A trust is used to funnel some kind of assets to a beneficiary, and the trust sets up the stipulations and information about how these assets are to be transferred.
There are a number of different kinds of trusts. A skilled advice from Meek Law Firm you will be able to understand the best option for your needs. The increasing variety of different kinds of trusts means that regardless of the unique family situation or the desires of the trust creator, there is likely an arrangement that will be suitable. READ MORE
And while there are many types of trusts with different provisions, there are several basic requirements of a trust. For example, every trust has to be created by a grantor. This is the person who wants to create the transfer of the assets.
A trustee will need to be appointed in order to manage the assets and stipulations of the trust. The principal within the trust is managed by the trustee, who assumes fiduciary responsibility on behalf of the trustee.
A beneficiary or beneficiaries will need to be put into place to receive some or all of the trust assets. The trustee is responsible for keeping contact with these beneficiaries.
Trusts can further be broken down into a few different categories: living versus testamentary trusts, trusts differentiated by their overall purpose, or a revocable versus an irrevocable trust. A living trust is one that goes into effect while the grantor is still living. A testamentary trust goes into effect after the grantor has passed away. Trusts differentiated by purpose simply refer to the goal of the grantor when placing the trust into effect. (Some examples include spendthrift trust, children’s trust and an insurance trust, which may have different overall goals and therefore different structures.) Finally, a revocable trust can be altered whereas an irrevocable trust cannot be changed.
Meek Law Firm can help you establish any of these trust options. Contact us today to get started.
Types of Trusts:
Revocable Trust: A living revocable trust in North Carolina is part of the estate planning process that’s a way to avoid probate.
The living revocable trust also provides long-term management of property. As the name implies, the trust can be revoked or completely terminated at any time. Since it’s also known as a “living” trust, it can be added to and updated as needed. The trust is designed to pass assets on to beneficiaries and can be funded as little or as much as you desire.
There are three critical people involved in a living trust: a beneficiary who will receive the benefit of the administered property within the trust, a settlor who actually creates the trust, and a trustee appointed to manage the trust and its assets.
The trustee is a cornerstone of this trust since that person is responsible for making all the important decisions for the trust. They have total control over the property that is placed within the trust. When creating a living trust, a successor for this initial trustee should be established so that your property is distributed as you wish without probate.
A trust is a complex matter best handled by an experienced attorney. A living trust does not replace a last will and testament. Any assets that are not put into the trust will be subject to probate. Since there are numerous mechanics at play and other factors to consider, such as which types of property cannot be placed within a trust, you should schedule a consultation with lawyer Jonathan Meek to discuss your options and the most efficient management of your trust.
Insurance Trust: Although typically life insurance proceeds are not subject to income taxes, they can be subject to estate taxes.
One way to avoid this problem in North Carolina is to use an irrevocable life insurance trust (ILIT). Life insurance benefits can be significantly reduced if they are put through estate taxes. An irrevocable life insurance trust pulls the life insurance proceeds out of the estate and instead places them in a trust. In order for this to be effective, the trust must take ownership of the life insurance policy away from the estate. A few important pieces that may be included in an ILIT are a statement of the trust’s irrevocability, the powers of the trustee, the powers of the trust related to the life insurance itself, and the beneficiary withdrawal powers.
An additional benefit of an ILIT is a gift tax exclusion that allows up to $13,000 per year. If you already have a policy in place, the insured person must survive for at least three years in order for the trust to be effective. If placed in the ownership of a life insurance trust on a new policy, however, this goes into effect immediately and ensures that the proceeds from the life insurance policy are not subject to estate taxes. Typically, an ILIT will include what’s known as Crummey withdrawal powers that protect the gifts that qualify for the gift tax annual exclusion. Many ILITs will qualify for what’s known as an intentionally defective grantor trust. This is classified as a grantor trust for the purposes of income tax but the actual transfer to this trust is for estate and gift tax purposes. Speak to your attorney about the details of a life insurance trust and what aspects fit your unique situation.
An ILIT is a simple way to protect life insurance proceeds from large estate taxes. It’s a relatively easy option that can be completed quickly by an attorney. Meek Law Firm will be happy to assist you.
Spend Thrift / Special Needs: Before 2006, spendthrift trusts were not used in North Carolina, but now the state has incorporated this concept.
A spendthrift trust is an ideal option for the parent who wants to leave assets to their children but fears that financial irresponsibility will take hold and significantly reduce or eliminate the value of the assets. A spendthrift trust ensures that assets are transferred to the beneficiary in a way that is structured by the creator of the trust. The goal is to protect assets and have them managed in a responsible way.
