millbrae, San Bruno, Burlingame, South San Francisco, Daly City, Colma, and the City of San Mateo, Mark Gullotta offers a fifteen-minute assessment. 

DISCLAIMER: The information provided in this document is not legal advice. No attorney-client relationship is created as a result of this presentation. The content is intended to be a general overview of the subject matter covered and is educational and informational only.