Individuals meet with their attorneys to draw up a trust for many reasons. Perhaps you are trying to avoid probate court for your estate or using a trust to shield assets from taxes. Whatever your reason, a trust is a legal framework that holds and protects your assets. Many individuals open trusts to have more control over what happens to their assets when their heirs inherit. Trusts can give you the power to determine how heirs may spend their inheritance.
Terms related to drawing up a trust fund may seem confusing, especially when many terms mean the same thing. You may wonder, “Who is the settlor of a trust?” If you’re the one who funds the trust, then the settlor is you.
Who is the Settlor of a Trust?
If you meet with your asset protection attorney to draw up a trust framework for your assets, you are the settlor. Settlors are also known by other names such as:
Each of these terms recognizes the settlor of the trust who funds the trust with assets. Once the settlor signs the trust documents and funds the trust, the appointed trustee administers funds to the beneficiaries according to the trust’s terms and conditions.
According to Cornell Law School, the settlor is the party that creates a trust, usually the donor. The settlor transfers the legal title of the assets to the trust for the trustee to manage. The settlor then provides language in the trust that states how beneficiaries may inherit trust property. In the case of the inter vivos or Living Trust, the settlor can also be the beneficiary.
Who is the Trustee?
Settlors appoint a trustee based on many factors, including trustworthiness, investment knowledge, ability to follow your instructions in the trust agreement, health and age, and disinterestedness.
Often, a settlor will choose an entity as a trustee instead of a family member or friend. With a bank or investment institution as a trustee, your beneficiaries cannot easily overturn your wishes.
When You are the Settlor and Beneficiary
The beneficiaries of a trust are those who receive trust distributions or inheritance. You can set up a revocable trust that benefits you as the beneficiary. This type of trust can give your estate the ability to avoid the costs and time of probate court.
Or you can set up an irrevocable trust five years before you may need Medicaid so that you can qualify for long-term care coverage. Setting up a Medicaid trust before the five-year look-back period allows you to keep assets safe and live on monthly income distributed to you according to the terms you draw up in the original trust agreement. Medicaid allows for your income if it is less than what they pay for your nursing home care. According to the American Council on Aging, Medicaid allows for 2022 income estimated between $5,942 – $7,955 per month. Without a Medicaid trust, you would end up spending down your estate to eventually qualify for Medicaid coverage that over 70% of seniors age 65 and up will need.
You can also set up trusts to benefit charities and save on your taxes. A Charitable Remainder Trust has one or more charities as the beneficiaries. They only inherit once you pass away and are no longer the beneficiary.
When Others are the Beneficiaries
Often, a settlor opens a trust to pass on family wealth. Passing assets through a trust gives you privacy, avoidance of probate court, and fewer taxes. In this case, the beneficiaries are the loved ones you name as heirs. You can choose to give monthly amounts or give only when a grandchild finishes college. You could set the trust up to pay for college only or give a certain amount to any grandchild who graduates high school. If you have a loved one with an expensive addiction, giving medical care or rent money could let you help without enabling their addiction.
Trusts may also help special needs or disabled loved ones who live on government SSD or SSI. Their medical insurance coverage and other benefits such as housing and transportation depend on having low income and below-limit asset levels. A trust allows you to give a monthly amount rather than a lump sum disqualifying them from their crucial benefits.
Which Type of Trust Works Best for Me?
Talking with your asset protection attorney about the best type of trust for your goals can help you maximize your assets for the long term. You want to make decisions that will benefit your family the most, and your attorney has the experience and extensive legal knowledge to help you accomplish your goals.
We Can Help
At Vail Gardner Law, we work with you within your goals to create trust frameworks that meet the needs of your estate. Whether you want a trust to maximize your assets, prepare your estate for future long-term care costs, or benefit grandchildren, there are as many types of trusts as there are dreams for your future. Our focus on asset protection strategies ensures we stay up-to-date on the latest tax laws and our state’s legal and financial environment. Contact us today to set up an initial consultation to discuss the possibilities.