When it comes to establishing your estate plan, you have a lot of ways to protect your assets and ensure they fall into the right hands after you’ve passed. One of these is establishing a trust. A trust is an essential tool that allows you and your beneficiaries to benefit from asset protection, tax savings, avoiding probate, and more. But one question we often hear from potential clients is “Do I need a trust?”
If you own significant assets, such as real estate or investments, or have concerns about how your assets will be distributed after your death, a trust may be a wise choice. Trusts can also provide protection for beneficiaries with special needs or those who require financial guidance. By establishing a trust, you can ensure that your wishes are carried out and your assets are protected for generations to come.
If you’re considering setting up a trust or have questions about whether a trust is right for you, the experienced estate planning professionals at The Law Office of Raymond E. Brown are here to help. Contact an Annapolis trust attorney on our team to discuss your options and help determine whether or not a trust is right for you.
Call our law office at (443) 554-9944 or reach out online to schedule a meeting today.
What is a Trust?
A trust is an estate planning tool that allows one party (the grantor) to transfer assets to another party (the trustee), who will then manage them for the benefit of a third party (the beneficiary). These trusts tend to contain assets that the grantor wants to ensure are reserved for the beneficiary or beneficiaries named on the trust.
The trustee is responsible for managing the assets according to the terms of the trust, which can be tailored to achieve specific goals, such as avoiding probate, minimizing taxes, or providing for loved ones with special needs. Trusts can be revocable or irrevocable, and they offer a range of benefits and flexibility in estate planning.
Trusts typically include personal property like life insurance policies, real estate properties, bank accounts, retirement accounts, business interests, and more. Normally, once the grantor passes away, the trustee distributes the assets in accordance with the trust guidelines.
Difference Between Will and Trust
A will and a trust are both estate planning tools, but they serve different purposes. Your last will and testament is a legal document that outlines how you want your assets distributed after death, but it must go through the probate process, which is often pretty lengthy and expensive.
A trust, on the other hand, is a legal arrangement that allows you to transfer your assets into a secure trust, where they are managed for the benefit of your beneficiaries and distributed according to your wishes. Another key difference is that a will is a public record, while trusts are typically private. Not only that, but trusts avoid probate, which means you can preserve your assets for your heirs without the hassle of probate court.
Advantages of a Trust
There are a number of benefits that come with developing a trust. First and foremost, trusts allow you to protect assets from going through probate court, which can save time and money for your beneficiaries. Trusts also provide privacy, as the terms and assets are not publicly disclosed like a will.
Additionally, trusts can minimize estate taxes and provide tax benefits, and they can be used to manage and distribute assets to beneficiaries with special needs or who are minors. Trusts can also provide asset protection from creditors and lawsuits, and they can be used to create a legacy for future generations.
Furthermore, trusts can be used to avoid guardianship and conservatorship, and they can be used to manage assets if you become incapacitated. Overall, trusts offer flexibility and control in estate planning, making them a valuable tool for many individuals.
How Does a Trust Work?
The grantor (person creating the trust) starts by drafting a trust agreement, which outlines the terms and conditions of the trust. When they create their trust, they must properly fund it. Trust funding simply means transferring assets (such as real estate, property, bank accounts, etc.) into the trust document so that it legally owns them.
The grantor will then name a trustee, which is someone who will manage and eventually distribute the assets to their designated beneficiary/beneficiaries as outlined in the agreement. Once a certain condition is met or a triggering event occurs, the beneficiary will then receive the benefits of the trust.
Common Types of Trusts
There are various types of trusts that can be used in estate planning, each serving a specific purpose and offering unique benefits. Below are some of the different types of trusts that we can help Maryland residents establish for themselves and their families.
Revocable Living Trust
A revocable living trust is a trust that can be modified or dissolved by the grantor during their lifetime, allowing for increased flexibility and control over assets. Normally, a revocable trust is established in order to avoid probate and ensure assets are managed properly in case the grantor becomes incapacitated.
Irrevocable Trust
An irrevocable trust is a trust that cannot be changed or dissolved by the grantor once it’s created. Irrevocable trusts often offer tax benefits and asset protection, but they require careful consideration due to their permanence.
Charitable Trust
A charitable trust is a trust that benefits a charitable organization or purpose, providing tax benefits to the grantor while also allowing them to support a certain cause or charity, even after they’ve passed. In some situations, beneficiaries may be able to earn income from the assets within the trust.
Life Insurance Trust
A life insurance trust is a trust that owns and manages a person’s life insurance policy, ensuring that the proceeds are given to the named beneficiaries while also helping them avoid estate taxes.
