An important part of estate planning for many people, particularly the wealthy, is philanthropy. Being able to leave a legacy behind for a beloved charitable organization or favored cause is a priority for these individuals.
Many Colorado families have aging family members, adult children who have a disability or a spouse with a disability. Individuals want to ensure that their loved ones are cared for after their deaths, but they also want to be sure that these special needs family members remain eligible for government benefits and assistance such as Medicaid. The way to do that is to create special needs trusts.
In the last couple of months, we have touched on a lot of topics pertaining to trusts. Today, we want to talk about one specific type of trust that can benefit many families: a special needs trust, or supplemental needs trust. If your child has a disability, planning your estate can be difficult. Obviously you want to leave parts of your estate for your child so that he or she will benefit from them -- but what is the most effective way to do that?
If you have a trust involved with your estate plan, it is likely that you have utilized a revocable trust. When you create a revocable trust when you are alive, it is called a "living trust." This type of trust is a tremendous tool that can help protect your estate (and the assets contained within) from the probate process.
We have talked about trusts quite a bit in the past, and one of the more common (and important) types of trusts is called the "living trust." A trust is an arrangement between the grantor, a trustee and a beneficiary. The grantor gives wealth, assets and/or property to the trustee, who holds it on their behalf for a certain amount of time until the estate is ready to be executed. Then, the beneficiary may utilize the assets, wealth and/or property contained within the trust.
Whether someone is planning for their later years in life, or they are just trying to strategically place their property and assets in the right place for estate purposes, a trust can help their cause. One common type of trust is the living trust. The living trust gets its name because the grantor is alive when he or she creates the trust. Other trusts can be created upon the grantor's death, but the living trust is done while the grantor is alive.
Utilizing trusts in your estate plan can be a very helpful way to save money and protect yourself (and your loved ones and beneficiaries) from estate taxes. Even though trusts are just a tool to help people building their estate plans, many people may shy away from trusts simply because they assume that a trust is too complex to get involved with.
In our last post, we began a two-part discussion of probate: what it is, how it works and what you can expect if you are involved in the probate process. We also mentioned that probate can lead to some financial costs and fees, which naturally leads to this question -- can you avoid the probate process?
The decision specifically affects an estate-planning tool called an intentionally defective irrevocable trust (IDIT). This trust allows an individual to exclude trust assets from his or her estate for estate tax purposes. The creator of this type of trust (grantor) may also pay income taxes, which can increase the value of the trust gift tax-free.
An irrevocable life insurance trust (ILIT) can both hold a life insurance policy and take the place of an outright distribution to beneficiaries. A major advantage of this type of trust is it allows you discretion to provide for special needs that might relate to the education of a child or hospital bills.