Trusts can be a great way to shield assets from taxation and creditors, they can be used to avoid probate or to spend down an estate’s assets to avoid estate taxes. Other types of trusts can be used to help adult children with disabilities, or to ensure that you receive the high quality care from a long term care facility during old age.
Below are common types of trusts.
A revocable trust, sometimes called a living trust, allows the grantor to access and manage the funds during their lifetime. The grantor may add or remove assets from the trust at any time. Revocable trusts are the most common type of trust used to avoid probate.
An irrevocable trust does not allow the grantor to modify the trust once assets are transferred into it. It cannot be changed, revoked, or cancelled. The benefit of an irrevocable trust is that once assets are placed into it, they are no longer considered the property of the grantor. Irrevocable trusts may serve a variety of purposes, such as avoiding taxes or preventing misuse of assets by beneficiaries through stipulations placed on the funds.
To qualify for Medicaid, which pays for long-term care, an individual cannot have assets exceeding $2,000. Without planning, this often means spending down assets to qualify or paying significant out-of-pocket costs for long-term care. A Medicaid trust allows you to preserve assets while still qualifying for Medicaid coverage.
An asset protection trust (APT) shields assets from creditors, judgments, and lawsuits. Virginia law permits domestic APTs, while foreign APTs hold assets offshore to create an additional layer of protection.
A special needs trust holds assets for an adult child with disabilities while still allowing that individual to qualify for government programs such as Medicaid and disability benefits.
For individuals who struggle to manage their own spending, a spendthrift trust provides a way to receive an inheritance responsibly. The trustee has full authority to decide how to manage and distribute the trust’s assets.
A generation skipping trust allows assets to pass directly to grandchildren or later generations, bypassing the grantor’s children. This structure may provide tax benefits and preserve wealth across multiple generations.
A charitable trust allows you to gift assets to your preferred charitable organizations while also reducing the taxable value of your estate. These trusts combine philanthropic goals with strategic estate planning.
Trusts are powerful tools that can serve a wide range of purposes in estate planning. They can shield assets from taxation and creditors, help avoid probate, or be used strategically to spend down an estate’s assets to minimize estate taxes. Beyond financial benefits, trusts can also provide for adult children with disabilities or ensure that you receive high-quality care in a long-term care facility as you age.
A Richmond trusts lawyer at MichieHamlett can help you determine which type of trust best fits your goals and draft the documents necessary to protect your interests and those of your loved ones. Contact us today to learn more.