In order to be valid, a spendthrift trust must restrain voluntary and involuntary transfer of the beneficiary’s interest in the trust. The wording is critical in a spendthrift trust, which is why if you plan to create one, it should be done under the guidance of an experienced attorney. The trust documents must be clear and well-written in order for the management design to be properly carried out. In addition, the terms of the money release should also be clearly articulated for efficient management. The money can be distributed on an annual or monthly basis but depending on your design, the trust can also distribute lump sums at special events, like a wedding or the birth of a child. A spendthrift trust is a perfect match for parents wishing to transfer assets to children while putting in place the protections needed for those assets.
Although a spendthrift trust cannot determine what the beneficiaries use the money for, it offers significantly more planning possibilities than a typical trust. Attorney Jonathan Meek can help you set up a spendthrift trust that meets all the legal requirements. Contact him today.
Charitable Trust: If you are interested in designing a trust to transfer assets to a charity, you have two options in North Carolina.
A charitable remainder trust has both income tax and estate tax deductions, which appeals to many interested in donating to charity.
This option allows the donor to leave some of their estate to a charity while gaining a benefit for themselves in the short term. The donor of the trust will receive income from it for a certain period. Low yield assets often make the most sense for a charitable remainder trust. Within this category there are two further delineations: charitable remainder annuity trusts and charitable remainder unitrusts. While both pay out part of the value to a beneficiary, the annuity trust pays out a fixed dollar amount whereas the unitrusts pays a percentage. A remainder interest is paid out to the charity.
A charitable lead trust pays income to the charity for the lifetime of individuals or a particular number of years. When the trust expires, any assets left are given to either the donor, spouse or children. The clear difference with this trust is in the type of assets that should be transferred to this trust. Charitable lead trusts make the most sense for assets with high levels of growth possibility. Like charitable remainder trusts, there are two additional types into which a lead trust is divided: a charitable lead annuity trust and a charitable lead unitrust. Like above, the annuity trust pays the same dollar amount each year regardless of the earnings and the unitrust pays a fixed percentage.
Leaving part of your assets to charity is a wonderful and special way to give back to others. There are many options for aligning your desires and assets to a charitable trust. Meek Law Firm is always available to meet with you to determine which options work best for your wishes or circumstances.
Children’s Trust: One of the most common reasons to seek out trust options is for the purposes of passing assets on to children.
The trust is put into place to provide for the future of the children while enacting provisions that limit the options they have for the money. This reduces the chance of an unwanted outcome that the gift of a lump sum of money can trigger, such as the children spending all of the money quickly. An irrevocable trust for children truly protects their financial future.
If the trust is irrevocable, the trust is put into place while you are alive but the grantor cannot alter the terms of the trust or take beneficiary names off of the trust documents. A revocable trust, however, can be amended as long as the grantor is still alive. One issue to remember with a revocable trust is that it will avoid probate but is not guaranteed to avoid federal taxes.
Trusts for children can be helpful when transferring assets while trying to avoid substantial estate taxes on the death of the grantor. An additional benefit of a children’s trust is that the terms conditional to the trust are created by the grantor and allows for customization of when the funds are transferred. For this reason, children’s trusts are good for meeting the unique needs of many families.
The trustee is responsible for managing the directives of the trust, but one way to make the process easier is to have the parents serve as the trustees. This simplifies the process since the parents are also the ones making the decision about how the money should be spent.
Placing funds into a trust for children is an effective way to transfer assets to children while still maintaining some control over the process. Because the trust can be customized, it is important to work with an attorney who understands the different tax consequences and governing rules of children’s trusts.
A Trustee Attorney is responsible for the management of a trust. This appointed person is legally responsible for the management of the assets within the trust, with the guiding idea being that their actions are in the best interests of the trust beneficiary.
Some examples of typical trustee responsibilities including managing investment funds or rental properties as well as paying income to the beneficiary as designed by the trust. Since many beneficiaries of a trust are new to the process, this can involve navigating new territory for the trustee and the trustee typically retains legal counsel for their own protection.
Trustees are responsible for keeping the beneficiaries of a trust in the loop about general asset management and various states have different requirements about what that means under the law. Since it’s often the case that a beneficiary is also a trustee, an attorney is recommended for reviewing the trust and representing the trustee in legal matters.
A trust agreement should outline the full responsibilities of the trustee. The person must agree to become a trustee because the responsibilities typically associated with this post are numerous and involved. Therefore, someone cannot be forced into a trustee position.
Lawyers often play an important role in assisting a trustee, especially where they are retained to give counsel. As a trustee, you want guidance from someone who is knowledgeable about the general responsibilities of a trustee and also understands the unique requirements of the trust you administer. In addition to serving as counsel for a trustee, our firm is available to actually be the trustee for a trust. There are many scenarios where it is beneficial to have the expertise of an attorney.