Berman & Asbel, LLP

Trusts: Legal tools with deep history and still relevant today

Last week, one of our posts featured the wisdom that as part of any solid estate plan, it's important to include distribution of possible life insurance benefits in the mix. Among the observations made was how valuable trusts can be.

It's not necessarily enough to list things in a will. By setting up a trust, it's possible to protect funds from undesirable tax implications. But that may well raise more questions for some readers. For example, since we talked about trusts (plural) that must mean there different kinds. What are they?

This is hardly a scholarly view of the history of trusts, but it's what we can provide here. If you do a Google search of the topic, you should get a long list of possible links. A check of the reliable sources shows that trusts appear to have been around since the crusades. Knights would legally transfer ownership of property to a trusted party. The agreement typically included an understanding that the property would be returned on the warrior's return. Sometimes it worked. Sometimes it didn't.

Over the centuries, protections have gotten stronger and today there are many types. Here's a quick list of some of them.

  • Revocable and Irrevocable Trusts: These are basic types. Revocable trusts, often referred to as living trusts, allow a person to assign assets to the trust and retain control as trustee. It's flexible, allowing changes and even withdrawals during the trust maker's lifetime. Irrevocable trusts can't be changed after they're created.
  • Asset Protection Trust: This tool is usually set up by someone looking to protect assets from possible claims by creditors. This trust is usually set up with a time limit, after which undistributed assets may be returned to the trust maker.
  • Charitable Trust: If you have a charity you care for, this might be a useful tool. Not only does it provide for that charity, but it may allow the trust maker to reduce or avoid tax obligations.
  • Special Needs Trust: These trusts make it possible for someone who gets Social Security or other government benefits to keep them after the trust maker's death. Government rules often disqualify a recipient from getting benefits if income rises beyond certain limits. But that may be avoided if the trust is set up correctly.

There are other trust forms available, but properly establishing trusts is something best handled by an experienced attorney.

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