When You Need Advice about Trusts, Call Us
The Business Law Group offers full-service estate planning for business owners and their families. Forming a trust can be an important part of an estate plan. The unique structures of different kinds of trusts can help you protect assets, benefit heirs in the future, and even keep your estate from going through probate.
What is a Trust?
A trust holds assets contributed by a trust settlor. The settlor no longer owns the assets once they have been transferred into a trust. A trustee manages these assets for the benefit of a beneficiary. The beneficiary may receive regular payments from the trust on an ongoing basis, or they may receive all trust assets when a particular event occurs (such as the settlor’s death).
Depending on the particular kind of trust, you can place assets in trust in different ways. For example, some trusts may keep your estate from going through probate after death. Some trusts are great for asset protection from potential creditors. Some trusts can help you provide for loved ones who do not have the capacity to manage money. Finally, some trusts can benefit a charity or other causes in the future.
Revocable Living Trusts
A revocable living trust can be extremely helpful for someone who wants to keep their estate from going through probate. Why would you want to avoid probate? Here are a few reasons:
- Probate costs money (court fees, potential litigation costs, etc.)
- Probate can breed conflict among relatives who do not agree with your wishes
- Probate can breed conflict if there is any ambiguity in your will
- Probate can take a long time
- Probate burdens an executor or estate representative with the task of distributing your estate
To avoid these problems, you can place your assets in a revocable living trust. "Revocable" means that you can remove the assets during your lifetime if needed. Often, the trust document will allow you to retain a certain amount of control over your assets and transfer them in and out of the trust. For example, you may act as the trustee during your lifetime. This means you can decide how best to invest or maintain the assets until your death. When you die, someone else becomes the trustee of your revocable living trust. You can choose whether you want the trustee to immediately distribute all assets in the trust to your chosen beneficiaries or whether you want the beneficiaries to receive income from the trust over time.
Another common concern for business owners besides probate avoidance is asset protection. Lawsuits and debts are common in the business world. When a creditor cannot get paid by a business, they will try to access the business owner’s personal assets to pay the debt. Most business owners would prefer to shield their personal assets from these creditors. Depending on the type of business entity you own, it may provide some or no liability protection for you personally. Your business attorney may recommend an irrevocable trust to safeguard your assets further.
In contrast to settlors of the revocable living trusts described above, settlors of irrevocable trusts cannot remove assets from their trusts after the assets have been transferred. The decision to transfer the assets cannot be revoked. In exchange, the settlors reduce their personal property that a creditor could access. Once the property is held in trust, creditors cannot attach it unless some very narrow exceptions apply.
Another great reason to choose an irrevocable trust relates to estate taxes. Placing assets in an irrevocable trust may keep your estate from paying taxes on the assets. Before taking this step, please consult an experienced estate planning firm like the Business Law Group for advice on handling taxes on any assets you place in trust.
Finally, you may want an irrevocable trust if your chosen beneficiary is bad with money. Many states, including California, recognize a specific type of trust called a “spendthrift trust.” A spendthrift trust is an irrevocable trust that protects assets from the beneficiary’s creditors. Under the laws governing these trusts, creditors cannot access the beneficiary’s interest in the trust except under limited circumstances (such as if the trust assets are earning more interest than is necessary for the beneficiary's support or education). In other words, the trust protects a beneficiary who has many creditors or is bad at handling money.
Charitable Remainder Trusts and Other Specialty Trusts
Finally, you may be interested in other types of specialty trusts to meet your needs.
Some of our clients want to leave their estates to charity. A charitable remainder trust can accomplish this goal while allowing the settlor to receive income from the assets during their lifetime.
Some clients have loved ones with special needs. With careful drafting, a special needs trust can allow your loved one to stay eligible for important public benefits such as Medicare and Social Security Disability while receiving the income they need to meet daily needs.
Other clients would like to protect their beloved pets. In California, leaving your money directly to a pet is not a good idea. Instead, you can create a pet trust. A trustee uses your money for the care and benefit of your pet. After your pet dies, the remaining money can be passed to another beneficiary of your choice.
Other specialty trusts may help you accomplish your individual goals and fulfill your wishes. Contact an estate planning team like the Business Law Group for further assistance.
Do You Need a Trust? Call the Business Law Group
If you are interested in estate planning, such as forming a trust, we would like to help. The Business Law Group’s highly experienced team offers tailored estate plans to our business clients. We advise California business owners and their families about asset protection, trust administration, estate planning, probate matters, and more. Please contact us at your convenience to schedule an appointment. You can reach the Business Law Group by calling (408) 979-7800 or by filling out our Contact form.