Estate planning is the most effective way to preserve your property and assets and control your legacy according to your final wishes. Having a well-crafted estate plan not only gives you peace of mind but also alleviates stress for your loved ones. In addition to drafting a will and some other vital documents, you may also wish to establish a trust. Once considered tools of only the very wealthy, trusts are now gaining widespread use as a means to reduce taxation, avoid lengthy probate processes, and achieve various financial goals.
At Davis, Bingham, Hudson & Buckner, P.C., our experienced trust attorneys will assist you through their extensive knowledge of this process. If you would like to protect your wealth and ensure a smooth transfer of assets to loved ones after you are gone, we would be happy to speak with you about your options. We have over 40 years of estate planning experience, and we have helped countless clients protect their hard-earned assets and minimize tax liability through the use of various types of trusts.
Who Participates in a Trust?
At its most basic level, a trust is a separate legal entity that is able to own and control assets. For many, trusts are a means of protecting wealth as well as a way to ensure that assets are distributed according to the predetermined wishes of the individual who sets it up.
When you create a trust, you will name a trustee that is designated as the manager of the trust assets. The trust document will identify the trustee as well as the roles and responsibilities that are assigned to this person. The trustee also has some statutory obligations, such as filing required tax returns, managing the assets and making distributions according to trust provisions.
Your trust will also name a beneficiary. This is the person you designate that is going to receive the assets of the trust. This could be a family member, another loved one, a favorite charity, or even another trust.
Creating a Trust in Alabama
The most common reason that trusts are created in Alabama is to provide financial security for minor children or a spouse. There are, however, many reasons for creating a trust, including providing for grandchildren, a family member with special needs, avoiding probate, maximizing the use of an estate tax exemption, protecting assets against the creditors of a beneficiary, and allowing for asset management across multiple generations.
A Trust is Not a Bank Account
There is a common misconception that a trust is the same thing as a bank account. It is not, but there is a relationship between the two when it comes to having a trust. A bank account is used to hold funds and is owned by the entity or individual. How the bank account is titled will dictate the way that it is passed on when the owner dies.
With a trust, an asset (such as a bank account) is titled in the name of the trust. The terms of the trust govern how that asset will be distributed. A trust can not only hold a bank account but other assets (such as real estate) as well.
Different Types of Trusts to Suit Your Needs
While there are many different types of trusts, most of these arrangements can be classified into one of two categories – living trusts and testamentary trusts. A living trust must be set up while the creator is still alive. A testamentary trust is outlined in a will and goes into effect after the creator’s death. Additionally, some of the most common types of trusts include:
- Revocable trusts. This type of trust allows you to maintain control of the assets contained in the trust as well as make changes to the trust as your needs or wishes change.
- Irrevocable trusts. The assets are transferred out of your control with this type of trust, so it cannot be changed or revoked later.
- Charitable trusts. This is a trust that gives assets to a charity of your choice. The rules for the trust will depend on how you wish to make contributions and distributions.
- Special needs trusts. This is a trust that provides assets to a person with special needs while also having provisions that protect their eligibility for assistance programs.
- Irrevocable life insurance trusts. This type of trust allows you to remove the value of a life insurance policy from your estate for the purposes of reducing estate taxes and leaving beneficiaries with tax-free income.
Establishing a trust is just the first step in estate planning involving these instruments. Trust administration is the process by which the provisions in your trust are honored to the letter. These duties might vary depending on the type of trust and when it was established.
Our qualified trust attorney’s primary role in trust administration is advising the trustee of their obligations pursuant to the law and the terms and conditions of the trust. The attorney does not tell the trustee how to manage financial assets, but rather how to distribute and manage those assets so that they are in compliance with the terms of the trust.
Beneficiaries may also consult with us about their rights under an established trust. Generally, an attorney will not advise both the beneficiary and the trustee. If you are beneficiary of a trust and need legal advice, we would welcome a conversation about your current situation.
Trust and Estate Litigation
Unfortunately, there may be a legal dispute that arises concerning an established trust. If you don’t believe that you are being treated fairly, it is time to speak with experienced legal counsel that focuses on these areas.
Our Auburn estate planning attorneys employ a sensible, yet aggressive approach to helping clients with legal disputes. We take pride in our ability to develop creative and efficient litigation strategies, often making use of alternative dispute resolution procedures when it makes sense. Our goal is to achieve a cost-effective resolution while helping you preserve long-standing family relationships.
Speak with an Experienced Auburn Trust Attorney
There are common misconceptions about the types of trusts that individuals need and the use of trusts. At Davis, Bingham, Hudson & Buckner, P.C., our Alabama estate planning attorneys will thoroughly review your assets and goals and can advise you on whether or not a trust will be a beneficial addition to your overall estate plan.
Because there are many different types of trusts that can accomplish various goals, we recommend consulting with a lawyer who will examine your overall estate plan and ensure that your trust is properly created, funded, and administered. Contact our Auburn office today at 334-821-1908 or reach us online to schedule your initial consultation.