A family trust is a valuable tool to ensure that your beneficiaries receive their inheritance soon after your passing and under the specific stipulations that you set. However, there is a common misconception that trusts are limited to the ultra-wealthy, or even just the moderately wealthy, and this is simply not true. The truth is that many people are perfectly qualified and would benefit from setting up a trust, including members of the middle class.
Upon your death, your trust is managed by an appointed third party, which helps mitigate the chance for the assets to be mishandled upon your passing, as sometimes occurs with wills. Additionally, using a trust instead of a will grants privacy as the records of a last will and testament get filed into public records, but trusts are distributed privately, preventing any unincluded party from knowing what and how much was distributed to whom. However, the benefits and reasons to set up a trust are not limited to only after you pass. Utilizing irrevocable trusts can protect your assets from creditors, even when you are alive, because the trust becomes the legal owner of the assets once an irrevocable trust is signed. Simply put, an irrevocable trust is an independent entity in the eyes of the law.
There is a commonly held idea that the best time to create an estate plan is before anything happens, and this is the same idea for a trust. As soon as you have assets in your name that creditors could come after, it would be wise to start planning a trust, beginning with a revocable living trust. This way, you can make changes as you go through life, including changing who you name as your beneficiaries. Trusts can be helpful for new parents because they can start amassing generational wealth for their children as they acquire assets.
Be careful though, because only living irrevocable trusts can help protect assets from creditors seeking repayment. This means if you have an outstanding debt and can only secure an FHA loan to buy a house, you would not be able to simply place the home into a trust and have it be protected from your existing debt or the lender. Although you are usually able to place the home into a living revocable trust, even with an outstanding mortgage.
By setting up a revocable living trust as early as possible, you will make it significantly easier to change it to an irrevocable trust as you get closer to your retirement age. In this situation, since you are legally no longer the owner of the assets, you could likely qualify for Medicaid without exhausting your assets. Many people choose to utilize trusts for this purpose alone. None of this is to say that it is ever too late to start a trust either because it will give you the same benefits at any age and can benefit your heirs for years to come.
The best thing you can do for your beneficiaries is to consider opting for a trust over a standard estate plan and will, if you qualify to create one. The best time to start setting up a family trust is ten years ago, but the second-best time is today. To begin planning for your trust, contact us here or call us at (281) 885-8826.