DO YOU NEED A TRUST ?
By Alex Kim , CFP ®, MBA , CPA
When it comes to securing your financial future and protecting what matters most , trusts can be like a tailor-made plan for your legacy . Whether you ’ re safeguarding your family finances , ensuring a loved one ’ s care , or streamlining the transition of assets , there might be a trust designed to fit your goals . From revocable trusts to irrevocable ones , the world of trusts offers a wide array of options .
And contrary to common myth , trusts are not just for the rich : they can be a great estate planning tool even for people with middle-class wealth or modest means . You don ’ t have to be “ high-net-worth ” to benefit from a trust , and its use extends beyond just tax avoidance .
# 1 : Special Needs Trust . If you are concerned about providing for a disabled family member , a special needs trust is highly worth considering . Why ? If you were to leave an inheritance outright to a special needs beneficiary , they could fail to qualify for governmental benefits ( such as Supplemental Security Income , Medicaid , and housing benefits ). People with disabilities who would otherwise qualify for public benefits might no longer be eligible if they inherit assets outside of a trust , or if they directly receive a settlement related to their disability . To circumvent this pitfall , a special needs trust provides financial support to the disabled individual while still allowing them to qualify for needs-based public benefits . For example , parents of a child with autism might create and fund this trust to pay for their child ’ s various expenses — medical equipment , education , home furnishings , etc . A special needs trust might be revocable or irrevocable .
# 2 : Minor ’ s Trust . Trusts come in handy when minor children are involved , since anyone under 18 cannot legally own property . So , when you leave property to a minor , that property must be managed by an adult at least until the child turns 18 . To address this , a trust can be set up to specify your intentions and conditions for the child to access the funds . An example is the Section 2503 ( c ) irrevocable trust , which can extend the grantor ’ s control over the assets until the child reaches 21 . If the grantor ’ s goal is to control the trust assets beyond 21 , a Crummey irrevocable trust would be the alternative .
# 3 : Spendthrift Trust . A grantor would use this trust to address fears of a spendthrift heir who is not financially responsible and might squander the inherited money . The grantor can design the trust with
Trusts can be very effective for anyone with complex estate planning needs or anyone looking to personalize his or her estate plan beyond what ’ s provided by standard beneficiary designations , title registration , or a will . A trust allows you to customize how , when , and to whom your assets are to be distributed , with specifically defined conditions . Let ’ s begin our dive into the world of trusts by exploring the distinction between two general categories that are essential to understand : revocable and irrevocable . In a revocable trust ( aka “ living trust ”), the grantor ( the person creating the trust ) retains the right to alter or terminate the trust during his or her lifetime , providing greater flexibility and control . The most common purpose for a revocable trust is to proactively plan for incapacity , bypass the lengthy and costly probate court process , and maintain privacy ( unlike a will ). Also , a revocable trust can be especially effective if you own property in multiple states . Without a revocable trust owning those properties , your properties might become subject to probate in each state when you pass away . In many cases , the grantor pays the income taxes created by assets in the trust . In addition , because the grantor still maintains control , a revocable trust does not provide creditor protection or estate tax reduction . In contrast , with an irrevocable trust , the grantor cannot alter or revoke the trust . Generally , an irrevocable trust offers greater asset protection , eligibility for government programs , and an estate tax shelter for the grantor , but the cost is less flexibility and control . Keep in mind , a revocable trust becomes irrevocable upon the grantor ’ s death .
Honing in on a handful of trusts The trust universe is vast , but let ’ s focus on the types that might be more relevant to the average person with middle class wealth or modest means . Five varieties fit the bill .
14 CHURCH EXECUTIVE | JANUARY 2025