Do I Need A Trust?
Revocable Trusts, Irrevocable Trusts, and Wispact Special Needs Trusts
Trusts are a fundamental aspect of estate planning. They ensure your assets are protected and distributed to your desired beneficiaries. There are many different types of trusts, so it can be difficult to determine what kind of trust you need, or if you even need one at all. This blog post will give you an overview of the most common types of trusts as well as the benefits and drawbacks of each type.
A trust involves three parties:
The grantor is the person who creates the trust.
The trustee is the person who agrees to manage the trust per its conditions. If there is more than one trustee, they are called co-trustees. You can appoint yourself, your spouse, or any competent adult to be trustee.
The beneficiary is the person(s) who will receive any assets specifically listed in the trust. Beneficiaries can be loved ones, friends, charities, or even pets!
The three most common types of trusts are: revocable living trusts, irrevocable trusts, and special needs trusts.
Revocable trusts are also known as living trusts. These trusts are easily modified as your personal circumstances and wishes change.
Benefits of a revocable trust:
Any assets that are in a revocable trust are not subject to a probate administration. This allows for quicker and more efficient distribution of assets to beneficiaries of your trust.
Revocable trusts allow the contents of your assets and beneficiary designations to remain private to you.
You can include special instructions regarding your wishes for how you want your pets to be cared for.
If you do not want a beneficiary receiving their monies all at once, a revocable trust can include specific directives for the distribution of funds over a long period of time.
Drawbacks of a revocable trust:
Revocable trusts do not save any taxes; all income and property in the trust is considered part of your estate and therefore taxable in the grantor’s estate.
If you are applying for means-tested public benefits, assets in a revocable trust may affect your eligibility.
Irrevocable trusts cannot be modified or terminated once they are created. Once an asset is placed into an irrevocable trust, it cannot be accessed by the grantor.
Benefits of an irrevocable trust:
Assets in an irrevocable trust are not considered part of your estate, so they are not generally considered part of the grantor’s estate.
Assets in irrevocable trusts are also protected from creditors or legal judgements as they are considered owned by the trust rather than the grantor.
Assets in an irrevocable trust are not counted towards your eligibility to qualify for public benefits, so it is a way to avoid the need to “spend down” assets. However, to fund an irrevocable trust with assets without consideration can cause issues with public benefits.
Drawbacks of an Irrevocable Trust:
Once created, the grantor loses control over any assets in an irrevocable trust.
Generally, the terms of an irrevocable trust cannot be changed regardless of any unforeseen circumstances that may arise.
Assets in an irrevocable trust do not receive a step-up in tax basis when the grantor dies.
WISPACT SPECIAL NEEDS TRUSTS
Wispact, Inc. is a non-profit organization that sponsors Wispact trust accounts to help disabled individuals. This type of trust is unique to Wisconsin and protects the assets of a disabled individual without affecting their eligibility for means-tested public benefits, such as Medical Assistance (Title 19) and SSI.
Benefits of a Wispact Special Needs Trust:
An individual seeking public benefits does not have to immediately “spend down” or liquidate all their assets. Instead, the beneficiary’s assets and their value can be preserved in a Wispact account.
The Wispact account is professionally managed with the beneficiary’s best interests in mind.
The beneficiary of a Special Needs trust can be any age so long as they are determined disabled by the Social Security Administration.
An agent on behalf of the beneficiary can create a Wispact account with the help of a Wisconsin attorney.
Drawbacks of a Wispact Special Needs Trust:
The special needs trust must be an irrevocable trust; the funds cannot be returned to the beneficiary or their loved ones once placed in the trust.
There are restrictions to what the Wispact account can pay for depending on the type of means-tested benefits the beneficiary receives; Wispact funds can only be spent directly on a beneficiary; it cannot be used to purchase gifts for others.
Do I need a trust?
Each estate is unique and should be treated as such. Experienced estate planning attorneys, such as the ones at Malm & LaFave, S.C., can help you determine which type of trust is right for your needs. Though trusts ensure your assets are protected, it is still extremely beneficial to have other estate planning documents to be certain all your wishes are respected. If you are looking to begin the estate planning process, draft a trust, update your will, or simply looking for more information, contact our office today. We are ready and willing to help you!