Creating a Trust in Maryland: Your Comprehensive Guide to Protecting Your Assets and Securing Your Legacy
Tidying up financial affairs and documenting one's final wishes are essential tasks that everyone should take care of sooner rather than later. Increasingly, estate attorneys are meeting with clients seeking to control their legacies by creating a trust in Maryland and using advanced estate planning tools.
If you are concerned about protecting your assets and providing for your heirs, consider setting up a trust as part of your estate plan. Trust assets are protected from the probate process and creditors. However, 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 for a step-by-step guide 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 or create a specific type of trust, it might help to know what a trust is, the general advantages of trusts in Maryland, and how trusts work.
What Is a Trust in Maryland?
A trust document is a legally binding arrangement between the grantor (trust maker), the trustee (trust administrator), and the named beneficiaries of the trust (grantees of the trust estate). A grantor sets up their trust to pass trust 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 property into a trust is known as funding a trust and may include:
Cash and investments, such as a bank account, Certificate of Deposit, stocks, and bonds
Personal property such as vehicles, art, antiques, and collectibles
Real Estate, including land, investment properties, and private homes
Life insurance policies
A trust in Maryland cannot hold title to some types of property. So you should always have a Will and other estate planning documents to avoid your assets being subject to Maryland intestate laws.
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 and your assets transferred after your incapacitation or death.
Trusts offer more flexibility to provide for family members, a surviving spouse, and other beneficiaries. It avoids the probate court process that is often time-consuming, costly, and stressful for the family.
Other general advantages of trusts include:
Minimizing or avoiding estate taxes 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
Leverage government assistance for long-term care expenses
Establishing a legacy of charitable giving
Avoid probate to maintain privacy, as trusts are not part of the public record
The specific benefits you and your loved ones receive from creating a trust agreement depend on the type of trust document you create. Your needs and estate planning goals dictate which type of trust in Maryland is best for you.
What Type of Trust is Best for My Family?
There are several types of trusts you can use for estate planning and asset protection. Broadly, trusts fall into two categories: revocable trusts and irrevocable trusts.
A revocable living trust in Maryland 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 living trust. The grantor manages the trust property and can benefit from any wealth or tax advantages of the trust. Assets may be transferred into or removed from the revocable living trust during the grantor's lifetime. When the grantor dies, a revocable trust becomes an irrevocable trust. The successor trustee manages the trust after the grantor’s death.
An irrevocable trust is unmodifiable after it has been established. Once the trust is funded, the trust property is permanently held in the ownership of the trust. Grantors often use irrevocable trusts to reduce federal estate tax liability and shelter assets from creditors and lawsuits. Generally, a grantor does not serve as the trustee to their irrevocable living trust.
Under the umbrella of revocable and irrevocable trusts are many specific types of trusts designed to protect assets, avoid the probate process, and meet various estate planning needs.
Some of the more commonly used trusts include:
Marital Trusts are used by married couples to avoid estate tax and provide financial security for the surviving spouse.
Special Needs Trusts protect an inheritance for a beneficiary who receives government benefits for a disability.
Charitable Trusts are useful for supporting a charity while gaining tax benefits for you, your estate, and your heirs.
Life Insurance Trusts are the owners and beneficiaries of life insurance policies on the grantors of the trusts. Irrevocable life insurance trusts avoid estate tax on insurance proceeds.
Medicaid Trusts protect family assets while preserving state and federal resources to pay for long-term care expenses.
Spendthrift Trusts distribute assets to beneficiaries over time instead of giving them their inheritance in a lump sum. It also protects the assets from a beneficiary’s creditors.
Testamentary Trusts are created through your Will and do not activate until your death. They are used to manage assets you bequeath to heirs through your Will. The assets will pass through probate before entering the trust.
An experienced Maryland trust attorney assesses your estate, family dynamics, and long-term needs to recommend and create a living trust or irrevocable trust that best suits your wishes and estate planning objectives.
Creating Your Trust
Before meeting with trust attorneys or financial advisors, thoughtfully consider your short-term and long-term needs and objectives. You need to be able to present to your estate planning lawyer an outline of your goals and needs.
Matters you want to discuss with your lawyer include:
Assets and debts
Family structure
Health concerns
Your desires for asset management, whether healthy, incapacitated, or after death
Your choice for a trustee and successor trustee
Thorough preparation allows 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 guides you through selecting a trustee and successor trustee. Sometimes, your attorney may recommend choosing multiple trustees.
Important factors to remember when deciding who you want to manage your trust include:
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 selected a specific trust and named your trustees, your trust attorney drafts the appropriate legal documents. Specific legal terms and conditions must be included in trust documents to ensure they create a legal arrangement. If you do not create a trust in a legally recognized manner, the trust might not be enforceable.
After you sign the trust documents, you fund the trust by transferring assets to the trust’s ownership. However, funding the trust is not the final step. Trusts require ongoing maintenance. As you acquire new assets, you will need to transfer ownership of those assets to the trust. Only property held by the trust is protected from the probate process, estate tax, creditors, and lawsuits.
When Does a Trust Expire?
While state laws vary regarding how long a trust can remain open, trusts generally remain open until all assets held by the trust are distributed. Sometimes, where allowed, trust administration may continue long after the grantor's death.
Examples include, but are not limited to:
Trusts for minor children that schedule distributions to be received over time or for specific life events. For example, people create trusts to distribute funds to their children to pay for their education expenses, start a business, pay for a wedding, purchase a home, or upon a specific birthday.
Charitable trusts of large estates may go on for years after the person’s death to continue a legacy in their name.
Dynasty trusts pass wealth through multiple generations while avoiding estate taxes and probate.
A Maryland trust lawyer helps you choose the type of trust to provide the flexibility you need to accomplish your goal. Unlike Wills, trusts can survive long past the probate estate.
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 your assets will be distributed according to your wishes.
Contact Thienel Law, LLC, for more information about including one or more trust agreements as part of your comprehensive estate plan.
