Trusts Attorney Serving Cook County & Lake County, Illinois
What Is a Trust?
Estate planning law allows for the creation of not just wills, but trusts as well. A trust is a legal document that provides instructions as to how the property titled in the trust’s name is to be managed. Riverwoods Trusts Lawyer Steven Peck helps clients draft trusts that provide written instructions with important legal benefits. Trusts have been used since the Middle Ages and pre-date wills. They can also take various forms such as living trust or as a special needs trust.
Why Do I Need a Trust?
There are so many advantages to trusts that recent studies report that up to half of all people who now plan their estates are using trusts instead of wills. Riverwoods Trusts Lawyer Steven Peck is available to answer your questions about the difference between a will and a trust or why you need one.
Read more about Does Anyone Really Need a Trust?
Many people find trusts preferable to wills because with a trust, you can often avoid the lengthy and complex probate process. Plus, with wills, attorneys are only able to do so much to protect your assets. Trusts provide many more options for safeguarding yourself, your property, and your family.
What Types of Trusts Are Available?
There are two main types of trusts—Testamentary Trusts and Living Trusts.
When a person drafts a will, the individual doesn’t always want the inheritance to go directly to the spouse or child. Sometimes, they would prefer that the assets be managed for the beneficiary’s protection over an extended period of time. In this case, a trust attorney can create a Testamentary Trust to manage the inheritance for the beneficiary. Testamentary trusts are created within wills, and like wills, they are court-supervised as part of the required probate court proceedings.
Inter Vivos or Living Trusts
Unlike Testamentary Trusts, Inter Vivos or Living Trusts go into effect immediately upon signing. Therefore, they offer lifetime planning opportunities such as instructions for managing your assets should you become disabled, for instance. A properly designed Living Trust can provide:
Legitimate tax avoidance
Asset protection for the surviving spouse
Individualized planning to protect your spouse and children
There are several different types of Inter Vivos or Living Trusts.
Revocable Living Trust
With a Revocable Living Trust, the instructions regarding the management of assets and properties can be altered at any time, so long as the Trustmaker is still legally competent. In addition, property can be removed or added to the trust per the Trustmaker’s wishes. These types of trusts are popular because they provide the Trustmaker with the maximum amount of flexibility.
Irrevocable Life Insurance Trust
An Irrevocable Life Insurance Trust is established for the benefit of someone other than the Trustmaker, usually the Trustmaker’s spouse or children. Unlike Revocable Living Trusts, Irrevocable Life Insurance Trusts cannot be revoked or amended once they have been established. This type of trust can be extremely beneficial, however, in that it removes life insurance death proceeds from your estate and thereby reduces the value of your estate for estate tax purposes (meaning you will pay fewer taxes). It also allows you to direct how the proceeds of your life insurance will be passed on to your beneficiaries.
Qualified Personal Residence Trust
A Qualified Personal Residence Trust is an irrevocable trust that allows the Trustmaker to reserve the right to continue living in his or her home even after it is transferred to the trust. Under this type of trust, you are entitled to use your home for a predetermined amount of time after which ownership of the residence will be transferred to your children. This will remove the property from your taxable estate and entitle the asset to a valuation discount while simultaneously reserving your right to inhabit the house.
A dynasty trust is a special type of trust designed for those who wish to pass their assets on to their grandchildren or other descendants without being heavily taxed. By leveraging the Generation Skipping Tax (GST) exemption, Dynasty Trusts allow individuals and couples to secure a certain amount of money in trust for the benefit of succeeding generations. The wealth in this trust will then pass from generation to generation and provide necessary funds for the beneficiaries’ health, support, and education. This protects and allows the beneficiary to maintain a certain lifestyle while avoiding taxes associated with a larger estate.
Minor's Demand Trust
A Minor’s Demand Trust is another option for parents or grandparents who wish to leave lifetime gifts for their descendants. This type of trust provides special tax exemption by allowing for annual monetary gifts that do not exceed the amount required to be eligible for the gift tax exemption. Minor’s Demand Trusts are flexible because the gifted funds are not limited to the beneficiary’s educational needs; instead, the Trustee can use the funds for any reason so long as it benefits the child.
A Common Trust is a good estate planning option for couples with more than one child. In a Common Trust, funds are preserved for children and disseminated on an “as-needed” basis. There are many different variations of Common Trusts, but the cornerstone of every Common Trust is to provide for all your children’s needs just as you would if you were still alive. Any number of detailed instructions can be provided to the Trustee within the Common Trust to address special considerations regarding the needs of each individual child.
