Whether your estate is large, small, or somewhere in between, you have the same basic need: someone to make sure your wishes are carried out and/or to make decisions for you if you become unable to do so. Ideally, as aging parents, we want to be able to choose whom we want to act on our behalf and we want our wishes carried out. Ideally, as children of aging parents, we don't want to be left to guess what Mom or Dad may have wanted and we don't want to find ourselves in the position of having to handle their affairs with no recognized authority to do so. Two documents that are priceless in that regard are a financial power of attorney and a healthcare power of attorney (now known more universally as an advance medical directive). A third crucial document is a Will or a Trust. The power given to an agent through a financial power of attorney terminates at death. At that time the disposition of a person's estate must be handled by an Executor (through a Will) or a Trustee (through a Trust).
A Will is a legal document that controls the distribution of a decedent’s property according to that person’s wishes. It enables a decedent to appoint a Personal Representative or Executor to handle property and affairs from the time of death, until the estate is settled. Property distributed under the terms of the Will becomes the probate estate. Without a valid will, the probate estate will be distributed according to the laws of intestate succession, which may not be what you want.
A Living Trust is amendable and revocable during the lifetime of the person who creates the trust (" the Grantor"). This results in the trust not having a separate existence for tax purposes, since it can be revoked or amended. Following the death of the Grantor, the trust becomes irrevocable, and the Trustee is directed to distribute the trust assets according to the terms of the trust, much like a Will, but without the need to be appointed by the court as would be the case in probate.
A Living Trust is often misunderstood by the public. This is largely because they have been promoted as a way to save taxes and avoid a probate. Although Living Trusts can avoid a probate, they are not designed to save taxes.Trusts created with those objectives in mind are categorized as "irrevocable" trusts.
Common uses of irrevocable trusts are to provide tax savings and asset protection for the Grantor and the Grantor's family. By placing assets into an irrevocable trust, the Grantor is giving up complete control over, and access to, the trust assets. In addition to providing tax savings in some instances, the trust also provides asset protection from the Grantor's creditors, while still allowing access by the beneficiaries of the trust, who are often family members.
Another common use of an irrevocable trust is to accomplish charitable giving. If the Grantor makes the initial transfer of assets into a charitable trust while still alive, then he or she will receive a charitable income tax deduction in the year of the transfer is made. Or, if the initial transfer of assets into a charitable trust doesn't occur until after the Grantor's death, then the Grantor's estate will receive a charitable estate tax deduction.
Special Needs Trusts
Yet another estate planning tool for use in unique circumstamnces is a "special needs" trusts (also known as a "supplemental needs" trusts) which allows a beneficiary who needs special care to receive gifts, lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining eligibility for public benefits. Often, special needs trusts are created by a parent or other family member for a child with special needs (even though the child may be an adult by the time the trust is created or funded). This estate planning vehicle is an excellent choice for grandparents ,and other friends and relatives, who want to leave a bequest to a disabled beneficiary.
An experienced attorney makes a difference! I have been preparing estate plans using the above alternatives for over 20 years.