Testamentary Trust
A testamentary trust is a trust created through a will, meaning they are often established after the grantor’s death and in accordance with their will. These trusts are used to manage and distribute assets to beneficiaries, such as minor children or those with special needs, and are often revocable.
Special Needs Trust
A special needs trust is a trust designed to provide financial support and care for individuals with disabilities or special needs without disqualifying them from receiving government benefits, such as Medicaid or Supplemental Security Income (SSI).
Spendthrift Trust
A spendthrift trust protects assets from creditors by limiting access to trust funds. It also prevents fiscally irresponsible beneficiaries from assigning their interests to others. This trust is often used to support beneficiaries who require financial guidance or asset protection.
Generation-Skipping Trust
A generation-skipping trust is a trust that transfers assets to beneficiaries at least two generations below the grantor, such as grandchildren or great-grandchildren, avoiding estate taxes and preserving wealth for future generations. This trust is often used to ensure long-term family wealth transfer.
Credit Shelter Trust
A credit shelter trust, also known as a bypass trust, is a trust that maximizes the federal estate tax exemption for married couples, sheltering assets from estate taxes and ensuring that the surviving spouse has access to trust funds while minimizing tax liabilities.
Qualified Personal Residence Trust
A qualified personal residence trust, or QPRT trust for short, is a specialized trust used in estate planning to transfer a person’s primary residence or vacation home to beneficiaries while minimizing gift and estate taxes. By placing the property in a QPRT, the grantor can continue to use the property for a specified term, after which the property passes to the beneficiaries, potentially reducing the amount of estate taxes owed on that property.
Qualified Terminable Interest Property Trust
A qualified terminable interest property trust, aka QTIP trust, is a trust that provides income to a spouse or other beneficiary for a specified period and then distributes the remaining assets to other beneficiaries. This trust is commonly used in second marriages to provide for a spouse while also ensuring assets pass to children from a previous marriage.
Who Needs a Trust?
Anyone who wants to maintain control over their assets, avoid probate, and ensure their wishes are carried out after death or incapacitation can benefit from a trust. This includes those with significant assets, business owners, those with minor children or special needs beneficiaries, and those who want to minimize their estate tax liability.
Anyone who wants to provide for their children, support charitable causes, or manage inheritance for beneficiaries may also consider establishing a trust.
How Much Does it Cost to Set Up a Trust?
On average, the cost of setting up a trust can range anywhere from $1,500 to $5,000 or more. The cost of setting up a trust can vary widely depending on the complexity of the trust, the location, and the attorney’s fees. Often this cost does not include the cost of funding the trust, nor does it include any additional costs associated with trust administration and management. Our Firm quotes one price that covers the Trust, the funding and all of the ancillary documents so there are no surprises and additional documents needed later in life.
How Much Does a Trust Cost to Maintain?
Zero if you are the grantors–the ones who created the Trust. For follow-on trustees, the annual maintenance costs of a trust are usually equal to 0.5% to 2% of the total trust assets, but the cost of maintaining a trust can vary depending on the trust’s size, complexity, and administrative needs. These fees are generally for covering tasks such as tax preparation, accounting, and investment management.
How To Set Up a Trust in Maryland
To set up a trust in Maryland, you’ll need to consult with an attorney who specializes in estate planning and trust law. They’ll help you determine the type of trust that best suits your needs and draft the trust agreement, which will include the trust’s terms, beneficiaries, and assets.
You’ll then sign the agreement and transfer property and assets to the trust, which may require updating deeds, titles, and other legal documents. Finally, you’ll need to fund the trust by transferring assets into it, and the trust will become a legal entity.
How a Maryland Estate Planning Attorney Can Help
An experienced Maryland estate planning attorney, like those at The Law Office of Raymond E. Brown, can help you set up a trust by guiding you through the process, drafting the trust agreement, and ensuring that it complies with Maryland state laws. They can also help you maximize your estate tax exemption.
Additionally, an estate planning attorney will be able to walk you through all aspects of the estate planning process and can help with future estate or trust planning matters, including trust modification.
Call Our Annapolis Attorneys at The Law Office of Raymond E. Brown For All Your Estate Planning Needs
At The Law Office of Raymond E. Brown, we are dedicated to helping individuals and families in Annapolis and throughout Anne Arundel County achieve their estate planning goals. Whether you need guidance on setting up a trust, drafting a will, or navigating the probate process, we are here to provide personalized and compassionate legal counsel.
Attorney Raymond Brown and his legal team ensure that every client receives the legal support they need to create an estate plan that is unique to them, their family, and their circumstances. We understand the importance of effective estate planning and are committed to helping you protect your assets, provide for your loved ones, and ensure your wishes are respected.
Give us a call at (443) 554-9944 or contact us online to schedule a consultation today!
