Many people wonder if they would benefit from creating a trust. There are many myths regarding trusts, the most common being that only very wealthy people need a trust and that a trust will lower your income taxes. Anyone who has assets may benefit from establishing a trust and establishing a trust does not reduce income taxes. Anyone who has assets may benefit from establishing a trust and establishing a trust does not reduce income taxes.
WHAT IS A TRUST?
A trust is a legal entity created to hold almost any kind of asset. The individual who establishes and funds the trust is called the ‘Settlor’ or ‘Trustor’. The individual who manages the assets of the trust is called the ‘Trustee’. Often the Settlor and Trustee are the same person.
REVOCABLE LIVING TRUST
The most common type of trust used in estate planning is a revocable living trust. The Settlor establishes a trust for his or her benefit (and his or her spouse’s benefit in the case of married couples) for their lifetime. The Trust also has provisions regarding where the assets will go after the Settlors’ death(s). In this way a Trust acts very much like a Will. However, a Trust has the added benefit of negating the need for probate so long as the Settlor effectively transfers all of his or her assets to the trust during his or her lifetime. Depending on how they are drafted, Revocable Living Trusts can also provide other benefits including reducing the amount of Oregon or Federal Estate tax and protecting a child’s inheritance from wasteful spending of a surviving spouse or from a surviving spouse’s subsequent marriage.
Just like the name suggests an irrevocable trust cannot be revoked or cancelled and once assets are transferred to an irrevocable trust the transferor cannot take those assets back. One common type of irrevocable trust is a special or supplemental needs trust. This type of trust is often used when a client has a child who cannot provide for themselves and may be receiving public assistance from the State and Federal Government. A special needs trust is designed to provide for the beneficiary’s special needs, which are needs above and beyond those needs which are paid for by public sources. The purpose of this type of trust is to improve the beneficiary’s quality of life while preserving their eligibility for public benefits. Another type of irrevocable trust is a “Testamentary Trust” which is a trust created by a Last Will and Testament.
Many individuals and couples can benefit from an estate plan which incorporates a trust or trusts in some form. Call the Law Office of David M. Mitchell today to discuss if a trust is right for you and your family.