Maryland Trust Attorney - How Does a Trust Work?
Tidying up financial affairs and documenting one’s final wishes have assumed new urgency during the COVID-19 pandemic. Increasingly, estate attorneys are meeting with clients seeking to control their legacies through trusts and advanced estate planning.
If you are concerned about protecting your assets and providing for your heirs, consider setting up a trust as part of your estate plan. Regulations governing trusts vary between states, so it's essential you seek guidance from a qualified trust attorney in your home state.
If you reside in Maryland, consult a Maryland trust attorney to learn how trusts work and if one is right for you.
How Do Trusts Work?
Trusts offer unique advantages and greater flexibility than wills, making them a popular estate planning tool. Your personal circumstances and legacy objectives will guide which type of trust you select to meet your needs. However, before attempting to choose a specific type of trust, it might help to know what a trust is, the general advantages of trusts, and how trusts work.
What is a Trust?
A trust is a legal document detailing an arrangement between the grantor (trust maker), the trustee (trust administrator), and the beneficiaries of the trust (grantees of the trust estate). A grantor sets up their trust to pass assets to their heirs, specifying a person or entity to manage the trust assets according to the grantor’s wishes.
Trusts only govern assets legally transferred into the ownership of the trust. Transferring assets into a trust is known as funding a trust and may include:
Cash and Investments, such as bank accounts, CD’s, as stocks and bonds
Personal Property such as vehicles, art, antiques, and collectibles
Real Estate, including land, investment properties, and private homes
Life Insurance policies
What are the Advantages of Trusts in Estate Planning?
There are many advantages to incorporating trusts into your overall estate plan. Trusts allow you to prepare a future for your loved ones, with clear directives on how your estate should be managed after your incapacitation or death.
Trusts allow specific directions regarding estate management and disbursement of assets while sparing beneficiaries the expense and protracted probate court process associated with wills. Other general advantages of trusts include:
minimizing or avoiding estate and inheritance taxes.
protecting assets for minor children.
setting aside funds for special needs or elderly dependents.
defining terms beneficiaries must meet to receive their inheritance.
managing assets for Medicaid eligibility.
establishing a legacy of charitable giving.
maintaining privacy, as trusts are not public documents.
What Type of Trust is Best for My Family?
There are several different types of trusts. Broadly, trusts fall into two categories, revocable trusts, and irrevocable trusts.
A revocable trust is a trust that may be amended, changed, or withdrawn at any time by the grantor during the grantor’s lifetime. The grantor may serve as the trustee and a beneficiary of a revocable trust, both managing the trust’s assets and benefiting from any wealth or tax advantages of the trust. Assets may be transferred into or removed from the trust during the grantor’s lifetime. Upon the grantor’s death, a revocable trust becomes irrevocable.
An irrevocable trust is unmodifiable after it has been established. Once the trust is funded, the assets are permanently held in ownership of the trust. Grantors often use irrevocable trusts to reduce tax liability and shelter assets from creditors and lawsuits. Generally, grantors do not serve as trustees to their trusts.
Under the umbrella of revocable and irrevocable trusts are many specific types of trusts designed to meet various estate planning needs. Some of the more commonly used trusts include:
Marital Trusts
Special Needs Trusts
Charitable Trusts
Life-insurance Trusts
Medicaid Trusts
Spendthrift Trusts
Testamentary Trusts
An experienced trust attorney will assess your estate, family dynamics, and long-term needs to recommend a trust that will best suit your wishes and estate planning objectives.
Creating Your Trust
Before meeting with a trust attorney, thoughtfully consider your short-term and long-term needs and objectives. Be able to present to your estate planning lawyer an outline of:
assets and debts
family structure
health concerns
how you would like your assets to be managed, whether healthy, incapacitated, or after death.
suggested trustees
Thorough preparation will allow your attorney to assess your needs specifically and globally by recommending a suitable trust in consideration of your overall estate planning objectives. An experienced trust attorney will also guide you regarding your selection of a trustee, or sometimes, multiple trustees:
Is your trustee someone who can interact objectively with beneficiaries?
Is your trustee skilled with investments?
Does your trustee have the ability to understand applicable laws?
Do you need a trustee familiar with your family business?
Is your trustee familiar with your minor children and your hopes for your children?
Will your trustee carry out your wishes?
Once you have settled on a specific trust and named your trustee(s), your trust attorney will draft the appropriate legal documents, and you will begin funding the trust with your assets.
Be Mindful: Trusts require ongoing maintenance. As you acquire new assets, you will need to transfer ownership of those assets to the trust. Only assets owned by the trust are protected from probate, taxation, creditors, and lawsuits.
When Does a Trust Expire?
While state laws vary regarding how long a trust can remain open, trusts remain open until all assets held by the trust are distributed. Sometimes, where allowed, trust administration may continue long after the grantor’s death:
Trusts for minor children scheduled to receive distributions over time or for specific life events, i.e., turning 18 years old, paying for education, starting a business, weddings, home purchases, etc.
Charitable trusts of large estates
Dynasty trusts, designed to pass wealth through generations while avoiding estate taxes
How Can a Maryland Trust Attorney Help You?
Once believed to be reserved for the ultra-rich, trusts can benefit families of nearly any financial threshold. However, estate planning is complex and varies according to individual state laws. You will need qualified legal advice to avoid any missteps.
If you are a Maryland resident uncertain how a trust might benefit you and your family, seeking counsel from an experienced Maryland trust attorney is essential. There is great peace of mind knowing that your heirs will be protected and that your assets will be distributed according to your wishes. Contact our Maryland law firm today for more information about including a trust as part of your comprehensive estate plan.
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