Special Needs Trust
Estate planning laws recognize that in some families, a child may never be able to provide for himself due to a physical or mental disability. In these cases, a Special Needs Trust can be beneficial. A Special Needs Trust designates a Trustee who is responsible for providing for the financial and medical needs of the child per the written instructions left by the deceased parent. In a Special Needs Trust, you may also appoint a guardian who will see that the child’s emotional, religious, and social needs are met.
Tax-Sheltered Family Trust
A Tax-Sheltered Family Trust, sometimes referred to as a Credit Shelter Trust or Bypass Trust, is helpful for couples who wish to legally avoid or reduce estate taxes. In a Tax-Sheltered Family Trust, property is transferred to the trust at the time of the first spouse’s death, rather than directly to the surviving spouse where it would be taxable in that spouse’s estate.
Charitable Remainder Trust
A Charitable Remainder Trust (CRT) is a special type of irrevocable trust in which the assets donated are shared between the Trustmaker and the charitable beneficiaries. Typically, a CRT pays income to the Trustmaker for an extended period of time, or even for his or her entire life. Any remaining principal is then paid to the designated charities. CRTs allow individuals to benefit from the sale of property that that they may otherwise be penalized for in the form of capital gains taxes. Since the assets in a CRT are removed from your estate, you can also benefit from estate tax savings.
Charitable Lead Trust
In a Charitable Lead Trust (CLT), the recipients of income and assets are reversed. With a CLT, the designated charities receive the trust’s income, and the Trustmaker (or his or her beneficiaries) receive any remaining assets once the trust has been terminated. As with other types of Charitable Trusts, CLTs can also result in significant tax benefits.
Stand-Alone Retirement Trust
The Stand-Alone Retirement Trust is designed for those who want to have control over their wishes for tax-deferred accounts. This is a separate trust intended to protect assets that are passed on to one or more beneficiaries by enforcing exactly how and when the assets will be distributed. All distributions are paid into the trust, and then the trust can pay out directly to the beneficiary, accumulate assets in the trust for a certain period of time or pay out according to specific instructions, such as money earmarked for the beneficiary’s college education. Another benefit for leaving retirement accounts in trust is that the U.S. Supreme Court ruled that accounts left directly to a beneficiary, other than a spouse, don't have creditor protection.
This irrevocable trust is designed to help the grantor distribute family wealth while avoiding the gift tax. The gifting trust makes use of a special type of trust, such as a Crummey trust, to allow the grantor to give assets in excess of the annual gift tax exclusion. The trust offers withdrawal rights to the beneficiary for a limited time, which puts the gift in the “present interest” category, rather than the “future interest” category – and thus, is it not subject to gift taxes.
An offshore trust is a trust created outside of the legal jurisdiction of the United States. These offshore trusts are effective in protecting assets simply because the laws of the nations in which they are drafted provide better creditor protection that the protections provided in the U.S. Offshore Trusts do not require that the assets themselves be moved from U.S. soil, nor do they require that the Trustmaker relocate. As long as the ownership of the assets and the jurisdiction governing the trust reside in a trust-favorable nation, the Trustmaker receives full asset protection. These types of trusts can come with significant maintenance fees, but the peace of mind that comes with this planning option is often well worth the investment. An experienced trust lawyer with a firm grasp of estate planning laws can help you decide whether this means of asset protection is right for you.
Trusts & Pet Wills
When planning your estate, one of the main goals is to continue providing for your loved ones after your death. If you’re like the many Americans who consider their pets their loved ones, then you should be considering the long-term care of your pet in the event of your death or disability.
Pet Wills vs. Pet Trusts
There are many ways to provide care for your pet within your estate plan, but two of the most common are through pet wills and pet trusts. Although you can include a bequest for your pet within your will to provide for pet care after death, this may not be the best option.
Why? Because at the time of your death, your will (like all other wills) will go through probate. This can be a long and grueling process, one that your pet simply doesn’t have time for. Unlike your spouse or your adult children, pets don’t have the capacity to take care of themselves. They need immediate attention. During probate, your pet’s care and ownership can come into question. Since wills often leave pets vulnerable, many people are now turning to pet trusts to assist them in providing necessary funds, protection, and instructions for the care of their beloved pets.
Why You Need a Pet Trust
Unlike pet wills, pet trusts do not have to go through the probate process. Therefore, with a pet trust, your wishes regarding the care of your pet will be implemented immediately upon your death or disability. You and your attorney can work together to create a proper pet trust for pet care after death which includes specifics regarding the daily care, medical treatments, ownership, and even burial of your death.
Types of Pet Trusts
Common types of trusts for pet care after death include:
Statutory Pet Trusts
Traditional Legal Trusts
The Law Offices of Steven Peck can help you determine which type of pet trust is best for you and your individual circumstances as well as how much you should leave to provide adequate care for your beloved pet.