Some Missouri residents may hold the common misconception that estate planning is about death, when in many cases it is also about allowing a person to maintain control over his or her assets while living as well. A basic will may serve this purpose well enough for many people, but for others a trust can be invaluable.
A trust is a legal document that places a person’s assets in the care of a third party to be managed on behalf of a beneficiary. Trusts are often set up to leave assets for a child that will be managed by a financial institution until a certain age or even to give funds to a charity after death. The person who creates the trust is known as the settlor, while the third party, or trustee, is responsible for managing the assets owned by the trust on behalf of its named beneficiaries. The two major types of trust are a living trust, which takes effect during the lifetime of the settlor, and a testamentary trust, which is contained in the settlor’s will and only goes into effect after the death of the settlor.
While trusts are often considered a vehicle to minimize the effect of federal estate taxes, that aspect has become less important, as the increase in the federal exemption has resulted in the fact that very few estates will end up paying any tax at all. They remain important, though, for a variety of other reasons, including situations where a settlor does not want a beneficiary to receive an inheritance all at once, as would be the case with a will.
Another type of trust is a special needs trusts, which can be an effective way to provide care for a disabled child without jeopardizing his or her eligibility for federal assistance. An estate planning attorney will take into account a client’s goals and circumstances when considering the use of a trust as part of a comprehensive estate plan.